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The crisis at Qantas is set to hang over the upcoming flood of annual shareholder meetings, as investors look to dial up the pressure on companies to meet their social and environmental goals while churning out big profits.<\/p>\n
October kicks off the Australian annual general meeting season, when shareholders get a chance to question the boards of our largest listed companies, and vote on director appointments and executive pay packets.<\/p>\n
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Qantas will hold what is set to be a fiery AGM in early November.<\/span>Credit: <\/span>Bloomberg<\/cite><\/p>\n Debates about how companies trade off different interests \u2013 such as meeting the needs of customers, staff, the environment, and shareholders \u2013 are never far from the surface at general meetings. But this year, the rolling reputation crisis at Qantas \u2013 and the demand for accountability from its board of directors \u2013 is likely to bring corporate accountability to the fore.<\/p>\n Governance experts and investors say the turbulence around Qantas also underlines the importance of \u201csocial licence\u201d \u2013 the idea that companies operate with an informal agreement with the wider public that their activities are acceptable.<\/p>\n Australian Eagle Asset Management\u2019s chief investment officer, Sean Sequeira, said social licence had been a focus for all companies for some time but that concerted scrutiny of Qantas\u2019 board had again brought the issue into the limelight.<\/p>\n \u201cQantas\u2019 social licence will be a focus because of all the news stories and because the company is going through a challenge with it now,\u201d Sequeira said. \u201cBut the focus will absolutely extend across all companies.\u201d<\/p>\n Events such as the royal commission into financial services have been instrumental in bringing corporate responsibility into focus, and Sequeira said social licence has firmed up as an important benchmark by investors after Rio Tinto\u2019s Juukan Gorge disaster in 2020.<\/p>\n He warned that turning around customer and investor perceptions often required more than merely a promise to do better or cosmetic remediation measures. \u201cIt can be very difficult to turn around consumer perception of a company after it goes through a very bad period,\u201d Sequeira said. \u201cSocial licence should always be a focus for all companies.\u201d<\/p>\n Qantas will hold what is set to be a fiery AGM on November 3, and there have been calls from critics in Canberra and unions for accountability, including pressure for the resignation of chairman Richard Goyder.<\/p>\n However, Goyder has dug in, telling a recent inquiry he had the support of most of the airline\u2019s biggest shareholders.<\/p>\n Even outside Qantas, governance experts say some of the top issues at this year\u2019s AGMs will go beyond traditional financial metrics such as profits and dividends \u2013 though of course these will be keenly watched by investors as well.<\/p>\n The Australian Council of Superannuation Investors\u2019 executive manager of governance and engagement, Ed John, said remuneration reports would be a major focus during the upcoming AGM season given the tough year some companies faced, along with board diversity. The council is an influential adviser to big super funds on governance issues.<\/p>\n \u201cThe key issue this year is whether the CEO pay matches company performance,\u201d he said. \u201cWe\u2019re also concerned with companies with really low levels of gender diversity. We\u2019re spending a lot of time engaging with boards that are falling behind, but for those who aren\u2019t improving and falling short, we\u2019ll be recommending to vote against.\u201d<\/p>\n While the principle of social licence will be in focus, John said the pandemic had changed the way many companies thought about their role in the wider community.<\/p>\n \u201cI think when they were faced with pressure, challenges in the community, and impact on staff, customers and supply chains during the pandemic, companies had a rethink of how they managed and worked through those issues,\u201d he said. \u201cThe key idea is that the long-term success of an organisation is built on having strong support from all stakeholders. I think increasingly, boards recognise that value, and certainly when it is challenged, it\u2019s a huge concern.\u201d<\/p>\n In a pre-annual meeting letter sent recently, $76 billion super fund HESTA said its top priorities were climate change, gender equality, decent work, and natural capital and biodiversity loss.<\/p>\n HESTA\u2019s general manager of responsible investment, Kim Farrant, said while each of these themes had been in focus for some years, there was further focus this year on decent work including workplace safety, fair pay, and employment security and certainty, sparked by the federal government\u2019s national wellbeing framework.<\/p>\n Climate remains a serious issue with the public and investors. <\/span>Credit: <\/span>Brook Mitchell<\/cite><\/p>\n Farrant said while social licence and board accountability were always issues to consider, Qantas was most significantly affected this year, and that HESTA had met and spoken with Qantas\u2019 management and board ahead of AGM season.<\/p>\n \u201cQantas is one of those companies where there has been a broad range of issues,\u201d she said. \u201cIt\u2019s an ongoing process and Qantas\u2019 board needs to consider all actions available to them to restore customer trust and regain confidence of all stakeholders, balancing the interests of customers with broader stakeholders.\u201d<\/p>\n Australian Shareholders Association chief executive Rachel Waterhouse said the focus at many of this year\u2019s AGMs would be remuneration reports, ESG strategies, how companies were looking to operate amid cost of living and inflation pressures, and fair treatment of shareholders.<\/p>\n While Waterhouse said there had been an understanding for some time that social licence contributed to profits, she said it was becoming more important for shareholders.<\/p>\n Rachel Waterhouse, CEO of Australian Shareholders Association.<\/span><\/p>\n Others point out that good governance and profits are inextricably linked, as demonstrated by the big hit to profits taken by past scandal-plagued industries such as banking and casinos. Qantas shares, meanwhile, have dropped 26 per cent since June this year.<\/p>\n Vas Kolesnikoff, the head of Australia and New Zealand research at proxy adviser ISS, says when governance is not up to scratch, it becomes a financial issue for shareholders.<\/p>\n \u201cSince when did treating customers well become a separate thing to making money? Businesses cannot survive without customers,\u201d he said.<\/p>\n While much of the focus at Qantas has been on Goyder, he will not face re-election because he was re-elected in 2022 on a three-year term. However, Qantas board members not up for re-election this year have been feeling the heat through other companies, with calls from ISS to vote against the re-election of Maxine Brenner\u2019s at Telstra\u2019s upcoming AGM because of \u201cmaterial failures\u201d in her oversight at Qantas.<\/p>\n Some influential groups want to see more frequent board elections in general.<\/p>\n Boards need to feel the same highs and the same pain as shareholders<\/p>\n John, not speaking about Qantas specifically, also said the Australian Council of Superannuation Investors was supportive of companies adopting annual elections for appointing directors, which is standard practice in the US and UK markets. \u201cThere are companies like BHP and Rio Tinto that already have them, and we see it as a better practice standard,\u201d he said.<\/p>\n \u201cBoards with annual elections often reflect that they probably improve their internal discussions about succession, performance and renewal. It also means that if there are contentious issues from a shareholder perspective, the votes will be directed to the right directors as opposed to whoever\u2019s on the AGM ballot that particular year.\u201d<\/p>\n However, Waterhouse of the Australian Shareholders Association said annual elections would require more administrative work and that it was important to have consistency on a board level.<\/p>\n \u201cEven when they\u2019re not performing, ensuring a mix including those that have experience on the board is important,\u201d she said, adding that shareholders could also ensure accountability through other tools.<\/p>\n Waterhouse said workloads needed to be managed through ensuring directors did not serve on more than five boards at a time, and that the association would make sure boards had skin in the game. \u201cBoards need to feel the same highs and the same pain as shareholders,\u201d she said.<\/p>\n Sequeira said he would also be looking at company\u2019s outlook statements in the upcoming AGM season as an indication of the impact of higher interest rates on their earnings. \u201cWe\u2019ll see which companies haven\u2019t managed their interest rate books, on top of the impact of a weakening customer base,\u201d he said.<\/p>\n The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion.<\/i><\/b> Sign up to get it every weekday morning<\/i><\/b>.<\/i><\/b><\/p>\n<\/p>\n
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