‘Someone needs to be held to account’: Shareholders make history at this year’s AGM season

After Woolworths chairman Scott Perkins revealed at the company’s annual general meeting more than a quarter of shareholders had voted against rewarding executives with their safety bonuses following the deaths of two staff members in the past year, a nervous Jo Wright stood up to ask a question.

With her simple probe, she epitomised the disparity between working-class and corporate Australia.

While Wright, a staff member on the supermarket floor, and her colleagues were pushing for a $4 hourly increase to their base rates, the Woolworths board wanted to reward senior executives with a portion of their safety bonus to their seven-figure salaries.

“My base rate pays $25.12 an hour and my team bonus last year was a packet of Cadbury Favourites,” Wright, also a shareholder, began.

“I’m not a member of any union, but I do support a $29 base rate pay. In our store, we have several team members who are working three jobs to make a living wage … Is it time for merit-based remuneration existing alongside the current grade system using the criteria that applies to executive team pay increases?”

Woolworths chief executive Brad Banducci told Wright they had tried to focus on an “equal pay for the equal role” instead of taking into account how long someone had been working at the supermarket.

“I think we can debate the merit of that approach, but that’s the approach we’ve taken,” Banducci said.

“I would like to hope that you are using your Everyday Rewards card with the extra component to get a lot of extra benefits.”

Aghast at senior management being awarded any of their safety bonuses with the deaths of two workers looming over their heads, more than 28 per cent of proxy holders on October 26 shot down Woolworths’ report on executive pay.

It was the first time investors had delivered a first strike against the supermarket giant’s remuneration report, but Woolworths shareholders weren’t the only ones feeling discontent with their boards during the 2023 AGM season.

Australian investors have made history this year, issuing a strike against the remuneration reports of 32 companies, the highest ever backlash against the ASX300.

They didn’t believe the performance of the companies they had invested in justified the exorbitant wages and bonuses of executives.

However, Australian Shareholders’ Association policy and advocacy manager Fiona Balzer is not surprised by the widespread anger and frustration at company boards, particularly in the face of rising inflation, stagnating wages and soaring interest rates.

“Investors have got that scarcity mindset in that everybody feels like the cost of living is coming at them… and when you start feeling less wealthy you worry about where your money is,” Balzer says.

“We have also seen a loss of trust in institutions over time. We saw the PWC breach, [the issues at] Qantas where during the bad years the executives didn’t get a bonus but during good years they got twice as much. And I think in some way, these behaviours are crystallising in people’s minds that someone needs to be held to account.”

‘Events, dear boy, events’

In the fallout of the global financial crisis, the Rudd government tasked the Productivity Commission with reviewing executive remuneration. One of the most contentious recommendations, which came into effect in July 2011, was the two-strikes policy designed to hold directors accountable for executive salaries and bonuses.

Under the two-strikes rule, when more than 25 per cent of shareholders vote against two consecutive annual remuneration reports, a vote on a board spill is triggered that could result in the company’s entire board of directors facing re-election.

Critics have long argued the rule gives shareholders too much power over the remuneration structure of listed companies, but the architect of the scheme, Professor Allan Fels, believes boards are merely reminded they are, in fact, accountable to their investors.

The former Australian Competition and Consumer Commission chairman says this year’s “unusually high” first-strike votes were not indicative of a trend, but demonstrative of major corporate scandals that Australians have been growing tired of.

“This AGM season I am reminded of the famous quote by former British prime minister Harold McMillan,” Fels says. “When he was asked what drives politics, he said, ‘Events, dear boy, events.’ The high recourse to challenge this year is partly driven by a high number of events rather than an underlying trend.”

But Fels, like many other corporate governance experts this masthead has spoken to, contends there is a cultural shift under way that corporate Australia needs to heed.

Australians are increasingly concerned about the ramifications of climate change and prepared to vote against listed companies not taking enough action to mitigate the risks. But they are also concerned about corporate Australia acting ethically.

Fels believes the high shareholder dissatisfaction is because the two-strikes rule makes it worthwhile for shareholders to challenge board decisions, and that increased public exposure of corporate wrongdoing has spurred on investors to use that power.

“Corporate Australia needs much more convincing defences than in the past for their more controversial actions,” he says. “And that political scrutiny [of corporate scandals] has added to a changed climate of opinion and magnified the state of feeling.”

Take Qantas for example.

Former chief executive Alan Joyce delivered a $2.47 billion underlying profit for 2023, but shareholders were livid following a string of controversies and subsequent damage to their airline’s reputation. An ACCC court action, and politicians heaping pressure on Qantas, fanned the flames: almost 83 per cent of shareholders voted against the company’s remuneration on August 23.

At Woolworths and mining company Perenti, shareholders were concerned board directors wanted to award bonuses to executives following the deaths of employees – 33.29 per cent of investors voted against Perenti’s remuneration report because of apparent failures to tackle safety issues.

Fortescue’s shareholders revolted against the board’s decision to award millions of dollars in ad hoc bonuses to retiring executives, while 73.68 per cent of proxies at Lovisa’s annual meeting were against the pay report, which showed its chief executive Victor Herrero’s salary was $30 million.

“There has been a cultural shift on remuneration in recent years, a move away from a culture of entitlement and executives expecting large bonuses,” says Ed John, the executive manager of stewardship at the Australian Council of Superannuation Investors.

“Investors are concerned that boards have moved the goalposts: companies are missing performance targets, but executives are still getting bonuses.”

Research by investment and advisory firm Jarden into the 2023 AGM season pointed to the same thing: a 50 per cent rise in shareholders issuing strikes against remuneration reports compared with last year, and greater shareholder activism against board directors.

But, perhaps surprisingly, while climate was a key focus of last year’s shareholder activism, this year’s centred on poor performance, bonuses and employee safety. One explanation for that, according to Jarden, is shareholders’ belief that they have, over the years, managed to successfully push companies to adopt better climate change policies.

The firm identified 24 deaths over the past 18 months, and head of ESG research Michaela Jamison believes investor concern of employee safety will remain.

“One of the key reasons for some of those fatalities is because of labour market shortages, particularly in skilled and semi-skilled labour, and high turnover, and we don’t think it’s going to ease any time soon, particularly in the mining sector,” Jamison says.

“Safety is an area where some companies have slipped a bit; as we have seen injury trends rise along with more fatalities, some of that has been out of their control with higher staff turnover and use of contractors, but I think investors are really wanting to make sure companies are controlling what they can, putting the right safeguards in place, and also that they are dealing with the remuneration side appropriately.”

But as the Australian Securities and Investments Commission vows to crack down on greenwashing in 2024, and as 2023 shapes up to be the hottest year on record, investment advisory firm JANA believes climate change will – and should – continue to be the fight of next year.

“Investors are becoming more and more sophisticated in their expectations of companies, particularly in relation to issues of systemic risk like climate change and biodiversity loss, and are dedicating increasing resources to upskilling and/or acquiring the knowledge required to really test the narratives provided by companies in corporate reports,” head of sustainability Rachel Halpern said.

A Woolworths spokesman said its annual general meeting provided shareholders the opportunity to have their say about the direction of the company and engage with directors.

Qantas chairman Richard Goyder told shareholders at the meeting that the company had heard the “strong” message the vote sent and that it galvanised their efforts to restore investor confidence.

Fortescue board director Penny Bingham-Hall told investors they acknowledged the feedback. Perenti and Lovisa were contacted for comment.

‘Moral blindness’

Corporate Australia has no choice but to heed the alarm bells of not just the 2023 AGM season, but Australians’ disdain for lack of accountability more broadly.

Ed John is hopeful things will turn around next year and shareholders will see vast improvements, and says boards generally make changes to address issues, but a company’s response to investor discontent is paramount.

The PwC tax scandal, the data breaches at Medibank and Optus (and subsequent network outage at the telecommunications giant), Harvey Norman’s JobKeeper scandal, Rio Tinto’s destruction of the Juukan Gorge, and Qantas’ behaviour have all accelerated distrust.

A Roy Morgan survey, published in late August, showed Australians had never been more distrusting of corporate Australia since the polling company started measuring trust in late 2019.

“Moral blindness” is how Roy Morgan chief executive Michele Levine described what was under way. The survey showed the community distrusted corporate leaders, but the AGM season showed shareholders were also tiring of them.

Former ACCC chairman Graeme Samuel argues last year’s federal election results and the outrage at Robodebt should also send a clear message to organisations that Australians care about integrity and want people – whether they are politicians or public servants – and corporations held accountable for their actions.

“There’s a lot of people out there saying, ‘We’ve got to do more,’ ” Samuel says. “Corporate Australia has got to build back trust and it won’t build trust purely by producing monumental profits and rewarding CEOs with monumental salaries.”

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