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Select Committee on Financial Technology and Regulatory Technology
10/08/2020

BALZER, Ms Fiona, Policy and Advocacy Manager, Australian Shareholders' Association

Evidence was taken via teleconference—

Committee met at 13:00

CHAIR ( Senator Bragg ): I declare open this public hearing of the Senate Select Committee on Financial Technology and Regulatory Technology. This is a public hearing, and a Hansard transcript of the proceedings is being made. We also stream the audio of the hearing live via the internet. I welcome everyone here today. Information on procedural rules governing public hearings and claims of public interest immunity has been provided to the witnesses. I welcome Ms Fiona Balzer of the Australian Shareholders' Association. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you as part of your invitation to appear. I invite you to make an opening statement, if you have one.

Ms Balzer : Thank you. ASA is a 60-year-old independent not-for-profit organisation funded by members that represents individual and retail shareholders to promote and safeguard their interests in the Australian equity capital markets. We appreciate the opportunity to discuss our experience of the COVID-19 AGM. Since March we have been supporting ASA representatives attending online AGMs so that they are able to vote and ask questions of directors and represent the shareholders who've given the ASA their property. More than 100 representatives collectively attend around 300 AGMs each year and since March have attended more than 50 online AGMs. We provide feedback to companies and share registries about our experiences, with the ultimate aim of getting to an online AGM that feels as close as possible to a physical AGM.

Some meetings have been positive. For example, Santos had a two-hour meeting where a range of questions from different viewpoints were asked and answered. Other meetings have been short, with no engagement. We've been conscious that, unlike a physical meeting where attendees can see people queuing at the microphone, there is no flagging of unasked questions, so we are left wondering whether there were no questions or whether questions were ignored. We're also conscious that there have been no meetings yet with issues like those aired at the big banks' AGMs held in December 2018 after the financial services royal commission. We doubt that the current format of online AGMs will be as effective in holding directors to account.

From our experience we're also aware that shareholders might struggle with their first experience of an online AGM and to that end have prepared a guide for shareholders to help them with their experience. I'd also like to note that in relation to electronic communications we encourage shareholders to be mindful of the delivery constraints of Australia Post. ASA supports communications by email being the default communication method, with shareholders being able to receive particular documents in hard copy. We would be extremely concerned if this were the only method of communication. No investor should be excluded from being able to buy and sell securities or receive company communications because they don't have an email address. We have already heard from members complaining about disenfranchisement due to their rural location, disability or technology setup. Thank you.

CHAIR: Thank you very much for that. I'm not going to offer the call to the deputy chair.

Senator MARIELLE SMITH: Thanks for taking the time to appear before us today. I'm just interested: was your association consulted by the government on these changes prior to them being made?

Ms Balzer : To some degree, though limited—not the extension. We weren't consulted with regard to the extension, but we have been very vocal about our concerns and trying to get the best outcome possible.

Senator MARIELLE SMITH: You referred to receiving emails from your members who felt disenfranchised by these changes. Would you be able to expand on who loses out from these sorts of arrangements and the kinds of cases that you've been hearing from members?

Ms Balzer : Early in the piece, when Australia Post advised that there were going to be delays in delivering documents with the capital raisings that were going on, we were quite aware that members who were reliant on post may miss out on participating in those capital raisings. We had one gentleman from Parkville, New South Wales, who basically said that the internet was slower than the Australia Post delivery. He felt that he was unable to switch to electronic communications because he has intermittent internet. I didn't feel able to ask whether or not he's capable of upgrading his technology. Another member has difficulty typing due to the pain in her hands—she's comfortable writing—and therefore doesn't participate in life through email or electronic communications but is quite comfortable with writing or phoning people. She phoned us with that complaint, when Telstra advised that the AGM notices would only be delivered electronically. We put her onto the registry, and I believe that they have worked out how to get her the physical documents. Other members just really don't like email and have been complaining through the period, mostly by phone rather than by email, because they don't like email!

Senator MARIELLE SMITH: Is it your view that your members are concerned about these changes being extended? What's the view of your members and what's the view of your association on a possible extension to these changes beyond November?

Ms Balzer : Everybody is aware that, in this time, Australia Post will have difficulties delivering up to Christmas, and we are all prepared to muck in together for a temporary variation, that is, to have online AGMs up until early in 2021 and delivery by electronic communications until that time, but with a workaround for those people who can't participate, that is, notices of meeting being sent by post where people are unable to switch even for a short time. Does that answer your question?

Senator MARIELLE SMITH: It does. I appreciate what you're saying about being flexible, given what's going on at Australia Post, but, if these changes were to be extended beyond the end of the year and become more of a permanent arrangement, what safeguards do you think should be in place to ensure that members like those you've referred to—members with disability, members in regional areas, the elderly—are able to still participate appropriately in these forums?

Ms Balzer : In terms of the electronic communications, members do need to be able to receive their documents by post. With respect to the online meetings, I don't think we have yet found a means of dealing with companies that are going through difficult times. With the types of meetings that used to take six hours, for example, I don't think an online forum can actually substitute for those physical meetings. So if there was any question of them becoming permanent, rather than specifically a temporary pandemic arrangement, we would have to find a way to ensure that the questions and answers were published after the meeting so that people were aware of what questions had been avoided. I think that any company with a serious issue would have to look at having a special meeting to address that issue—and perhaps even having some sort of safeguard where shareholders could stipulate that an issue hadn't been addressed by the company and that it would have to hold a physical meeting.

Senator MARIELLE SMITH: Do you have an arrangement whereby a physical meeting is required but there is an option for dial-in or virtual participation would be appropriate middle ground? Or are there other concerns that you have in terms of appropriate safeguards?

Ms Balzer : The ASA has long supported hybrid meetings—a physical meeting with an online meeting—because those people who are disenfranchised from attending due to, say, their rural location, mobility issues or illness can attend from home while there are also people attending via physical presence. We are quite supportive of hybrid meetings being the way forward to encourage greater engagement overall, but we also note that goodwill is required on the part of the company as well as the part of the shareholders to make those meetings work.

For our meetings, for example: the ASA AGMs for the last three years were held as hybrid meetings. We would ask three members to submit a question. We wouldn't tell them what the question would be, but we found that having three people ask questions warmed up the meeting, and it became a meeting of engagement rather than a process to be dealt with as soon as possible, to be ruled off in 20 minutes and decided that it's a win. So there has to be attention by the companies to encourage that engagement and goodwill, to make sure that it's a meeting where shareholders feel they've been heard.

Senator MARIELLE SMITH: Can you expand, for the committee's benefit, on why you think it's important that more shareholders are able to participate in AGMs? What's the value of having a broader range of shareholders participating, either virtually or in person, at these types of meetings?

Ms Balzer : One of the things that we've learned over the years by missteps in the market is that every party has a place in the chain of surety and making sure things are done correctly. That comes from the auditors and the directors. The executive has to do its job but shareholders have to call out matters of concern and egregious behaviour, otherwise they seem to be normalised and continued. An example of that would probably be the Westpac meeting with the AUSTRAC failures. Initially, the company was able to suggest that it wasn't that bad and that it was almost acceptable. It was the shareholders calling out that it was egregious and beyond—that there was no way that behaviour was acceptable—that really held those directors and the executive to account. Having more people participate and look after their investments, which will quite often fund their retirements, means that there is not this blind money that fuels whatever behaviour the executives and directors consider acceptable. All the parties are able to call out unacceptable behaviour and make people pay attention to what they're doing with those funds.

Senator MARIELLE SMITH: Are there any other concerns which you have that you'd like to pop on the record regarding a potential extension of these arrangements, both for electronic AGMs and digital execution of company documents?

Ms Balzer : Mostly to do with the AGMs. The concern is that we have not yet seen masses of meetings. Most of the meetings are held in the October-November-December period. We would attend, I think, 80 per cent of our meetings in that time. There will be issues with the technology and ensuring that everybody is able to link up, if and when the meeting takes place. There will be many people attending and many meetings at the same time, so any disruption is a concern.

Also the 50-odd meetings that we've attended already were very much practice meetings. There were things like only the chair speaking because the directors, for some reason, were unable to participate verbally in that meeting. Thus far, we've seen that the meetings haven't quite met our need for engagement. So, unless we actually lift the practice in this next period, I think that shareholders will be disappointed. I put that as a challenge to the companies to do this, and they need goodwill, as we do, to get the best out of this. I'd just say that we definitely don't want it to be permanent. The feeling of engagement and being heard has thus far not really been achieved in the AGMs that we have had.

Senator MARIELLE SMITH: You raise engagement as an issue, but, from your description, it sounds to me as if accountability might also be an issue if certain directors aren't answering questions. Is that what you meant by that comment?

Ms Balzer : That is a very good point—being able to hold directors to account. I think that the 50 meetings we attended between March and today were very much a moving feast in terms of how everyone was reacting to the pandemic and the restrictions. Going forward, I would envisage that people might be surprised at how the earnings have been impacted for some companies, and it will be difficult to hold people to account if you, for example, have to type a 516-character question. So the difficulty is holding people to account and the engagement being in two directions with the online meeting.

Senator MARIELLE SMITH: Thank you very much. I have one question on a different topic for you. Does your association have a perspective on the ASX's CHESS replacement project? It's something that we on this committee have heard a fair bit about from other stakeholders, and, whilst I have you, I thought I'd ask your view on it.

Ms Balzer : Very good pick-up! Yes, we definitely have a view on the ASX CHESS replacement. Where our concerns lie is that at this time we haven't had any of the costings outlined, and we've also heard from the share registries and organisations such as the Australasian Investor Relations Association and the Governance Institute of Australia that they are concerned as to their ability to ensure that all the shareholders are serviced adequately at the end of the project.

With regard to the pricing, if the pricing structure changes a little bit, it may be that it will be less economic to offer particular types of transactions to all shareholders when you have a very large register, as we see with the banks, which have hundreds of thousands of shareholders, many of them quite small. It may mean that it becomes less economic to have those large registers and to have those small shareholders.

Also, when we do come to changing how things are done within their system, if you're a shareholder with a small number of shares, you may not engage with the share market every year. You might have made a transaction two years ago, or, if you're an employee shareholder, somebody else has done that for you. I'm very concerned that, if things change, we need people to bring the shareholders the knowledge that they need to have to engage comfortably with the new system. At this time, I'm not very confident about that. The ASA is part of a group called the ASX CHESS Replacement Stakeholder Group. I am very concerned that the share registries be able to engage with what I call the disintermediated shareholders. Many of the ASA members and lots of retail shareholders tend not to have a stockbroker; they tend to use discount stockbroking. So they will need things to be intuitive, because they may only engage with the market every few years, and there will be a change, and they won't have anyone to walk them through that change. So we need the registries particularly to be comfortable with the new practices and processes and the companies to be comfortable with the cost structure if that changes—but apparently we won't be aware of that for some time.

Senator MARIELLE SMITH: Thank you very much for appearing today. That's all of my questions. I'm happy to hand over now.

CHAIR: Thank you very much. Senator Scarr, do you have any other questions?

Senator SCARR: Yes, I do. Thank you very much. Ms Balzer, I just want to ask, in relation to the virtual meetings which have occurred so far, whether or not you're aware of any instances where shareholders have been denied an opportunity to ask questions.

Ms Balzer : We are aware that some of our questions appear not to have been asked. The meetings that we've had thus far didn't have to adhere to the changes that were instituted in June. Many of them would have questions asked before the meetings or from a typed interface where people needed to type in a 516-character limit or a 1,000-character limit. There is also a time delay when you're attending those meetings, so, if you type the question when you get to that part of the agenda, it generally isn't received for some seconds. Personally I've had the experience where I felt I was asking a question some minutes later, after that agenda item was closed off because there were no questions. The company returned to that item and said, 'Oh, we've got a question.' So we have felt that some of our questions have not been asked, but we cannot tell if that's because they weren't received in a timely manner or because it was a choice not to ask those questions.

Senator SCARR: From my perspective, that's an important distinction. Under the Corporations Act, the chair of a meeting has a responsibility to provide a reasonable opportunity for shareholders to ask questions, to make comments with respect to the management of the company and also to ask questions of the auditors, who should be in attendance. My concern would be if you had any evidence of shareholders putting questions through the procedure which have been provided and the company wilfully or intentionally refusing those questions, not processing those questions or enabling those questions to be asked.

Ms Balzer : We would really support the companies being required to show after the meeting what questions we have been asked, because they are uploaded electronically. We haven't had any of the big questions not answered yet, but we haven't had any contentious meetings as yet either.

Senator SCARR: In the context of a physical meetings and, indeed, a hybrid meeting if people are participating online and watching it, they will see the questions being asked by the shareholders who are physically there. So your point is that the effect of that needs to be replicated in terms of not only the people having a right to ask questions but all the shareholders having an opportunity to be advised of what questions have been asked and what the answers are. Is that the point?

Ms Balzer : Yes. That's very well put.

Senator SCARR: If there were a requirement for that to be done as part of a virtual AGN—if as part of a raft of changes to the Corporations Act one of the changes was to require that as a matter of law, perhaps an extension of that general obligation to provide a reasonable opportunity for shareholders to ask questions and make comments in the context of a virtual meeting, would that go at least some way of meeting your concerns with virtual meetings?

Ms Balzer : Yes, it would, because that would enable people to point out that their question either wasn't asked or for some reason wasn't included.

Senator SCARR: That would provide that accountability.

Ms Balzer : That would provide the accountability and it would provide the opportunity for shareholders to observe questions not being asked and answered.

Senator SCARR: Right. To make sure I understand the ASA's position with respect to electronic communication: I understood what you were saying to be that in all cases the shareholder should have the right to require a company to send them a hard copy of whatever the company document. Whether or not it's a share purchase plan off the document or an AGM notice, the shareholder should have the right to require the company to send a hard copy of those documents to the shareholder through the post. Is that correct?

Ms Balzer : Yes, on an opt-in basis.

Senator SCARR: Would the ASA be happy with a system which is on an opt-in basis so that the default position was that, if the shareholder had not communicated to the company their desire to receive hard copies after being given an opportunity to do so, the company would be entitled just to send electronic copies?

Ms Balzer : Yes.

Senator SCARR: Alright, understood. We received some evidence from the Governance Institute in relation to the requirement for companies to keep sending out physical copies of notices of meeting et cetera to shareholders' addresses on the register even if the correspondence was returned and it was marked 'shareholder no longer living at this address'—which I must say wasn't an issue I was aware of. Has the ASA got any comments with regard to that phenomenon of companies being required to keep sending out documentation to shareholders at addresses that haven't been updated?

Ms Balzer : Where it has been marked 'no longer living at this address' and that its accurate, I don't think we would have an issue with no longer sending those copies, but I would say we have a physical magazine, and the delivery of some of the items appears to be a little bit haphazard. We will have people where we sent out the magazine and they've come back marked 'not at this address', but you phone them and they are at that address. It's just that for whatever reason they haven't actually been delivered to the address that's marked.

Senator SCARR: So there would need to be some other check and balance in the system to protect against that.

Ms Balzer : Yes. But I envisage that that is actually a small number of people.

Senator SCARR: Okay. That's all from me.

CHAIR: Ms Balzer, I wanted to check with you one point around the question of digital signatures. So the committee understands: is your position that digital signatures should be permissible for Corporations Act purposes?

Ms Balzer : Yes, we would support that.

CHAIR: Okay. I don't have any other questions. On behalf of the committee I thank you very much for your time today. The committee asks that any other answers to questions on notice be returned by 14 August 2020, though I don't think there are any questions on notice. The hearing is adjourned.

Committee adjourned at 13:28