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									ISSUE NO.13                                                                                                                  May 2003

                                        A NEWSLETTER OF

                                                                                                        funds being paid out to successive
ACSI CONFERENCE - MAKE                                            HIH Royal Commissioner, Justice       chief executive officers at BHP
SURE YOU CONFIRM YOUR                                             Neville Owen, will outline key        over the last five years. During
      ATTENDANCE                                                  insights arising out of the HIH       the same period, the BHP share
                                                                  Royal Commission, that should         price has grown by barely 4% per
'LINKING GOVERNANCE TO                                            assist investor efforts on applying   annum.
PERFORMANCE'                                                      scrutiny     on    the    corporate
                                                                  governance practice of the
ACSI‟s 2nd Annual Conference                                                                            It    is    evident that   these
                                                                  companies in which they invest.       remuneration outcomes bear no
'Linking        Governance   to
Performance' will be held on 13                                                                         relationship to high levels of
                                                                  Prominent corporate directors,        company performance and can
June 2003 at the Hotel Sofitel,
                                                                  fund managers, asset consultants      well be regarded as a reward for
Collins Street, Melbourne.
                                                                  and academics will also lead the      mediocre performance or, at
                                                                  discussion on key corporate           worst, failure.
ACSI members, trustees, their
                                                                  governance and performance
boards, fund executives and staff
                                                                  issues on the day.                    Excessive remuneration payments
attend the full conference for
FREE.                                                                                                   and     payouts    reinforce    the
                                                                  Make sure you register by 6 June      importance of early and effective
                                                                  2003.                                 disclosure of the company
Alan MacDougall, Managing
Director, Pension Investment                                                                            remuneration       policies    and
                                                                  For further copies of the             executive service agreements. It is
Research Consultations Limited
                                                                  registration and program contact      not acceptable that information on
(PIRC) in the UK, will outline
                                                                  Chris Dardoumbas on 03 9657           termination payments and other
how UK trustees are utilising
                                                                  4375.                                 remuneration          arrangements
recent legal reforms in the UK to
apply effective scrutiny of                                       FUTURE ACSI RESEARCH                  become available to investors at
corporate governance practices.                                                                         the end of an employment
                                                                  If you have any suggestions for       relationship.
                                                                  future research projects please
 CONTENTS                                                         contact Phil Spathis on               Proper and timely disclosure and
 'Linking Governance to Performance' 1                            03 9657 4386 or                       valuation of all elements of
 Future ACSI Research .......................... 1       It
 Another Massive Payout - Shareholders                                                                  executive remuneration, including
 Deserve a Say!........................................ 1
                                                                  would be helpful to receive your      termination payments, ensures that
 What Happened on the Way to the                                  views prior to the Conference so      shareholders    have    sufficient
 AGM?..................................................... 2      that we can canvass as many ideas
 Company Remuneration Plans Shelved
                                                                                                        information to ascertain how
                                                                  as possible at the opening session.   reasonable these arrangements are
 by Shareholders in the UK ................... 2
 ASIC Draft Guidelines on valuing                                                                       in the context of the company's
 options .................................................... 2   ANOTHER MASSIVE                       position.
 2003 Corporate Governance Survey of
 ACSI Members ...................................... 3            PAYOUT - SHAREHOLDERS
 Other Corporate Governance                                       DESERVE A SAY!                        Improved disclosure however
 Developments Abroad ........................... 3                                                      forms only one part of the
 Developing a Corporate Governance                                Investors in BHP have witnessed
 Policy - Investing in Pooled Trusts ....... 5                                                          equation.
                                                                  over $60 million in shareholder
 2                                                                                               May 2003

Up until July 2000, the ASX            does this send out to corporate        against     the     proposal   and
Listing Rules required companies       Australia?                             restructure     the    remuneration
to seek shareholder approval of                                               proposal accordingly.
new remuneration arrangements,         According to reports from AMP,
in particular option schemes and       26.9% of the total shares on issue
amendment of existing schemes.         were voted at the recent AGM,
                                                                              ASIC DRAFT GUIDELINES
These requirements currently exist     compared to 27.7% of total shares      ON VALUING OPTIONS
for companies listed on the New        on issue being voted the previous      On 7 May 2003 ASIC released
York Stock Exchange listing rules.     year. This is remarkably lower         draft guidelines aimed to assist
ACSI has previously called for the     than the 40% of total shares on        listed companies when including
reintroduction of such provisions.     issue being voted by investors in      values of options in the disclosure
                                       Australian listed companies.           of emoluments for directors and
ACSI supports the introduction of                                             executive officers, in their annual
legislation in the United Kingdom      Blaming the low levels of voting       directors' reports for years ending
that gives shareholders the right to   on inactive retail investors, who      on or after 30 June 2003.
vote on remuneration reports of        comprise       the       significant
corporations.                          shareholders in AMP, partially         ASIC expects listed companies
                                       explains the low voter turnout.        to include amounts relating to
Amendments proposed by Senator
                                                                              granted options when disclosing
Conroy to the Corporations Act         The      result  reinforces    the
                                                                              the emoluments of each director,
earlier this year introduced similar   importance of superannuation
shareholder approval mechanisms        funds developing their corporate       and each of the five highest paid
of remuneration.          This was     governance policy to ensure they       executive officers, pursuant to
rejected      by      the    Federal   can respond to contentious matters     s.300A(1)(c) of the Corporations
Government earlier this year. The      and exercise an informed vote          Act 2001.
Federal Opposition plans to            when it is in the best financial
reintroduce these measures as part     interests of members to do so.         The proposed guidelines cover
of the CLERP 9 reform process.                                                the valuation methods to be
                                                                              applied, as well as directions for
ACSI supports moves to amend
                                       COMPANY                                allocating    values     between
the CLERP 9 proposals that give        REMUNERATION PLANS                     financial years, for the purposes
shareholders a greater say on          SHELVED BY                             of s.300A(1)(c).
executive remuneration.                SHAREHOLDERS IN THE
                                       UK                                     The guidelines do not deal with
Investors should be able to                                                   the expensing of options of other
                                       20 May 2003 will be long
effectively utilise their voting                                              share-based payments in the
                                       remembered in UK corporate
rights and apply greater scrutiny                                             financial statements. For further
                                       history as a defining moment in
on proposed packages. Investors                                               information visit
                                       shareholder activism, when giant
will then be better able to                                         
                                       drug manufacturer Glaxo Smith's
undertake informed analysis on
                                       executive remuneration plan was
whether such arrangements are                                                 ACSI welcomes the guidelines
                                       rejected by a narrow majority of
sufficiently linked to high                                                   that help clarify s.300A of the
performance outcomes.                                                         Corporations Act and thereby
                                       Shareholders,   led   by    the        reduces the scope for companies to
WHAT HAPPENED ON THE                   Association of British Insurers        avoid valuation disclosures,
WAY TO THE AGM?                        demanded that pay outcomes and         because of a perceived ambiguity
                                       severance arrangements must be         in these provisions.
The AMP Board has overseen a           properly linked to company
loss of over $10 billion as a result   performance.
of failed overseas ventures.
Shareholders are understandably        Although        under       British
angry. How then does this explain      Corporations Laws, a company is
how a smaller number of                not required to adhere to the vote
shareholders exercised their vote      of shareholders on remuneration
at this year's AGM compared to         reports, Glaxo indicated that it
the previous year? What message        would heed the narrow 50.7% vote
 3                                                                                                      May 2003

2003 CORPORATE                       an accounting           or     financial    California Treasurer Orders
GOVERNANCE SURVEY OF                 background.                                 Investment Banks to Reform
                                     The external auditor or lead                As a consequence of brokerage
Has your organisation completed                                                  fraud settlement reported above,
                                     partner should be changed every
and    returned    your   2003                                                   California    Treasurer       Paul
                                     five years.
Corporate Governance Survey                                                      Angelides has ordered investment
yet? If not, you now have until      The new rules, submitted to the             banking firms to adopt strict new
Wednesday 4 June 2003.               Securities Commission for public            reforms.
                                     comment, aim to minimise risk
We would like to report the          and uncertainty among market                Under the new mandatory rules,
findings of the survey at the        participants. One of the main               investment banks will be required
ACSI Conference on 13 June.          proposals is the establishment of a         to:    separate     research   and
                                     new disciplinary board of 20                investment banking units; bar
The survey helps us to better        people (15 experts from outside             communication              between
target our services to our           the exchange, with five internal            investment bankers and analysts;
members.                             experts) to replace the market              prohibit        analysts      from
                                     surveillance panel and a number of          participating in stock pitches or
                                     other exchange committees. For              road shows; establish a review
OTHER CORPORATE                      further      information       visit        committee; compensate analysts'
GOVERNANCE                                               performances every quarter; and,
DEVELOPMENTS ABROAD                                                              set up a website to chart analysts'
                                     US                                          performance.
New Zealand
                                     Three Big Brokers Charged                   The rules will affect the 69
NZ’s New Corporate                                                               investment      banks     and    57
                                     with Fraud
Governance Rules                                                                 brokerages in California. This may
                                     Since our last newsletter the               have an effect on which firms will
On 6 May 2003 NZSE Limited                                                       do business in California and it
                                     Securities       and      Exchange
('NZSE') released its final          Commission (SEC) announced an               will also mean that different states
corporate governance rules and       historic USD1.4 billion settlement          will have different requirements.
proposed     new     regulatory      charging Merrill Lynch, Credit
framework for New Zealand's          Suisse     First     Boston    and          ABA Report Urges Corporate
Capital Markets.                     Citigroup‟s      Salomon     Smith          Responsibility
                                     Barney with releasing false
Key Listing      Rule    changes     research reports in order to net            The American Bar Association
include:                             bank business.1                             (ABA) Task Force on Corporate
                                                                                 Responsibility has issued a new
The minimum number of                The SEC will distribute nearly              report that calls for changes in
independent directors is two, or     USD400 million of the settlement            governance policies to enhance the
one-third.                           funds     among     investors   as          role of corporate lawyers. 2
                                     restitution, while USD375 million
A      Director    may      not      will be paid to the states. The             The report urges -
simultaneously     hold     the      firms in question have agreed to
positions of CEO and Chairman.       pay USD432.5 million towards                Routine opportunities for chief
                                     independent research over the next          legal officers to participate in
Directors should complete an         five years, and another USD80               sessions with corporate boards
appropriate director certification   million will go to investor                 and for outside counsel to
course.                              education. Seven other firms also           communicate with legal officers
                                     named in the settlement were                to encourage the flow of
Issuers are required to establish    found to also have issued research          information    about    possible
an Audit Committee, with a           containing      “exaggerated    or
minimum of three directors, a        unwarranted claims‟.
majority      of     independent
directors, and at least one with     1                                           2
                                      The Corporate Library News Briefs, April     The Corporate Library News Briefs, May 7
                                     23 – April 29, 2003, Vol. 5, No 15          - May 13, 2003, Vol. 5, No.17
    4                                                                                                              May 2003

corporate             or        executive   Study Finds Governance                       Organisation's     core      labour
malfeasance.                                Reforms May Not Cure                         standards,    to    establish    an
                                            Restatements                                 independent monitoring process of
Amendments be made to the                                                                its supply chain, and to report
ABA        Model     Rules     of           A new study into key corporate               annually to shareholders.
Professional Conduct to: permit             governance reforms, such as the
lawyers to disclose information             Sarbanes-Oxley Act, aimed at                 Of the total shareholder votes cast,
to reveal fraudulent or criminal            enhancing director and auditor               7.7% voted in favour of the labour
conduct that could be financially           independence, may have little                standards proposal (up from 6.2%
detrimental to others, when                 effect on the occurrence of                  last year) and 13.6% voted in
                                            financial       restatements by              favour of the second proposal for
lawyers are being used to further
                                            corporations. 4                              separating the positions of CEO
the fraud or crime; clarify or
                                                                                         and chair.
redefine when lawyers should
                                            Anup Agrawal, a finance professor
disclose up the authority ladder            at the University of Alabama and             With Sears Roebuck voting its
at a corporate client, and the              the study's co-author, said there is         54% of shares against the
circumstances when to disclose              no discernible connection between            proposals, the vote against
externally when a company or                Sarbanes-Oxley and the likelihood            represents 26% and 46% of
executive breaches the law or               of restatements. The study which             minority      shareholder votes,
fiduciary duty; and, require                looked at 159 companies that                 respectively.
lawyers who are discharged                  restated earnings from 2000 to
because they report crimes                  2001, also revealed a clear                  UK
internally, or withdraw from a              relationship between the existence
corporation because it refused to           of an independent director who               ICGN calls for improved cross-
address violation, to assure that           has proven financial expertise on a          boarder proxy voting
the board has been properly                 board or audit committee and the
informed of the discharge or                likelihood       of        financial         The growth in foreign share
withdrawal.                                 restatements.                                ownership     has    brought     a
                                                                                         corresponding interest in cross-
Visit the ABA's website for the             The study also showed that                   border proxy voting of overseas
report                        at            companies with a financial expert            shares.     The      International             on their board are about a third             Corporate Governance Network
responsibility/home.html                    less likely to restate financials,           (ICGN) is calling on regulators to
                                            while those with a financial expert          remove legal and procedural
Alcoa AGM                                   on their audit panel are 23% less            obstacles to cross-border proxy
                                            likely to restate.                           voting following a recent study
At the annual meeting of Alcoa                                                           into overseas shareholder voting
on 11 April 2003 shareholders               Canada                                       practice.6
supported a union-sponsored
shareholder     resolution     on           Sears Canada shareholders vote               In the study, the ICGN carried out
executive severance agreements.             on reporting of labour standards             an audit of the transmission of
The resolution stated that Alcoa's                                                       proxy materials and voting
Board of Directors should seek              In Canada, significant numbers of            instructions in the US, UK,
                                            minority shareholders supported              Germany, Italy and Japan, to
shareholder      approval      for
                                            two shareholder proposals in Sears           investment managers in the US
executive "golden parachutes".
                                            Canada, filed by investors at the            and UK during the 2002 proxy
The resolution sponsored by the             company‟s annual general meeting             voting season. They found that
United Steelworkers of America              on 22 April 2003.5                           despite the growing use of
(USWA) and supported by the                                                              electronic communication and the
AFL-CIO, was passed with 65%                One proposal asked Sears Canada              consolidation of the global
of the vote.3                               to improve its buying policy to              custody industry, the length and
                                            fully reflect International Labour           complexity of proxy voting chains
                                                                                         still frustrates the receipt and
                                                                                         dissemination of materials and
                                              The Corporate Library News Briefs, April
                                            16 – April 22, 2003, Vol. 5, No 14
    Workers‟ Capital News 02.05.03          5
                                              See Footnote 3                             6
                                                                                             Workers‟ Capital News 15.05.03
 5                                                                                               May 2003

makes it difficult to exercise and     not just share-based remuneration     critical of a staggering £37m
monitor      voting    instructions,   schemes.7                             ($57m) pay deal over 3 years for
particularly in German, Italian and                                          new director, William F Aldinger
Japanese companies. Any such           Shareholders have recently called     III.
inefficiency in cross-border voting    for votes against company
systems will hamper the owners‟        remuneration reports at the annual    Higgs Reform Delayed
ability to control, and support,       meetings of Reuters, Corus and
company management.                    Shell. When the proxy votes were      It looks as though the “Higgs
                                       counted, 9% either rejected or        Review” report into Corporate
The report reveals a long list of      abstained in the vote on increases    Governance, Boards and Board
complexities and obstacles in the      to the Corus Executive Bonus          Committees will be delayed. The
cross-border voting process such       scheme, despite employees being       Review recommended a number
as the number of possible              on a pay freeze and facing            of changes to increase the power
intermediaries between, say, a         thousands of redundancies.            of independent directors to
Japanese share issuer and the                                                monitor corporate executives in
foreign pension fund that owns         At Reuters PLC annual meeting on      the interests of shareholders. The
them, which includes investment        17 April 2003, 23% of                 review has received a considerable
managers, global custodians, sub-      shareholders either voted against     amount of criticism. As such the
custodians,     transfer  agents,      or abstained in the vote.             implementation date of 1 July for
registrars, depositories, proxy                                              the new rules, has been pushed out
advisers and so on.                    However, BAE Systems AGM              to Autumn 2003 at the earliest.
                                       (29/04/03) investors rounded on
Although obstacles were also           the board with a barrage of hostile
found in the UK and Germany, the
                                                                             DEVELOPING A
                                       questioning over the disastrous
report shows that companies in         performance of the defence group.
Japan and Italy provide overseas       The resolution approving directors'   GOVERNANCE POLICY -
investors with less chance to          remuneration was only narrowly        INVESTING IN POOLED
exercise their basic shareholder       passed when attacks from small        TRUSTS
rights. More specifically, they        investors and US institutional        A number of ACSI members who
found several complaints about the     shareholders resulted in almost       undertake investments in equities
(late) receipt of proxy materials      50% voting against the directors'     through     pooled    investment
and meeting notices from Japanese      remuneration       package.   The     vehicles ("Pooled Trusts") have
issuers and of „share blocking‟.       company blamed the poor result        sought assistance from ACSI to
This refers to circumstances where     on     Institutional   Shareholder    commence the formation of a
investors are required to deposit      Services, a US-based proxy            policy    suitable   for    such
their shares and refrain from          analysts, for recommending a          arrangements.
trading for several days before the    "No" vote due to its concerns over
company annual meeting.                the group's Save As You Earn          Outlined on the next page is a
                                       scheme which they believe dilutes     draft policy that can be utilised by
The full 80-page report entitled       shareholder value.                    funds who invest in pooled unit
„Cross Border Proxy Voting‟ can
                                                                             trusts and can be varied to suit the
be found under „Documents‟ on          At the Royal Bank of Scotland         specific needs of the fund. If you
the     ICGN       website    at:      (RBoS) recent annual meeting,         require further information or                   16% of shareholders voted against     assistance,     including      ACSI
                                       the company's remuneration policy     representatives addressing your
Excessive Executive                    but abstentions took the scale of     Board      or    investment     sub-
Remuneration                           protest to 29%.                       committee, please do not hesitate
                                                                             to contact Phillip Spathis on
In the UK reports on company           Elsewhere in the UK, other            (03) 9657 4386.
remuneration policy have to be put     finance companies came under fire
to an „advisory‟ vote which, for       over their remuneration policy,
the first time from this year, gives   including Amvescap, Bradford &
shareholders some say on the           Bingley, HBOS, Northern Rock
overall remuneration package,          and HSBC where unions are
including bonuses, pensions, base
pay and severance payments and
                                           See Footnote 3
 6                                                                                                  May 2003




         The Trustee of "X" Super ("the Trustee") is increasingly concerned about promoting effective corporate
         governance practices in companies in which it invests. Corporate governance refers to the systems
         utilised by companies to operate their business in the interests of their shareholders.

         This policy has been developed to ensure that the Trustee can monitor corporate governance practices of
         these companies. The policy outlines the practical considerations for monitoring corporate governance
         issues as a consequence of the Trustee investing in equities through a pooled investment vehicle
         ("Pooled Trust").

         At all times, when monitoring corporate governance issues, the trustee will act in the best financial
         interests of members as outlined in the Superannuation Industry (Supervision) Act (Clth)("the SIS Act")
         and common law requirements

"X" Super Investment in Pooled Trust

         The Trustee of "X" Super ("the Trustee") invests part of its assets in Australian and overseas equities
         through various Pooled Trusts in accordance with "X" Super's investment policy and strategic asset

Extending Existing Reports to Corporate Governance Issues

         The Trustee receives regular reports from each Unit Manager ("the Manager") on the investment
         performance of each respective Pooled Trust. The Manager also provides appropriate detail and
         reports on issues that impact on the investment performance of each Pooled Trust.

         The Trustee considers that monitoring the corporate governance practices of listed companies improves
         the level of protection of "X" Super's investments. This can be achieved by ensuring the Manager
         provides regular reports to the Trustee on its activities in relation to corporate governance issues that
         arise in listed companies that form part of each respective Pooled Trust.

Manager's Corporate Governance policy- Access and Implementation

         The Trustee recognises that the Unit Manager has the legal capacity to exercise votes attached to shares
         in companies that form part of the unit trust. It is also possible for the Manager to enter into dialogue
         with these companies on corporate governance issues.

         The Trustee therefore considers it important to be advised of the Manager's policy and actions on these


         The Trustee will request from each Manager an outline and explanation of their policies on corporate
         governance issues that are applicable to the unit trust.

Implementation of Manager's Policy

         The trustee will seek advice on the Manager's actions on corporate governance issues in a timely and
         efficient manner to be agreed by the Trustee and the Manager.
 7                                                                                                            May 2003

          The Trustee will request the provision of the following information from the Manager as part of the
          regular reporting arrangements in relation to the following:

          (a)       Report on the extent to which, if at all, the Manager has voted on corporate governance issues
                    in companies that form part of the Pooled Trust;

Where the Manager exercised its voting rights on corporate governance issues outline how it voted on the
following contentious corporate governance matters identified by the trustee and the reasons for adopting its

                    (i)      Employee and/or director share plan/benefit packages which involve any material
                             departure from normal practice or significant increases in remuneration benefits.

Appointment of executive directors where non-executive directors are in the minority on a company board.

Significant issues that are likely to be contentious, including but not limited to takeover defences, mergers and
acquisitions and proposals to change the voting rights that restrict shareholder control over a company board.

Resolutions not proposed by the company board but by shareholders in accordance with Corporations Law.

          The Manager will also provide information in the following circumstances to the trustee.

Where the Manager voted against the company director's recommendation and the outcome of the shareholders'

Where issues were resolved by discussion prior to any shareholder general meeting.

Where the manager voted in favour of the company director's recommendation where more than 20% of the
votes were cast in opposition.

Any modification to the Manager's policy and guidelines on corporate governance.

Where a material conflict exists in relation to the Manager as a consequence of the relationship between its
parent company or subsidiary and the company under consideration.

"X" Super as a member of the Australian Council of Superannuation Investors ("ACSI") supports ACSI's
corporate governance guidelines as a practical reference to what constitutes good corporate governance practices
in listed companies from the point of view of a superannuation fund.

"X" Super will commence dialogue with existing Managers to facilitate implementation of this policy.

This policy will be reviewed in six months from the date of adoption by the Trustee.

                                                                                 This newsletter is correct to the best of
                                                                                 our knowledge and belief at the time of
                                                                                 going to press. It is, however, written
                                                                                 as a general guide so it is
                                                                                 recommended           that       specific
                                                                                 professional advice is sought before
             Michael O'Sullivan                        Phillip Spathis           any action is taken
                   President                         Executive Officer
         Level 29, 2 Lonsdale Street           Level 29, 2 Lonsdale Street
         MELBOURNE VIC 3000                    MELBOURNE VIC 3000
             Tel: (03) 9342 1450                    Tel: (03) 9657 4375
            Fax: (03) 9342 1499                    Fax: (03) 9657 4378
            Mobile: 0418 996 359                  Mobile: 0417 501 065
     Email:      Email:
 8                                                                          May 2003

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