“There is no risk in not voting” or so I was told by an operations manager at an investor organisation recently It would be unfair to single out the institution as this is a popular myth. Given the choice between an urgent election on a corporateaction (e.g. a rights issue) or making a proxy appointment there is only ever one winner and it isn’t the vote. Consequently, the key opportunity for a shareholder to instruct its company what to do goes begging. Issuers and investors alike need to take action to ensure this is not the case going forward and every year, as the general meeting season enters it main phase, the question of how to ensure votes are cast is raised from both issuers and investors.
Outsourcing of vote processing hasn’t proved to be the answer for issuing companies
One idea from those processing the voting instructions on behalf of beneficially-holding institutional investors has been to outsource the job to a third party who is not conflicted between choosing whether to process a corporate action or a vote. Whilst this has undoubtedly brought some process improvements, particularly for investors and nominee companies, it has not provided the answer.
Some third party providers give a good service but not all do. In some cases votes are expected to be cast by investors some 4-7 days before the meeting date but only reach the issuer around 48-72 hours before the start of the meeting. Investors’ votes, therefore, are not reaching the issuer as quickly as they should and this fails both investor and issuer for a number of reasons:
- The issuer will not have time to engage with the investor if it needs to understand why an investor is voting in a certain way
- Late arrival of the proxy appointment
- There is a risk the proxy vote does not arrive in time. Votes are as important as corporate JN6012 action elections and, while they don’t have the immediate asset risk an election has, they do help determine the future of the company
- Issuers will not have time to provide more information to the market if there has been some misunderstanding of the original proposals or intentions
- Investors lose the opportunity to influence the discussion
- Incorrectly received proxy votes, e.g. overvotes, unsigned proxy cards, etc., will have insufficient time to be re-sent correctly.
Some third party providers will tell the market they do this because it is difficult or expensive to update instructions once cast. This is simply not true; no registrar that I am aware of charges issuers extra for an update to a vote instruction and the only additional cost for the investor would be the transmission of the data which, when sent through CREST or the internet, is very small. We can only conclude there are internal reasons for third party providers to do this of which we are unaware.
Why the fuss? What does it matter?
Often, in the end it doesn’t! That seems strange to say but the reality is most resolutions are passed at the meeting. Ultimately, however, a company wants decisions to be made by as many shareholders as possible and not build its strategy only on the opinions of those that bother to vote. So, it must always be keen to encourage as many shareholders as possible to vote. Equally, in the lead up to shareholder meetings the UK’s Corporate Governance and Stewardship Codes suggest that it is good governance for both issuers and their owners to understand each other and provide more information or enter discussion if appropriate. Further, participation by shareholders in meetings should be encouraged.
During a vote that is contentious or relating to a corporate event it is essential that there is good engagement between shareholder and company and this is not best served by last minute actions.
So what are issuers and investors to do?
Firstly, beneficial shareholders need to direct their custodians to arrange with the third party proxy processers to pass proxy voting intentions through to issuers / issuer agents as soon as they are received. It is not good governance for votes to be delayed through any misconception of how the process works or deliberately held back for reasons not related to the shareholders wishes. Shareholders should ask for a conformation that their votes have been passed to the issuer’s agent and set SLAs with their providers for doing so.
From the issuer side there needs to be careful monitoring of the votes as they come in and the ability to remind those that have yet to vote or provide more information if needed.
Where appropriate there needs to better engagement between companies and their shareholders to ensure that the governance process is at its most efficient. Many companies consider the following actions in conjunction with a proxy solicitation provider:
- Regular analysis of their register throughout the year to ensure and support engagement with shareholders and not just during the voting season
- Confirm that key information reaches shareholders to ensure they have the right information with which to make their voting decisions.
- Understand votes and vote projections as voting takes place in order to:
- Engage with shareholders who may have concerns about company strategy
- React to debates / discussions on a wide scale rather than only contacting one or two shareholders
- Encourage shareholders participation in general meetings.
Voting levels in the UK, have generally increased over the last few years and is higher than in many other parts of Europe. An important part of this is the ability to know and understand your shareholders and engage with them both throughout the year and not just before shareholder meetings. We are moving in the right direction but we have some way to go before all shareholders realise that a vote is just as important as a corporate action election.
Nick Dawson is the Managing Director of Capita Investor Relations. If you wish to contact him about any part of this article, please call 020 7954 9783 or email nick.dawson@capita.co.uk.
