Moves to promote more efficient proxy voting in the UK
Most people in Terry Pearson's shoes would be doing a spot of fishing in Scotland or a coach tour around the low countries. You know, the kind of activities that one might expect normal pensioners to get up to. But Pearson is having none of that sort of stuff – well, for some of his week anyway.
He may have retired from Royal Bank of Scotland's Securities Services Division in 1996 but it's not exactly wind-down time. Pearson recently helped form the Shareholder Voting Working Group (SVWG), an industry-wide body designed to help promote higher levels of shareholder voting in the UK. He now chairs the group in between his other 'pensioner' duties as an independent consultant to the securities services industry. One member of the SVWG says that Pearson was 'very quick off the mark' in getting the right people round the table. The pipe and slippers look set to remain in the cupboard for some time to come.
'This is the first industry-wide attempt to address the issue of shareholder voting in a practical and hands-on manner,' says Pearson. 'We are committed to raising and enhancing shareholder voting standards which will lead to greater efficiencies and improve competitiveness.' And he's gathered an impressive array of groups to his cause. Those signed up include representatives from the Association of British Insurers, the National Association of Pension Funds and the Investor Relations Society.
Update, please
The SVWG was formed in the wake of last year's Newbold inquiry into vote execution. The NAPF-sponsored inquiry called for improved voting levels, noted key faults in the current process and pushed for a modernized approach to voting, favoring the introduction of electronic systems.
Pearson wants the SVWG to take that agenda forward to the next level, working out the nitty-gritty behind the Newbold inquiry's thinking and continuing to push legislation in the right direction. Its remit is to 'carry out a practical examination of the current constraints, deterrents and logistical problems that inhibit voting and propose ways to remove these.' No easy task for any diverse group to undertake, but even more difficult for one interested party to force through.
'It needed a coordinated effort,' says Pearson, adding that if there is to be an effective introduction of electronic systems to replace the current paper trail then everybody involved in the process needs to show a united front. In its first public pronouncement, the SVWG has identified a number of problems with the current system which its members are trying to solve. It argues that the process as it stands encourages inefficiencies, with many votes going missing; discrepancies between votes cast and registered; basic administrative and human errors, such as wrong fax numbers and postal delays; and, indeed arguably as a consequence of the above, low voting levels.
The latest figures from Pensions Investment Research Consultants, indicate that UK voting may just have reached the 50 percent level for the first time. Still very low compared to the 80 percent or so recorded in the US. In any case, the UK figures have more typically hovered around the 40-45 percent level.
It's an archaic system for the 21st century however you look at it. The resources it wastes are a drain on UK companies and investors, to say nothing of overseas investors fighting to get their votes in. Indeed, one observer suggests that UK 'attempted' voting levels may actually be considerably higher than the recorded levels – even as much as 70 percent. But so many votes get lost that the recorded levels appear much lower. It's not exactly designed to encourage more, or more considered, voting.
Desire not force
Many of those sitting around the SVWG table think that they had better sort out voting levels soon or else the government will stick its oar in and introduce mandatory voting. Few in the know think that would be a help, believing it would merely introduce a 'tick-in-the-box' mentality. 'Encouragement is better,' says Pearson. 'We want to see a desire to vote responsibly, rather than cajoling people by making it mandatory.' So it looks as if it's up to all those involved in the process – from fund managers to custodians to listed companies – to sort it out.
Pearson believes that a move down the electronic path is the obvious solution to many of the problems. Electronic voting and document sharing will help speed up an incredibly slow process, cut out a lot of the paper and, perhaps most importantly, allow a decent audit trail to be created to track the passage of votes cast. The government's e-commerce bill – expected to pass through parliament in the first half of the year – should help by enabling modernizing changes to be made to a slew of legislation. From the electronic voting perspective, a key effect of the e-commerce bill will be to allow companies to accept electronic votes without having to change their articles of association.
Most companies will welcome the opportunity for better feedback from shareholders but there are bound to be a few who perceive it as a threat. 'It's pretty obvious that some company chairmen don't want to aid the democratic process of shareholder voting,' laments Pearson. 'I think that's unfortunate.' He thinks that such corporate dinosaurs are fighting a losing battle, as are shareholders who think it will still be acceptable to ignore their voting responsibilities. 'The pressure is real and is already there. The present and previous governments have emphasized the need to vote as part of the responsibility of shareholding.'
Voting stance
John Rogers, director of voting issues services at the NAPF, recognizes that responsibility on behalf of his members: 'Our stance is that increased voting levels are good for companies and investors.' Rogers explains that the SVWG is working out what the pressure points are on the current system. There are bottlenecks in the process which delay and frustrate the recording of votes.
The NAPF is about to release its own follow-up document to the Newbold inquiry. Why did it feel it necessary to join the SVWG too? Why not go it alone? Rogers says that it's useful to share thoughts and experiences with other people coming at the problem from a different angle. He points out that it is already possible to implement a good deal of electronic communications within the current voting process, assuming it is not yet possible to actually cast the votes because of the pending legislation and out-of-date articles of association. A lot of time could be saved and efficiency improved just by introducing more electronic systems into the communication between various parties before the votes are actually physically cast.
Indeed, most of those involved in pushing for change seem to favor the introduction of more electronic communication methods as soon as possible. John Hale, a manager in investment affairs at the Association of British Insurers, thinks his members would be more inclined to vote if the feedback mechanisms confirming that their votes had been lodged were more efficient. 'And we've traditionally seen a relatively high level of voting by insurers in any case,' he adds. 'They tend to have a fairly strong policy on voting but there are certain problems in the mechanics of the system. We need to get rid of the elaborate paper trail and introduce measures to make some of the individual stages easier to do and more cost effective. We're looking forward to this group being one that'll assist in pushing forward the process. It does have all the building blocks in the chain and we are hearing views from people you might not normally come across.'
Trouble ahead
One might imagine that once the UK government's e-commerce bill goes through and a few extra streamlining changes are made to the voting chain, everything will be hunky-dory on the UK proxy front. Voting levels will soar. Everyone will know that their votes have been recorded. Even overseas institutions will have it easy.
Not so fast. The Institute of Chartered Secretaries and Administrators (ICSA), itself a member of the SVWG, is drawing up a list of the problems which might occur as a result of modernizing legislation. Not, you understand, to be killjoys; merely to try to alert us all to some of the nasty effects that may be released by electronic exchange of documents and the like.
Robert Blanks, deputy director of the policy unit at the ICSA, poses one example. Say an institution posts a proxy but then decides one day later that it has changed its mind and submits a second by electronic means. What if, quite feasibly, the electronic proxy arrives before the postal version? Under current provisions, the company would record the last submitted proxy as the last deemed to be delivered. Yet, in this instance, there is quite clearly a corruption of the institution's voting intent.
The ICSA's E-Comms Working Group will soon release a consultation document raising such issues (expected as this magazine goes to press). 'We're trying to cover all the issues that changes in the law will leave open,' explains Blanks, adding that they'd like consensus from all sides before submitting recommendations.
But this is no time for companies to be sitting back and waiting for action. Pearson suggests that companies put pressure on those they deal with directly to begin implementing electronic systems – if they haven't done so already. 'Companies can encourage registrars to receive votes electronically. As registrars are being paid by companies they should respond positively. Some of them haven't gone out of their way to be proactive in that regard.'
He stresses again that it is in all listed companies' interests to help speed up the process but acknowledges that in the short-term it may not be appealing because of implementation costs. 'But in the long-term [corporate] costs will reduce. Companies have to accept that shareholders have rights as investors. Those rights include an easy way to register their rights.'