Joined up systems and joined up responsibility
The problem is not the plumbing, as Paul Myners’ review of missing votes found – it is the wiring and the system’s operators. Rather than tamper
with the pipe work, it is the electronics that need bringing up to date. Once investors can manage their corporate votes electronically, the problems
of lost votes, spoilt forms, missed deadlines and even voter apathy ought to disappear.
Myners’ report is the third to conclude that the present cumbersome paper-based procedure should be replaced by a computerised system, but if his
report is to succeed where the others failed, he needs to overcome the complacency that resists change.
The technology to permit electronic voting already exists. Manifest itself introduced a computer-based system as long ago as 1996, but although the
law was amended in 2000 to remove any doubts, companies still decline to adopt it. Crest, the centralised settlement system, launched its own voting
system early last year but has also found reluctance to use it. Although the plumbing works adequately in sending dividends from companies to
shareholders, investors are strangely averse to investing in systems that can send voting instructions through the same pipe work in the other
direction.
The pipe work can be complex. It connects quoted companies to registrars to custodians and fund managers – but with taps and valves on branches of
pipe that can by-pass parts of the chain to divert voting via alternative, and sometimes more efficient, routes. But Myners is a realist. He realises
it is impractical to redesign this system even if he wanted to: instead he must address the weak links that cause potential leaks.
That means persuading custodians to allow fund managers to operate through designated accounts rather than pooling their clients’ votes. It means
all proxy agencies must offer a straight-through voting facility that connects investment managers directly to registrars. But most importantly, it
means the beneficial owners must appreciate the value of their votes and ensure they are used – checking not only that their fund manager has voted
but also that the company has received the instruction.
Luckily, switching to electronic voting solves the additional problems that Myners’ proposals create. Once voting, like share-ownership, is totally
computerised, custodians have no excuse for not splitting pooled accounts – even if that means rewriting the programmes and procedures they use in
their US homeland. Surely investor choice and an audit trail that allows investors to check their shares have been voted are more important than
custodians’ profitability.
Myners suggests incorporating a vote-confirmation facility. But effectively doubling the number of electronic messages and the variable costs is a
recommendation too far: once proper systems are established it should require mere occasional spot audits - possibly scrutinised by the Financial
Services Authority - to confirm their veracity. But the best checks are those that should have been applied in the past - internal confirmation that
votes were cast correctly with pressure from the beneficial owners. All stages in the plumbing need to demonstrate that they treat corporate ballots
seriously.
Systems cost money, but electronic voting should eventually cut costs across the whole voting process. Only those investors too indifferent to vote
or those parts of the plumbing too inefficient to implement instructions have reason to fear. Indeed, a useful side-effect of easier and cheaper
voting should be higher voting levels and greater investor activism.
Myners has set a tight timetable in expecting the plumbing to go completely electric by next year, but short deadlines concentrate minds. He needs
a critical mass of large companies to ensure the momentum that makes others follow if his report is not to end up on gathering dust with its two
predecessors. |
