Proxy voting goes digital .....
A revolution for corporate democracy, or electronic
box ticking?
The proxy voting system is a mess. Vast reams of paper shuttle back and
forth between company, custodian, investment manager; shareholder and registrar
- all according to an impossibly tight schedule.
Sometimes, as Hermes Investment Management found last year, votes that
are dutifully lodged by shareholders are never received by companies. No wonder
voting levels remain stuck at about the forty percent mark.
The National Association of Pension Funds' (NAPF) enquiry into the
persistently low turnout is due to report later in the summer. Among the issues
they are considering is the use of electronic voting in boosting the turnout of
proxies.
One of the leading providers of electronic voting technology is E-Vote
Ltd, part of the Thomson Financial Services Group. Robert Hayim, Managing
Director of E-Vote, explains the service on page two of this issue.
The electronic voting bandwagon will gain momentum with the publication
of the government's Electronic Commerce Bill, due in the next few months.
But is electronic voting a panacea? Will the electronic delivery of
votes really get voting levels out of their 40 percent rut?
Lack of ability, or lack of effort?
Sarah Wilson, managing director of Manifest, a proxy services provider,
doubts whether shareholders lack the ability to vote if they genuinely wish to.
Manifest, which also employs electronic delivery in its communication
with shareholders and companies, has found that the lodgement of proxies has
never been a problem. If a shareholder or fund manager genuinely wishes to vote
under the current paper system, says Ms Wilson, they can.
"The problem" says Sarah Wilson is getting fund managers to look at the
voting issues. This involves establishing a chain of command from company to
registrar to custodian to fund manager and back again. If you don't have a
methodology for lodging votes, then electronic voting won't make a difference"
she says, and unfortunately "apathy is the biggest barrier" to improved
turnout.
If electronic voting "makes people think about the issues, then good,"
says Ms Wilson. But there is a danger that the reverse may be true - that
electronic voting will facilitate higher voting levels without any greater
thought being applied to the meaning of those votes. A series of blanket 'yes'
votes for management's resolution, by providing an empty endorsement of the
company actually undermines good governance.
"The real issue" concludes Sarah Wilson is about people voting in a
meaningful way ... we all have email, but does that mean our communication is
of a better quality?"
It's not our fault!
Those seeking to explain low voting levels often point the finger at
fund managers, accusing them of failing to organise themselves effectively to
lodge their votes, or of ignoring the value of a vote in the first place.
Michael Perry, Director General of the Institute of Fund Managers
(IFMA), is having none of it. "The system is frustrating for fund managers he
says, "it's very difficult to see where their instructions have been reached
and recorded."
"The chain is too long." he says, given the tight deadlines of proxy
season and the fact that most fund managers act for different clients with
different mandates.
The fund management industry is bound to welcome "anything that makes
the process easier and more transparent," such as electronic voting. The key,
for Mr Perry, is establishing an audit trail - so that participants can see
where the votes are and who's done what.
No change at the "paper factory"
What about the people who collect, collate and count the votes - the
registrars? It is "hard to say" whether electronic voting will make much of a
difference to voting levels, according to Peter Swabey, Manager of Investor
Relations at Lloyds TSB Registrars.
The number of votes cast electronically "is going to be minimal," he
says, although the number of shares voted will be high.
The registrars' depot, in his description, is "a paper factory," and
will continue to be so under electronic voting because the mass of proxy cards
come from private shareholders.
Will there be an improvement in vote turnout? Peter Swabey is "unsure."
Like Sarah Wilson, he thinks that the problem is one of funds' lack of concern
with voting issues, rather than their inability to vote. The system at present
"doesn't seem to be putting particular impediments in the way." "Any use of
technology is a plus" he said "but I am less certain whether it will deliver
the benefits that its evangelists suggest."
Companies await legislation
E-Vote recommends that companies amend their articles to allow them to
receive proxies electronically. Their proposed model article is outlined on
page 2. Some companies, including SmithKline Beecham and the Royal Bank of
Scotland. have already taken this step.
Most other companies will wait to see the Electronic Commerce Bill
before amending their articles, according to Alistair Wilson, a technology
lawyer with Travers, Smith Braithwaite in London. He said the problem in law is
whether "the existing Companies Act allows electronic delivery of proxies."
In its March consultation on company law, the Department of Trade and
Industry sought a fast-track amendment to the Companies Act, via the E-Commerce
Bill that would allow companies to receive votes in electronic form. This was a
'positive step' by the DTI, according to Ms Wilson, which would "solve the
problem for most company secretaries".
Governance
June 1999
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