Share-voting system needs modernising, inquiry finds
 

BRITAIN'S paper-driven corporate share-voting system is outdated and badly in need of modernising, according to a top-level study.
 

This was the key finding of the Newbold Committee, the inquiry group Set up by the National Association of Pension Funds nine months ago to look into the way votes were cast by institutional investors.

In its 27-page report, the committee concluded: "Voting is a fundamental right of share ownership in the UK. In the modern corporation, with its division between ownership (shareholders) and management (directors), it is a particularly important right."

UK and overseas institutional investment accounted for over 75pc of the shares in companies listed on the stock exchange, whereas in Europe the figure was between I 5pc and 3 Ipc, the report said.

Among the recommendations were that :

• Regular, considered voting be regarded as a fiduciary responsibility.
• Voting policy be covered by agreement.
• Companies actively encourage voting.
• Custodians actively assist in the voting process.

The report said the voting cycle represented "a tortuous process'' which had to be conducted against a background of deadlines imposed by legislation.

It went on: "The greater the number of links, the greater the complexity and loss of time and, therefore, opportunity. This is particularly the case for those pension funds which employ external investment managers, use external custodians and are advised how to vote by specialist voting advisory services.

"While some endeavours have been made to streamline the voting process and some electronic links have been introduced, most of the system remains manual and in need of capital investment on more effective systems software.

" Both the Cadbury (1992) and the Hampel (1998) reports urged institutional investors to ensure their voting intentions were being translated in practice, the report pointed out.

'In spite of these exhortations, voting in the UK has remained at levels which indicate a lack of due process and rigour among some institutional investors towards voting, as well as deliberate failure to vote."

Pension schemes voting levels were currently about 44pc - the report called for a target of about 6Opc.

But it rejected compulsory voting on the grounds it would do nothing to improve the quality of voting decisions or corporate governance.

Launching the report on Monday, committee chairman Yve Newbold, of headhunter

Heidrick & Struggles, said: "Voting by institutions of their shareholdings in the companies they invest in is part of good governance practice; they deserve a fast, efficient and modern service to help them achieve this and the commitment and dedication of all participants involved in the voting process."

NAPF investment committee chairman Lynn Ruddick added: ''Voting levels must increase if compulsion is to be avoided and I would urge all those involved to read and act upon this significant and detailed study."

Sarah Wilson, managing director of proxy voting agency Manifest, said: "We see the NAPF's report as important in strengthening the process and message of responsible corporate governance in the UK.

"This report provides a timely springboard for institutions to act on this issue now to ensure effective self-regulation rather than it being enforced by government."

Hal Austin, Professional Pensions
08 July, 1999

Return to News Index

 © Manifest Information Services Ltd