Clickety-click
Proxy voting by internet fast becoming a reality
The UK proxy voting process is about to be transformed. Legislation will
shortly be approved that allows companies to treat electronic proxy voters as
valid, paving the way for a fully internet-based, paper-free voting process.
While the changes probably come too late to affect the upcoming proxy season,
the pieces are in place for electronic voting to take off in 2001. The result
should be a considerable rise in voting turnout, and an end to threats by the
UK government that it will impose a system of compulsory voting.
Bill to Act
The government's Electronic Communications Bill which provides the
architecture for paper-free communication is due to receive royal assent in
April 2000. It is supported by detailed regulations from the Department of
Trade & Industry on how the new legislation impacts the Companies Act. The
regulations, published in February 2000, will render void those clauses of the
Companies Act that currently prevent firms receiving electronic votes. The good
news for companies is that they will be able to facilitate e-voting by board
resolutions, rather than seeking shareholders' approval in general meeting.
The regulations also tackle such issues as the electronic delivery of
annual reports by email, DVD or via the internet, the use of electronic
signatures, and the question of when a document is deemed 'delivered' if sent
electronically. This legal framework will be underpinned by a code of best
practice for electronic communications, developed at the DTI's request by the
Institute of Chartered Secretaries and Administrators (ICSA), the leading
professional body for company secretaries. The ICSA's code will look at the
role of company secretaries in helping to implement electronic voting and
raising voting levels.
Virtual voting
Private sector groups are acting quickly to make the most of the new
legal environment to promote the electronic delivery of proxy votes. E-Vote and
Manifest are two companies leading the change towards paper-free voting.
Both services allow access to companies' meeting notices and related voting
information to be received by shareholders online. The relevant shareholding
available to be voted and an electronic ballot are also listed. The ballot,
once completed, travels up through the chain of ownership to the registrar.
Critically, the status of the vote can be tracked at each stage, providing a
complex audit trail.
Some participants in the proxy process, says E-Vote's Mary Ainley, are
waiting for the Electronic Communications Bill to become law before switching
over wholesale to electronic voting. The legislative and regulatory package
should "speed up the whole process", she says.
Pension funds sign up
The National Association of Pension Funds (NAPF), representing
£760bn in institutional assets, appears set to sign up E-Vote to provide
the technical architecture of its Voting Issues Service. E-Vote will provide
NAPF clients with electronic ballots and the means of voting them, as well as
the NAPF's own voting recommendations. John Rogers, director of the NAPF's
Voting Issues Service, said the NAPF has long planned a "cradle to grave"
electronic service to clients, accounting for the whole voting process from
publication of voting items to the successful lodgement of the vote with the
registrar.
Standard message format
Manifest, the proxy voting agency that has been providing an
online voting service for some years, has taken steps to promote an agreed
industry-wide standard message format for the transmission of proxy poll data.
The Electronic Voting Message (EVM), which follows the SWIFT format, has been
submitted to the International Standards Organisation for approval, a process
that is likely to take a couple of years. Manifest's aim is to make the
voting of international shares as easy as it is domestically. This would give
the world's institutional investors a greater influence over their foreign
portfolio companies.
"Based on Manifest's experience of data transmission between custodian
banks and fund managers for holdings data, the agreed format is the most
attractive route for the smooth operation of service," said Manifest's
managing director, Sarah Wilson.
Shareholder Voting Working Group
There will be continued pressure on the government to keep up the pace
of reform in this area, thanks to a Shareholder Voting Working Group, sponsored
by Thomson Financial. The SVWG consists of leading registrars, institutional
investors, fund managers and custodian banks, and is backed by the DTI.
It aims to make an analysis of the logistical problems in the voting
process, including:
- inefficiencies - "billions of shareholders proxy votes are going
missing each year" says the group.
- discrepancies - fewer than 40 percent of votes are registered whereas
more than half are actually cast
- simple errors - wrong fax numbers, staff absences, etc.
The group will lobby the authorities to remove the constraints and
deterrents to more active voting.
Implications
Last year, a committee of inquiry sponsored by the NAPF argued that the
UK's historically low voting turnouts had two causes - the inefficiencies of
the proxy system, and an "attitude problem" among institutional investors. The
NAPF inquiry warned that unless voting levels were raised, the government would
impose mandatory proxy voting, widely thought to be detrimental. The logistical
impediments to improved voting levels have largely been removed. This leaves
open the question: have attitudes changed?
Governance
March, 2000
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