Voting gets wired
Companies and investors are under pressure to switch form paper to
electronic voting systems. Is it worth the effort?
Real IR April 2005
It's been legal for shareholders to vote on UK company resolutions
electronically since 2000. In theory, it's easier for investors (just
click a button on a computer screen), cheaper for registrars to
administrate (no need to count endless paper ballots), and more
transparent for all parties (e-voting systems come with a built-in audit
trail). But despite these benefits, firms and investors were slow to make
the switch from paper to pixels.
Responding to pressure
Finally, companies are coming round to "e-voting". Why the change
of heart? Much of the credit should go to Paul Myners.
At the beginning of last year, the former Gartmore chief wrote a report
for the UK's Shareholder Voting Working Group (SVWG). In it, Myners
recommended e-voting as an alternative paper-based systems, likening them
to "old pipework, which could habe been more effectively maintained over
the years but which have sprung a leak."
Myners' paper called for all FTSE 350 firms to offer e-voting. And last
month, a year after his report, he published an update on companies'
progress. The findings? Eight-eight per cent of FTSE 100 firms and 41 per
cent of the FTSE 250 offered electronic voting at their meetings last
year. but the picture isn't as rosy as it seems: just 22 per cent of FTSE
100 share capital and 12 per cent of that of the FTSE 250 was voted
electronically. A more pleasing finding says Myners, was that "by the end
of this year, every FTSE 100 company will allow electronic voting. And by
the end of 2006 the majority of the next will."
Peter Swabey, senior manager for industry relations at Lloyds TSB
Registrars, itself an early adopter of electronic voting is also cheered
by the progress. "We're seeing all parts of the UK market pulling together
on this one," he says.
Changing minds
It's all very well making the voting process easier. But that's still
not enough if investors can't be bother to vote in the first place.
"Issuers have put more effort into corporate governance than some of their
investors," says Sarah Wilson, managing director of Manifest, a proxy
voting agency. "They don't understand the link between voting and
protecting long-term interests. You can't rely on third parties. You've
got to be involved."
Wil Claxton-Smith, director of investor responsibility at Insight
Investment is more optimistic about investors' attitudes to voting. Most
mainstream institutions are now voting their holdings," he says. Indeed
Myners founds that 32 of the 34 fund managers he surveyed had a policy to
vote of their UK shares. "It's [now] down to a small number of
institutions overcoming inertia," he says.
Yet Paul Marsland, proxy voting manager at Pensions Investment Research
Consultants (PIRC), has seen institutions of all sizes starting to make
their presence felt at the ballot box. "The medium and small-sized fund
managers who previously haven't voted at all now feel obliged to," he
says.
PIRC's 2004 annual review reported an increase in voting at FTSE 350
companies from 57 to 59 per cent. The Institute of Chartered Secretaries
and Administrators (ICSA) also saw a rise: 61 per cent of FTSE 100 issued
shares were voted in 2004- up form 54 per cent in 2003.
Sticking points:
There are times, however, when institutions vote when they shouldn't.
Up to five per cent of FTSE 100 stock may be lent at any one time,
according to last month's Myners update. Trouble is, fund managers
sometimes vote it anyway.
Myners recommends that investors who have lent out shares should recall
their equivalent votes if a resolution turns out to be contentious. He
also calls for lenders to set up procedures "to prohibit stock borrowing
for the purposes of voting."
Split decision
Will we see a time when all shareholders exercise their right to vote?
We'd all be very impressed if 90 per cent of institutions voted, says
consultant. Yet Myners wants nothing less than "100 percent take-up by
institutional investors." Workload during proxy season is a problem. "Some
fund managers don't have the resources to cope," says Wilson. As far as
Myners is concerned it's up to institutions to find the necessary
resources.
So how should IROs respond to all this? Although issuers can't oblige
investors to vote, says Swabey, it's in their interests to encourage them
to do so: "the greater the percent of capital that is voted, the clearer
the mandate for management."
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