Short-dated EGMs – don’t ban them, fix the voting
Pity poor Hammerson plc who last week became the first FTSE 100 company in many years to lose a routine resolution because it failed to achieve the necessary majority. We say “routine” because, for UK shareholders at least, calling EGMs on 14 days notice is completely non-contentious, provided they are not used for frivolous business (the introduction of a new LTIP, for example). Indeed UK shareholders and UK plcs worked together to ensure that EU legislation didn’t strip away a long held right which can be used by shareholders and issuers alike for urgent business. The non-frivolous, good governance reasons for short-notice EGMs would be:
- removal of directors
- approving a major acquisition
- approving major changes to a company’s financial structure requiring a change in the share capital
- changing the name of the company
Hammerson missed its mark by a little over 3% having only achieved 71.97% in favour with 28.03% against. Looking at the disclosed shareholders list gives us some clues as to what might have happened. According to the annual report, six institutional investors control 38.97% of the votes (see table below). The largest of the block shareholders is the Ontario Teachers’ Pension Plan Board with 11.88%. OTPPB also happens to be the major shareholder of GlassLewis, the US-based proxy advisor which Ontario bought out from Xinhua Finance in October 2007 for US$46 million.
Why is that relevant? GlassLewis has a standard governance policy to recommend votes against resolutions which allow meetings to be held on short notice. We understand that this is because of the difficulties faced by overseas shareholders getting their votes submitted. So, it looks like OTPPB and others have followed the GlassLewis house view on short-dated meetings but completely ignored some of the more troubling aspects of the remuneration policy (such as director termination payments including unearned bonus and poor bonus performance target disclosure).
Manifest supports the position that shareholders should be given ample notice for AGMs, particularly given the volume and “bunching” of meetings in the Spring. Many EGMs are often held at the same time as the AGM so short notice is not really that much of an issue. But it’s not the short notice period of EGMs that is the problem; it’s back to the proxy plumbing and the “chain of intermediaries”, again.
The EU Shareholder Rights Directive allows companies to request authority to convene general meetings other than AGMs with a 14 day notice period provided that electronic communications is available to all shareholders. Which would seem a reasonable way to meet the overseas shareholder voting challenge. But if custodian-nominated vote intermediaries insist on 5-7 days padding on top of the company’s 48 hour deadlines, you can begin to have some sympathy with the view that shareholders are not going to be able to make an informed and timely decision.
Voting against Hammerson for wanting to follow a nationally agreed practice hits at a symptom, it doesn’t solve the underlying root causes of broken market mechanisms. Why should Hammerson and its other shareholders be punished by arbitrary deadlines imposed by third parties? It shouldn’t. Rather, as Manifest has contended for the past 15 years, cross border voters should be afforded the same courtesy as US issuers and shareholders who have vote cut offs the day before the meeting without any extra padding.
Why do US issuers manage to get such preferential treatment from proxy intermediaries? Could it be related to the fact that they have to pay the the distribution intermediaries as well as their stock transfer agents for AGM services whereas UK issuers only pay their registrars? The largest of the proxy distributors argued to the European Commission that we should all have US-style record dates which disconnect democratic and economic ownership. Manifest argued there is nothing incompatible with 48 hour vote deadlines and record dates combined – provided that investors and their vote agencies are allowed a clear path to do their job without unnecessary interference.
It might be every business owner’s fantasy to have a monopoly business model, however it’s every consumer’s nightmare. Without competition and diversity consumers miss out on innovation, service improvement and pay unnecessary costs. The reality is that the proxy market does not enjoy “healthy” competition, it barely enjoys competition at all. In some parts of the market there is a complete lack of transparency and understanding of business models. Participants are unclear as to who is is being paid what, by whom, why and whether it is by mutual consent. In other part it is becoming clear that some market participants are granted more favourable access than others depending on their ability or willingness to pay.
Let’s be clear, there should be no proxy payola. Paying for services rendered between principal and agent is one thing, pay to play is another. The future of comply or explain governance regimes depends on all the players being able to play their part in a credible way, no exceptions.
Who owns Hammerson?
Source: Annual Report 2010
|
|
% HOLDINGS |
|
Ontario Teachers’ Pension Plan Board |
11.88% |
|
Blackrock Inc |
7.01% |
|
APG Algemene Pensioen Groep NV |
6.81% |
|
Cohen & Steers Inc |
5.20% |
|
Standard Life Investments |
4.39% |
|
Legal & General Investment Management Ltd |
3.68% |
|
Total |
38.97% |
Hopefully questions 18 and 19 in the EU Green Paper on the EU corporate governance framework published in early April will provoke debate about the role and activities of proxy advisors.
It is no longer enough for corporate governance to focus its alignment efforts on the principal-agent relationship between shareholders and boards. There are a host of other relationships that matter from a public policy standpoint and the role of proxy advisors is one that does need some thought and additional scrutiny. Why should Hammerson plc and a substantial majority of their shareholders who were in favour of holding general meetings on 14 days notice be penalised in this way? It is hard to see how this situation contributes to corporate governance and more generally confidence and trust in capital markets.
So because companies should not be punished by arbitrary deadlines imposed by third parties, foreign shareholders should be spoliated from their possibility of exercising their voting right ?
The choice is between a 14 days notice instead of 21 days or the exercise of the voting rights from non-UK shareholders. You prefer the first, I would have chosen the second.
Thank you for sharing your views. Manifest believes that foreigner shareholders should be able to vote as easily as domestic shareholders and not be unduly penalised by unecessarily long deadlines imposed by custodian banks. Companies have no say in these deadlines, their own deadlines are 48 hours prior to the meeting, not the 7-10 days imposed by banks. In the USA no such deadline limitations exist and votes can be lodged right up to the deadline (e.g. half a day)
The question is do we think that the shareholder process should be dominated by 3rd parties with no accountability? As we have highlighted in our articles about Vote Tapping, data has been warehoused and then sold in the intervening period. This is completely unacceptable and again, the issuers have had no control over the process.