Citing the pressures of the “financial crisis” the ING Trust Office has stepped back from its committment to review its role in voting the un-voted shares at Dutch BOFI, ING Group.
Foreign shareholders will be dismayed to see that despite having met the 35% voting threshold at the last 3 AGMs, the Trust appears determined not to dismantle ING’s anti-takeover vehicle.
Despite its reputation as both a liberal and democratic society, as well as supporter of free trade, many Dutch companies have permanent anti-takeover defences. For example a company’s articles of association may have golden shares or set out rules for the nomination of directors or the amendment of the articles of association, which deviate from the principle of one share, one vote.
ING uses what is technically known as a “certification scheme”. A listed company places all its shares with a trust office (administratiekantoor or AK). The AK then issues non-voting certificates that are traded on the stock exchange. The certificate holders may attend the listed company’s shareholders’ meetings, but in many cases they could not vote. Matters improved after the introduction of Tabaksblat Code in 2003 which included a rule stating that the AK should provide for voting by proxy if requested to do so by the certificate holder. The Code also directed the AK to be accountable to certificate holders and to vote primarily in their best interests. ING’s trust office does indeed permit voting and its board of directors is now, in theory independent.
However, what many shareholders might not be aware of unless they read the small print very carefully is that any un-voted shares are voted at the discretion of the board of the trust office thus the AK effectively retains control.
Some anti-takeover measures have been successfully challenged in court. Stock Exchange listing rules also limit the use of anti-takeover devices to a certain extent. Case law of the Enterprise Section of the Amsterdam Court of Appeal provides also provides for some guidance on the acceptability of specific measures.
The situation at ING is certainly complex, the Dutch government has provided a capital injection and no doubt the Dutch Central Bank might have qualms about it falling into foreign hands. No doubt the ghost of ABN Amro will be stalking the national psyche for some time to come.There are however, more transparent and accountable means available for ensuring a balanced democracy. The fact that the depository receipt structure and back-pocket voting by the Trust Office is likely to be off-putting for shareholders that might otherwise vote. As noted in Manifest’s annual voting review, average turnout levels across Europe are generally rising in all markets. The Netherlands has seen average turnouts of 48.8% in 2009 and 51.9% in 2008. The ING board should be asking itself why a major modern financial organisation is only able to get a 35% turnout.
ING could do what other issuers do in markets with difficult voting arrangements – employ one of the proxy solicitation firms which specialises in tracing shareholders and getting their votes in. It is true that there are still market rigidities in the proxy process namely our usual suspects of: the chain of intermediaries, depositary share ownership versus dematerialised registers etc. The Trust Office could also agree not to vote any un-voted shares – putting the company on a similar footing to US-listed companies where empty broker voting has now been addressed.
What can shareholders do? In the first instance there are a number of key resolutions available at the upcoming 27th April AGM which could be tactically voted to express concerns: 5c regarding the company’s adoption of their implementation of the revised Dutch Governance Code; plus 7a and 7b, the director liability discharge resolutions for the Management and Supervisory Boards. By themselves these resolutions would be quite blunt instruments, but together with a side letter to the main company board and the Trust Office board, it could send a strong message to the company that anti-takeover devices are not welcomed by shareholders.
Shareholders don’t always get it right, it’s true. But over the past two years European finance ministers have berated shareholders for not playing their part and being too passive. There is little that shareholders can do if they are effectively over-ruled by an unaccountable committee which doesn’t respect their wishes. Non-resident shareholders are particularly disadvantaged by these mechanisms. If European issuers want to see higher quality engagement by their shareholders then they need to start reaching out and making coherent explanations. Simply blocking attempts at democracy will do nothing to improve its quality.