As implementation of Shareholder Rights Directive II draws closer, attention is (or should be) turning to how we are going to make it happen. A cynic might say that, like MIFID II, “it’s all very well intended but….” OK, fair enough. But seriously, how are we going to get from good intentions to good outcomes? It’s not as if we haven’t been down this road before over the past 20 years. And in those past 20 years has much really changed?
Despite the growth of electronic everything else (Alexa, turn on the lights), when it comes to voting, we’re still in the dark ages. That’s not just my conclusion, but the findings of an EY study for the European Commission. In the snappily titled: “Identification and assessment of legal and practical impediments for the use of digital tools for interaction between companies and their shareholders” we’re told there are 5 culprits which are jamming the works:
- bias in favour of traditional solutions;
- ineffectiveness of the legal framework;
- additional burden for using digital solutions;
- blocking points along the chain of intermediaries; risks related to the chosen technology; and
- lack of harmonisation of legislation across Member States.
No surprises there then if you’ve been following this saga for as long as we have (Newbold, Myners, Shareholder Rights Directive I, Giovanni anyone?). Encouragingly, the report identifies that the development of digital solutions more adapted to the needs of companies and shareholders does have a significant positive impact, even if the legal framework is not particularly favourable. Again, that’s been our experience too. Once you take the proverbial technological spanner to the plumbing, the votes can flow unimpeded – we know, we’ve got the digital signatures and audit trails to prove it.
When you read that “some intermediaries are reluctant to help shareholders” and “high dependence on custodians’ practices” it makes you wonder whether the Commission should really have referred the whole messy business to the Competition & Markets Authority instead of asking DG Justice to get bogged down with a Directive that, when it comes to it, is an Obligations Directive rather than a Rights Directive.
We know from Manifest’s two decades practical vote agency experience that electronic voting really does allow for faster, cheaper, more convenient, more effective and safer instructions. Crucially, it makes the process properly transparent and accountable. We also know that the technology bit isn’t the stumbling block either, after all we’re not putting a woman on Mars.
It’s those “biases in favour of tradition” that are the worry. As Upton Sinclair said: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” There are a lot of vested interests at stake in not changing and the signs so far are not encouraging that intermediaries are willing to really change.
Psychologists tell us that biases are tough to change; but they also tell us that there are positive steps that we can all take to improve matters. The first is simply to acknowledge that bias exists. From there we we move forward and take positive steps to create change. What’s at stake is not trivial. Voting is more than a mere check-the-box exercise, it’s an integral part of stewardship and engagement, it’s a fiduciary act. It’s also part of the critical mission of rebuilding #trust in financial services – indeed the wider capitalist system – against the forces of populism and distrust that have exploded since the GFC.
So, ladies and gentlemen, the two resolutions before you are either:
- A) Stick with the bias, vested interests and cling to the past; or
- B) Grasp the opportunity to make a change and make a positive contribution to the next generation of investors and companies.
How do you vote?
(Warning, the report, while very thorough, is very long, a stonking 689 pages! You’ve got to be a real voting geek to read all of it. If you are in a hurry I recommend the executive summary.)
Last Updated: 31 August 2018