When is an abstention not an abstention? A possible party-time trivia question for lawyers maybe, but a question with real consequences for shareholders which highlights yet again the importance of ensuring local knowledge is applied to voting decisions.

Most company law regimes have special provisions for dealing with ‘qualified majority’ issues. They may differ one from another in terms of the issues to which majority voting must be applied, the threshold which qualifies the required majority, and the manner in which shareholders votes are taken into account. Sometimes, it becomes clear to those with local knowledge that less local participants in the market do not sufficiently understand the subtleties of the market.

Finnish qualified majority voting is one area where local market participants have teamed together to put out a clear message: “‘Abstain’ effectively means ‘Against'”.

This is because the qualified majority is calculated by taking into account the number of ‘For’ votes as a proportion of the total number of shares present. In other words, if you have instructed for your shares to be represented at the meeting, anything other than a ‘For’ vote on qualified majority resolutions counts against the proposal.

Issues such as mergers, demergers, liquidation, changes to Articles of Association, directed share issues, issue of options rights and other special rights to shares, acquisition and redemption of own shares and directed acquisition of shares all require 2/3 support – that is, 2/3 of all votes present cast in favour of the proposal – to be approved.

Whilst at the comfort of your own desk, an “Abstain” may feel a healthy message to send to the board that you don’t want to oppose them but can’t support the proposal, in these circumstances it certainly loses subtlety in translation.

Finland is far from the only country which Manifest’s European Voting Review identifies has this issue. To order your copy now ahead of the 2010 season, follow the link.

Last Updated: 22 January 2010