The influential Australian Council of Superannuation Investors, representing the country’s largest fiduciary investment funds, has recommended several regulatory reforms and changed market practices for custodians and others involved in proxy voting at meetings for listed companies.
This follows a research project by ACSI which studied proxy votes by 23 big investors during 2011, involving 1,895 resolutions at 370 separate meetings. The sample represented $181 billion or 13 per cent of the total Australian market capitalization.
The good news is that only a small number of errors was discovered. The bad news is, according to ACSI, was there was evidence of operational weaknesses in the systems used by investors to cast votes including “unrealistic deadlines” for sub-custodian messages, lack of reconciliation of holdings data with votes lodged and the extensive use of faxes to submit proxies.
On the part of companies and their registries the study noted differing practices regarding vote exclusions, particularly on capital-raising resolutions, a low take-up of institutional electronic proxy lodgement (about 17 per cent), the lack of an audit trail and a propensity to pass resolutions by show of hands (70 per cent of cases) rather than a poll.
Recommendations for regulatory reform included:
- separate the coincidence of the time for the determination of voting entitlements – with a suggested five days – with that of proxy lodgement deadline – retain the current two days prior to the meeting.
- standardise the application of vote exclusions on capital raisings to protect investors whose votes may be excluded if their holdings are combined by the sub-custodian with those of investors who are ineligible.
- empower shareholders with more than 5 per cent to appoint an independent assessor.
- make poll voting mandatory for listed companies so that the votes of all investors are counted on resolutions and not just those present at the meeting.
Recommendations for changed market practices included:
- all custodians, sub-custodians and voting agents should use SWIFT proxy voting messages to enable automated processing.
- registries should ensure that online systems for the lodgement of proxies enable split voting, file exchanges and are capable of releasing vote confirmations in a format compatible with SWIFT.
- online proxy voting platforms should enable users to identify if they have participated in placements so that they can comply with the terms of vote exclusion statements on capital raisings.
Some of the errors by custodians observed in the report were:
- at a meeting of Commonwealth Bank shareholders, the custodial voting agent incorrectly offered the investor an ‘abstain’ option when the company’s proxy card did not permit this.
- the custodial voting agent sent a SWIFT message with instructions which did not correctly identify the relevant meeting or resolution in question. As result the sub-custodian lodged proxies against the wrong resolution at the wrong meeting (but right company which had two meetings on the same day).
- the investor lodged votes after the custodian’s cut-off time and these instructions were not actioned.
- the sub-custodian did not accurately reflect the instructions from beneficial holders at the record date of the meeting.