NSFM opinion: Barriers to voting must come down

Laureen Tessier writes: At a time when investors are committing to stewardship and voting policies, we should wonder why executing a vote is such a complex procedure and particularly why it is such an expensive one.

The investment community is under pressure to disclose how it votes and where. Institutional investors are now expected to vote not only in their home countries but anywhere they invest; and rightly so. These are of course legitimate expectations since voting is a right and a duty.

If we agree that voting has an impact on companies’ practices, we must question why it is so costly to implement, and why it is so difficult to ascertain that a vote has successfully reached the company. The complexity of the voting chain seems to multiply with borders. Cross-border voting is apparently an excruciating operation which is astonishing considering today’s electronic communications and technologies. Some UK investors do not vote in France and this is not because of the Channel or any cultural differences! Even some Belgian investors do not vote the shares they hold in French companies as it is too expensive. Let’s not forget that some investors are also discouraged from voting as this would constrain their securities lending activities. How can investors be encouraged to exercise their voting rights when successful execution is not always guaranteed, and when they are losing money and time in doing so?

It appears that the over-complication behind voting is linked to banks as they are providing registration services and voting execution services to the ultimate account holder of securities. Voting on a global scale is a significant expense: custodian banks charge up to € 150 for a single vote including other administrative fees, and there are approximately between 10 and 25 resolutions per meeting agenda. This is without taking into account costs related to developing and maintaining voting policies, and research to produce an informed voting decision. Moreover, banks make money both from the company and the investor: they provide services to the company that is going to hold an AGM, and to the investor who is sending in the proxy forms.

In November 2010, the European Commission was conducting a consultation on the legal certainty of securities holdings and disposition, on improving the legal framework for holding and disposing securities and the exercise of rights attached to securities in the context of the Internal Market. While advocating investors’ accountability for voting, it seems reasonable to seek a European legal framework to facilitate voting procedures, to reduce the cost of cross-border voting and to guarantee the control of the voting instructions. In order to encourage the exercise of voting rights, banking institutions should develop simpler and cheaper securities related services.

Laureen Tessier is a corporate governance analyst at Proxinvest in Paris, an independent consulting firm advising institutional shareholders on voting and corporate governance.

This article is part of our NSFM opinion series, in which participants propose specific steps towards real and sustainable market reform. Contributors write in a personal capacity. NSFM participants are invited to contribute to the series. Please contact Ebba Schmidt or Frank Jan de Graaf for further information.