Voting and AGMs: 2022 Update
The UK’s proposals for digitising share ownership and the end-to-end voting process are long overdue and the industry must now embrace them.
Data from this year’s EQ Shareholder Voice survey shows no significant change to retail investors’ low voting turnout since last year’s report. Only 31% of shareholders in the US and 22% in the UK say they vote regularly. Only 14% say they didn’t know they could vote – so what’s holding them back?
In the UK, a big part of the answer lies in the fact that much of the end-to-end voting process has not been digitally integrated. Retail shareholders usually buy shares through a broker. But brokers often do not remind investors they can vote or pass them information about resolutions – or if they do, the notice is too short. One reason for this is brokers’ lack of digital and automated processes.
This lack of information and efficiency is made worse by the fact that multiple brokers are often involved – and it becomes difficult or even impossible for shareholders to exercise their right to vote. And it means companies trying to engage with their retail shareholders can end up failing due to these blockages in the voting chain.
Anne-Marie Clarke, head of corporate governance, EQ Advisory, says: “Through our shareholder engagement campaigns, we constantly reach out to private client brokers who often tell us they do not notify shareholders about voting events. Often, they will only process a vote if instructed by their investor clients who have become aware of the event through other sources – so it’s a reactionary stance.”
“However, we passionately believe the whole voting and ownership chain should take greater responsibility to ensure all shareholders can vote at shareholder meetings. Many issuers do try hard to engage with their retail shareholders who do not hold shares directly in their own name. But the issuers can still struggle to reach these shareholders because of complexity caused by the multiple layers in between.”
Solving the digital riddle
Fortunately, the UK is now addressing these issues. In 2020, a Law Commission paper on Intermediated Securities identified that brokers provide very different levels of service in terms of helping investors exercise their right to vote. Some brokers have more automation in their business that makes it easier for ultimate owners to vote – others have more manual processes that make it difficult or prohibitive.
Steve Banfield, industry director at EQ, said: The Law Commission paper was followed in 2022 by the Austin Review on Secondary Capital Raisings. This pointed to wide-ranging benefits from fully digitising share ownership, including helping information about voting flow up and down the ownership chain. The Government accepted Austin’s recommendation to establish a taskforce to modernise the UK’s shareholding framework.
This Digitisation Taskforce was set up immediately and is looking at how to achieve digitisation and remove any obstacles.
The UK could look to the US, which is more advanced in this area. US listed companies have been required to provide online proxy materials to all their shareholders for over a decade. The SEC rule was motivated by a desire to cut costs for issuers and reduce paper use, so the company only sends a one-page notice directing the shareholder to the internet. If the shareholder wants a hard copy of the materials, they must request it from the company.
The rule, known as “Notice and Access”, also determines that intermediaries – who are the shareowners on record and thus hold the right to the vote – must provide the materials to the ultimate or beneficiary owner in a timely manner. When informing shareholders that the proxy is accessible online, brokers and dealers also must include a request for voting instruction, giving shareholders the opportunity to participate in the process electronically, even if through the intermediary.
Shareholders are getting younger
The securities industry is one of the few yet to embrace digitisation, with corporate issuers often still having to send out reams of paper to shareholders. Digitisation has been held back by concerns about inclusion for those with no access to the internet – the so-called digitally excluded.
It is still important to allow people in that bracket to use paper – but their number is dwindling. According to Ofcom, the proportion of homes with internet access has grown from 76% in 2011 to 94% in 2021.
Furthermore, the traditional image of typical shareholders as older people who prefer to deal with paper is outdated. In this year’s EQ survey, the average age of a shareholder in the US fell from 48 to 40; and in the UK, it remained at 38.
Banfield says another issue is that the Companies Act requires stamped and signed physical certificates where relevant. “We would support a change to the wording so the Act requires digital certificates, stamps, and signatures ‘either in hard copy or electronic form’ – and that the same should apply to resolution notices,” he says. “This will make it easier for companies to choose digital communication methods providing they can get the shareholder’s email address. I hope the Digitisation Taskforce will make this happen over the next 12 to 24 months.
“Reduction or removal of paper would make the whole industry greener, faster and more efficient.”
Shareholders are most likely to vote on issues that affect them financially
Percentage of shareholders who would vote on each issue
Shareholder Voice 2022
Shareholders do want a voice
Banfield says it’s surprising digitisation hasn’t happened faster given the burgeoning support for the concept of shareholder empowerment, especially around environmental, social and governance (ESG) issues.
The EQ survey shows that ESG issues are a powerful motivator behind voting, and more shareholders say they would be likely to vote on ESG issues at an AGM than they would on factors affecting financial performance. Some brokers claim retail investors are only interested in tracking financial returns and not voting. But EQ’s survey shows the opposite – most shareholders say they do want to be more engaged and have a voice, especially on governance issues.
They are aware of the issue with brokers too – 91% say they would be more likely to vote if their bank or broker canvassed their opinion; and 86% would if the bank or broker helped with the process. This suggests emphatically that digitisation of the voting process could make a significant difference to voting numbers and give retail shareholders a more powerful voice.
As Banfield says: “Voting is the best way for shareholders to get their views across to the companies they own. Digitisation will increase voting numbers by improving the ease and simplicity of the process. I hope that will happen as a result of the Digitisation Taskforce.”
Reasons for optimism – the view from an investor communications platform
Michael Kempe, global head of business development at Proxymity, says: “There are several reasons why many retail investors don’t vote but there is some optimism for the future. Some retail investors still do not believe their vote will make a difference. Some who hold shares via brokers may not have the opportunity to vote.
“However, companies are doing more to attract shareholder engagement by better communication and adopting new digital channels. Hybrid meetings are becoming the norm, allowing shareholders to attend meetings regardless of location or circumstance. Plus, they are embracing technologies that connect investors throughout the ownership chain. Retail investors who hold shares via a third party should demand that they use technology and provide them with the ability to vote.”
Kempe says issuers and registrars are pushing the digital agenda for retail shares held directly on the register and the holders should use these wherever possible. This is more efficient, and provides more time to decide on voting matters. There is no reason shareholders who use a broker to hold shares should be disenfranchised either, he says.
“Most FTSE 100 companies now permit digital voting via CREST or Proxymity, so retail investors should ask their providers to ensure they can use the digital platforms available,” he adds.