VOTING AT GENERAL MEETINGS

One of the peculiarities of the corporate scene is that those shareholders who do vote at the General Meetings of companies, tend to overwhelmingly support the recommendations of the directors. The result is that most resolutions get passed by more than 95% or higher. It is only a very rare event that resolutions are defeated—such as votes on Remuneration.

It is very obvious that shareholders do not consider the resolutions individually and tend to tick the “For” box without thinking. Are private shareholders any different to institutions in their voting patterns in this regard? Probably not, if they bother to vote at all. Apathy reigns it seems, but there may also be a lack of basic understanding here about what the typical resolutions mean and how shareholders should consider each of them. So this article is intended to provide some guidance on the subject.

Note that this is mainly about proxy voting. You do not need to attend an AGM in person and should always submit a proxy vote giving the Chairman of the meeting as your proxy whether or not you intend to attend in person (this does not prevent you speaking at the meeting and you can change your vote at the meeting if a poll is called). In this way you avoid the risk that your vote is lost if you get run over by a bus on your way to the meeting, or fall ill on the day. Incidentally, if you wish someone else to attend the meeting in person as your proxy, to avoid the same risk, it’s best to split your proxy votes so as to give the person attending one share/vote, and the rest to the Chairman of the meeting. 

Of course the prerequisite is to ensure you have a vote; and can and do use it. The simplest way to ensure you can vote (and will be sent a proxy voting form) is to hold your shares in a Personal Crest Account (highly recommended) or in the form of a paper share certificate. Nominee account holders have to depend on their brokers (more details on our web site here about that complex issue): Nominee Accounts

But assuming you have a proxy voting form, let’s run through the common resolutions at Annual General Meetings:

1. To receive the Report & Accounts. Note the wording. This is not a vote on “approving” the accounts and in reality if the vote is lost it would not change what the company board has approved and filed. However dissatisfaction with the Report & Accounts may be worth expressing by voting against it if you feel there is something seriously amiss.

Voting against the Report & Accounts tends to suggest that you disagree with the Auditors view of the accounts or dispute what the directors are presenting. It is probably very rare that you will find the need to vote against this resolution but the author of this article did at one company where the directors suggested a major debt was recoverable (and hence the company remained a going concern) when he thought otherwise—it was later struck off from the Companies House register when it ceased trading and filing accounts!

2. To declare a dividend. Needless to say, not many shareholders vote against this resolution, but a few do. There can be circumstances where you think the company is imprudent to pay a dividend. For example, the author voted against this resolution at a Venture Capital Trust which consistently paid out more in dividends than it had in profits (indeed it often reported losses so paying a dividend reduced the capital base). Do not tick the box automatically—think about whether the company can afford the dividend or whether it would be best if they retained the cash for internal business development. It should not be a foregone conclusion! Do think about it before voting.

3. Election/re-election of directors. New directors tend to be co-opted to the board during the year and have to be elected at the next AGM. Existing directors have to be regularly re-elected on typically a three year cycle, but for FTSE-350 companies there is now a recommendation that all directors should be re-elected. Is such election a foregone conclusion? Not always and it should not be (three directors of Manchester United were removed for example at one AGM).

ShareSoc suggests you should consider the background of each director (which is usually given in the Annual Report) and what else you know about the director. In particular, how long they have been on the board (which should not be more than 10 years for non-execs or they may not be considered independent), how old they are (yes they should not be too geriatric or past their “use by date”). You may indeed have some specific views on their abilities if the company has fallen on hard times, or from impressions gained at previous AGMs (such as refusing to answer shareholder questions).

You might also want to consider how many directors there are (any number above 8 makes for pretty unwieldy board meetings or some of them are not going to be actively involved). Are all the directors really contributing fully, are some superfluous window dressing or is the board simply providing a nice resting place for retired chief executives or the Chairman’s pals? 

How many other directorships are held by each director (or other significant business interests)? If it’s more than 3 or 4, it’s questionable whether they will have the time to do their job properly. 

Is there sufficient diversity on the board? And we do not just mean a token lady or two. Are they all “people like us” as the Chairman might describe them, or those with independent and differing backgrounds with a mix or relevant skills? Do they also have knowledge about the markets in which the company operates? Avoid directors with irrelevant skills and experience.

You might also wish to vote against directors if you think they are overpaid, and particularly against the director who heads the Remuneration Committee if you think their advice has been poor.

So you might well find if you really think about the individual directors that you may be easily able to select one or two that you wish to vote against. Do not be afraid to do so! Certainly most non-executive directors would not be greatly missed if they were ejected, but as an individual investor your vote is not normally likely to have a great impact. Rather it will demonstrate your views to the board. But if the vast majority of shareholders consider even an executive director should go then they should do so (typically they tend to resign before they get ejected of course).

4. Re-appointment of auditors and fixing their remuneration. Sometimes these resolutions are combined, sometimes kept separate. But irrespective they tend to be routinely approved because the board recommends so. Unless you feel strongly about the auditors proposed by the board (for example, perhaps you think they were “imprudent” in respect of the accounts of banks in the last few years, or that they have served to long and may have become too cosy with the directors), then you should probably support these resolutions.

5a. To approve the Directors’ Remuneration Policy. From October 2013, “quoted companies” (i.e. fully listed companies, or those officially listed in an EEA state, or on the NYSE or Nasdaq), are required to offer shareholders a binding vote to approve the directors’ remuneration policy set out in the annual report, at least every 3 years, or if it wishes to make changes to the policy. It is broadly acknowledged that director remuneration has progressively got out of control over the last 30 years, especially at larger quoted companies. A significant contributor to this trend has been the increasing complexity of directors’ remuneration policies. If you find the published remuneration policy unclear or hard to understand, we strongly recommend that you vote against. ShareSoc has published guidelines on directors’ remuneration. We also recommend that you examine these and, if a pay policy does not comply with them, vote against.

5b. To approve the Directors’ Remuneration Report. Each year, shareholders of quoted companies are offered an ADVISORY vote on actual remuneration awarded in the year being reported on. As this is retrospective, a vote against can have little practical effect. Nevertheless, if you are dissatisfied with the awards that have been made, you should vote against. A strong vote against (which does sometimes happen) sends a clear signal to the board that they need to consult more with shareholders before making pay awards.

6. Authority to allot shares and authority to allot shares on a non pre-emptive basis. There are usually two fairly standard and linked resolutions on these matters. The first one typically allows up to a third of the existing share capital to be issued as new shares. This might be used for a variety of corporate purposes, and the really critical part is the second “pre-emption” resolution which restricts doing so except via a rights issue to existing shareholders. This ensures that you do not suffer from dilution without the opportunity to maintain your interest in the company by subscribing for the new shares being issued. 

This is very important and for larger companies the new shares should be limited to no more than 5% of those existing. The percentage is often given in the notes on the resolutions, if not you should work it out. In smaller companies (e.g. AIM ones) you will find that almost anything goes but as a general rule you should vote against anything higher than 15%. If they want to issue more than that (e.g. via a “placing”), they should specifically ask for shareholder approval at the time it is needed and give some justification.

There are some cases where you may want to vote against both resolutions on the basis that you simply do not wish the company to issue more shares for any purposes whatsoever, thus inhibiting corporate deals or fund raising.

7. Purchase of own shares by the company. Whether it is wise for a company to purchase its own shares is a complex topic which ShareSoc has covered in past newsletters. But there surely need to be strong reasons for a company to spend cash doing this rather than paying it out as dividends, via tender offers or even more preferable, reinvesting it in future development of the business. As a result, many ShareSoc Members generally vote against this resolution. But make your own mind up on this issue and vote accordingly. 

8. Donations to political organizations. Large companies tend to include such resolutions, primarily it appears to cover their backsides on what they think are charitable donations but might be perceived as otherwise. If in doubt, vote against.

9. Reduced notice of general meetings. Company law (based on an EU directive) now requires 21 days for all general meetings. That’s not unreasonable bearing in mind that many individual shareholders might go on holiday for two weeks and hence run the risk of missing the voting papers if it was shorter. Those in nominee accounts or overseas shareholders also often have difficulty in getting their votes in within 14 days. But companies argue that they need a shorter period to enable them to quickly react to take-over opportunities or other urgent corporate events. A shorter period very much prejudices corporate democracy because mounting any campaign of opposition to a proposal is difficult enough in 21 days let alone 14. ShareSoc recommends voting against such resolutions as a matter of course.

Companies that omit resolutions 7 and 9 above (which are optional) should of course be complimented on their wisdom. Smaller companies not subject to the Combined Code but who include resolution 5 (on remuneration) should likewise be complimented.

As you can see from the above, it should be quite unlikely that you will find it justifiable to vote in favour of all resolutions at any General Meeting of a company. If you do it probably means you have absolute faith in the directors or are personal friends of theirs.