Oil major BP, financial services regulator the Financial Reporting Council and proxy firm ISS are among an unusually diverse group of high-profile organisations that have come together to push for more transparency in proxy voting.
It is the latest iteration of the Shareholder Voting Working Group (SVWG) that was first established in 1999 to take forward the recommendations of the Newbold Inquiry, set up by the National Association of Pension Funds, to make recommendations on raising voting levels.
In 2003, Lord Myners chaired the SVWG and published a review of the impediments to voting UK shares that has led to significant progress such as changes to the Companies Act in 2006 around the rights of proxies and disclosure of poll results, and new best practice guideline for investors under the Stewardship Code.
Now, the SVWG has reconvened and is focusing its attention on proxy voting. The new group includes members from across the UK voting chain such as lawyers, banks, fund managers, corporates and regulators, coordinated by BP’s assistant company secretary and their head of governance.
The group feels trust and transparency in the proxy voting system need improvement, namely: visibility of voting data to issuers and vote confirmation to investors.
It released a discussion paper in July that made a number of suggestions to improve the proxy voting system, including public disclosure of votes by investors, vote confirmation trials and a centralised online gazette.
It invited comment on the paper, with the consultation ending last month.
The paper has prompted a strong response from the investment community. The International Corporate Governance Network (ICGN) has welcomed the conversation, saying proxy voting matters need to be addressed at an international level and recommends industry best practice guidelines for proxy voting activities for all participants in the voting chain.
In a letter to the SVWG, the ICGN says it will be willing to take a coordinated approach globally, noting a number of working groups on the issue in various countries, alongside vote confirmation pilots in different markets. It suggests these groups join efforts.The ICGN supports many of the SWVG’s main recommendations, especially voting confirmation which it says “is an ultimate assurance of the integrity of the proxy voting system”.
It goes further, arguing that national securities regulators should undertake regular independent operational audits of the proxy voting system.
However, on voting transparency, the ICGN warns there could be practical issues with early access to voting data by issuers, arguing that public availability of voting decisions prior to shareholder meetings may lead to unwanted and unwelcome publicity, and that investors should retain the right to not communicate their voting position in advance.
But, the ICGN does say that investors should disclose their votes on a regular basis and provide rationale for votes against management.
The Investor Relations Society, which represents public companies and consultancies, has also welcomed the paper, saying their members are concerned about the current perceived lack of visibility in vote confirmation.
The group says: “Currently, despite increased efforts in engagement on the part of the issuer, there sometimes appears to be a disconnect between the asset manager and the beneficial owner who may be the decision maker. Issuers are not able to easily identify the voting decisions of these beneficial owners in a timely fashion, regardless of prior and early engagement with the asset manager.”
It says it would support any initiatives to improve the voting processes including more clarity on timing and transparency of vote confirmation.
But it says it that it’s aware of the greater focus and scrutiny of the proxy voting process and results in a changed voting landscape that includes a binding vote on pay policy, the Stewardship Code, and the requirement for directors to be re-elected very year. “Subsequently, among our issuer members we are seeing earlier and therefore increased engagement between issuers and investors. We would expect correspondingly more transparency and consistency in the vote data over time too.” The SVWG will meet in November in how to take its effort forward.