Shareholders: Stop Voting against yourself
Investor Action to Stop Vote Miscount at Company AGM
This is no sales ad nor request for favours of you, but an important notice in your interest as public investor. Though prompted by problems at Unilever company’s (AGM) Annual General Meeting and the Certificate Holders Meeting in 2005, every shareholder of any publicly listed (Dutch) company can benefit from the following piece of information and advice. It is all about making your own opinion count during the votes cast at the shareholders meetings of publicly listed companies.
Many investors are familiar with the constant frustration of the majority of shareholders at company annual meetings when outvoted with huge margins often above 95% by ‘yes’ in favour of every proposal of company executive boards, however wrong, undesirable and harmful such proposals may be. The problem lies in the present unfair voting rules which enable all undeposited shares to be automatically counted in the vote by the Company Shares Administration Office. In totally nontransparent fashion, the Company Shares Administration Office always votes to support the Executive Board against the glaring opposition of the majority of attending shareholders. No matter how strong the opposition by even large institutional investors and small investors combined against an unfavourable Board proposal, investors always end up being counted as carrying far too few votes to stop a board proposal from being rubber-stamped by the shareholder’s meeting. This has always been the case not only at Unilever, but at all large companies, because the Company Shares Administration Office is itself selected and paid by the Executive Board. It means that shareholders cannot withhold executive decisions when necessary. For example, when ridiculously high executive pays are being approved, or less favourable dividend decisions are being made, or unwanted terms are to be paid on preference shares which are bitterly opposed by most shareholders. The surprising fact about this problem is that YOU as shareholder have most often unwittingly and so unknowingly voted against yourself and against your own interest, as explained below.
It is obvious that such unwitting voting against yourself would result in other company decisions being taken than when your vote is correctly counted as you intend it. Unintended company decisions lead to unintended executive actions and wrong spending which cost the investors collectively millions of euros of missed return on their investment each year. That is quite apart from other impacts in terms of avoidably poorer executive performance. It means that investors are not able to intervene when management is going drastically wrong. That is quite frustrating for active investors who are enlightened and are interested in improvements. Reports by the news media and by analysts about investor frustration can lead to reduced investor trust in executive action, and to reduced corporate integrity. That is of no benefit to any one. The rules of voting and vote counting enforced by most companies, especially those so-called Certificate companies, are designed and implemented to make you vote against yourself, whether you are an active or an inactive shareholder. The active shareholder either attends the meetings to vote personally or when absent, sends in an own explicit voting choice by proxy or through a power of attorney to ensure that the own opinion is rightly counted in the votes at the shareholder’s meeting. By inactive shareholder is meant one who owns shares but does not attend company general meetings, and does not make his voting choice of ‘yes ‘ for or ‘no’ against executive proposals known through the proxy-process. This gives the Company Shares Administration Office the chance to automatically vote for the shareholder even against that shareholder’s very own wish and against that one’s wish. How that happens is explained below.
How Inactive shareholder’s votes get counted against them
Since you as inactive shareholder do not attend company general shareholders meetings, and do not indicate by proxy which way to vote (yes for or no against proposals), the ‘Company Shares Administration Office’ automatically assumes the right to vote for you. Historically without any known exception, that ‘Office’ has always voted ‘yes’ to all board proposals, if only because the members of this ‘Office’ are invariably selected and paid through the company’s head office. With shareholders of multinational companies spread around the whole world, the majority are too far away to attend such meetings; and therefore fall victim to the automatic ‘yes’- votes by the ‘Office’ even when that is against their wish. Such inactive shareholders form by far the greatest majority and their votes are cast to serve management rather than to benefit them as shareholders. This is the very core of the problem that shareholders are never able to defeat an undesirable company proposal when necessary. As investor you can prevent this by insisting on using your proxy-voting right and actually indicating your choice of ‘yes’ or ‘no’ on the voting form which you send in when you are unable to attend shareholders meetings. At any rate, you should support the investor protest to stop the practice of automatically having the ‘Company Shares Administration Office’ vote ‘yes’ for you. Advice: when unable to attend company meetings, always vote by proxy by indicating your own vote as to ‘yes’ or ‘no’ on points.
How Active shareholders often unknowingly vote against themselves
If you choose to attend shareholder’s meetings, you are still likely to unknowingly vote against yourself as follows. Let us assume that you are an active shareholder with 100 company certificate shares in your stock account at a bank or stock broker’s. When as investor you tell your bank that you want to attend the company general meeting, invariably just a few (say 10) of your shares are deposited for counting according to your voting choice at the meeting, and these are blocked from being traded until after the meeting. The remaining 90 shares are not blocked, and are at any rate automatically counted towards the ‘yes’ votes by the ‘Company Shares Administration Office’. This means that when you as attending shareholder do vote ‘no’ to a proposal at the meeting, only 10 shares count as ‘no’, while the remaining 90 shares in your stock account are still counted as ‘yes’ votes by the Company Shares Administration Office. In effect, as investor at the meeting, you have also voted against your very own wish by a margin of 90 to 10. To avoid voting against oneself in this way, the investor should always ask the broker or bank to deposit all shares in the stock account for the meeting. In this example, you need to deposit all 100 shares for your votes to count 100% as you wish. If for whatever reason you find it necessary to deposit only some and not all your shares for attending a meeting, it is very important that you still prevent your remaining undeposited shares from being automatically counted among the shares voted for by the Company Shares Administration Office For this reason, you should support the action indicated below to stop the automatic counting of undeposited shares among those represented by the votes cast by the Company Shares Administration Office.
Advice: Do not let your broker or bank make the decision for you as to how many of your shares to deposit for a company general meeting. YOU should decide and tell the bank or broker, and preferably deposit all your shares or certificates. Only then will your vote count as you wish.
Support investor protest against automatic votes by the ‘Company Shares Administration Office’.
The above shows the inadequacy of existing voting rules which were set up by company boards to suit themselves, and facilitate your voting against yourself as shareholder. It is to be expected that company boards will not change these vote counting rules simply because some shareholder has pointed out how unfair the rules really are. Some company board members will no doubt be tempted to tactfully resist the needed change in the way they have resisted the implementation of the codes of the (Dutch) Tabaksblat Commission by introducing exclusion clauses. Hence you are called upon as shareholder and investor to support the following investor-motivated action to stop automatic voting by ‘Company Shares Administration Office’. Towards this end, and to ensure that your vote is always counted as you personally intend it, you should support the following general investor’s petition to stop the present rules that allow grossly unfair voting counts at company shareholder’s meetings. To support the protest please send an email to the Executive Board of the company with the following statement or to a Securities Market regulatory body to collect and hand over to the company board. You should state as follows:
“As shareholder, I hereby express my support for preventing further automatic voting by the Company Shares Administration Office for undeposited shares at shareholder’s meetings. Whenever I do not explicitly personally indicate my vote to be ‘yes’ or ‘no’, I want my position to be honestly counted as ‘abstaining’ and not be counted as ‘yes’ nor as ‘no’. This is the only honest way to count my vote as I intend it.” The statement does not cost you anything, does not infringe on your rights and does not bind you to any obligations.
In the case of Unilever, the summing of those who support this action is sent to the Board of Unilever, requesting an end to deliberate vote miscounts. For the sake of clarity, you are hereby informed that this web page is only a neutral, non-commercial help information channel for investors world-wide. It does not pretend to offer any commercial services not is it related to any commercial banking nor investment activities of any kind. By using it, you are not committed to any obligations, nor are you tied to any risk. The letter headed “What is at stake” was sent to the Board of Unilever, to request an end to the present unfair rules which enable the Company Shares Administration Office to unduly automatically cast votes for undeposited shares at shareholder’s meetings. They wrongly count undeposited shares as voting for or against proposals and mislead the vote count as if the owners of those shares really wanted to so vote; which could not be further from the truth. That letter headed “What is at stake”, and this action in fact apply to all publicly-listed Dutch companies, and not just to Unilever.
What is At stake
The present voting rules which automatically allow undeposited shares to be counted as ‘yes’ or ‘no’ votes are so unfair and deceptive that some want to call that fraud. That is because present counts imply that the owners of those shares invariably agree with management proposals when that is not so. In reality those shareholders have said nothing, neither ‘yes’ nor ‘no’. At the most, one can say theoretically that half of those shares may have voted ‘yes’, and half may have voted ‘no’. The fact remains that such shares always far outnumber the shares deposited by those shareholders in attendance at shareholder’s meetings. Current voting and vote-counting rules misuse the power of that super-high number of undeposited shares. To stop such misuse, it is hereby requested and indeed proposed that those rules be stopped, and that on no account will undeposited shares be allowed as counting for or against specific board proposals at shareholder’s meetings. If one does not intend to be unfair, the most that can be said is that undeposited shares count as ‘abstaining’ in the votes, and certainly do not count as ‘yes’ votes.
What is at stake here is the honesty of the company Board itself, as long as current unfair rules remain in use. The result of these unfair vote-counting rules is that other decisions are approved than would be approved under fair conditions. Unfair vote-counting results in rubber-stamping unwanted decisions despite strong opposition to those decisions. That has always been the case even when the majority of the shareholders in attendance plus those who voted by proxy were clearly opposed to the specific decision at hand. That is frustrating for those in attendance, and spoils the mood during meetings. It leads to a distrust of the company board, and of the management culture, and casts a shadow on the integrity of the company as a whole. Some shareholders even see this in relation to poorer corporate performance than is necessary, and therefore as a threat to the appropriate return on their shares.
It is hoped that your awareness of the above will result in more ethical, more honest voting and vote-counting rules, and lead to more efficient and more effective investor influence at shareholder’s meetings. That will be to the benefit of the shareholders and of good management.
One trusts that your board will act in good faith and support this positive shareholders action.
Yours sincerely World Investor