Proxy Voting

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Corporate Governance and Proxy Voting

 

A lot is said and written about Corporate Governance in general. It is a subject that has many facets. In the last couple of years it has become an increasingly relevant topic. Famous cases in which adequate corporate governance failed are "Enron" and "Worldcom". New leglislation is or will be passed on the several continents.

 

For practical reasons on this site, we'll just say that Corporate Governance is "all activities to control a company". In general there will be many stakeholders involved in controlling the company like; employees, suppliers, customers, banks, (local) governments, environmental groups etc. For the purpose of this site we will however focus on the shareholders and the management of the company as stakeholders that control a company.

 

The distance in the relationship between the management of the company and its shareholders has increased in two ways: structurally - because in recent decades shareholders have become more institutionalised and geografically - because the financial system has become more globalised. 

 

Because of the greater distance between them, there is an increased need for ways to control the management. An important tool is called "Proxy Voting" at the annual general shareholders meeting (AGM).

 

Corporate Governance and Corporate Actions are closely intertwined. Many Corporate Actions Events are subject to prior shareholder approval at the AGM and the AGM itself can also be seen as a Corporate Actions Event.

 

"Proxy voting" means that the shareholder who is not able to attend the AGM in person can legally authorise somebody to cast votes on his behalf. This can be done electronically.

 

Process

This is roughly how the process of an Annual General Meeting works:

1) announcement of the date, time and venue of the meeting by the company

2) announcement of the meeting's agenda and the voting points by the company

3) shareholder to submit his elections for each of the voting points in combination with a "power of attorney" to the person who will cast the votes on his behalf (often this person will offer the same service to other shareholders) at the meeting. For each voting point the shareholder can vote "yes", "no" and "abstain".

4) the votes will be cast and counted

5) announcement of the results by the company.

 

Many corporate actions events are subject to shareholder approval at the AGM, for example:

* rights issues

* mergers & acuistions

* stock split

* reverse stock split

* name change

* assimilation

* bonus issue

* cash dividend

* return of capital

* company buy-back programmes

* spin-offs

* etc

 

Example of an agenda of an AGM (based on a real world agenda):

1. Opening

2. Overview of the Company's business and financial situation (non-voting item)

3. Discussion of the Annual Report 2007 and adoptation of the financial statements for the financial year 2007 (voting item)

4. Evaluation of the performance of the External Auditor by the Board of Management and the Audit Committee (non-voting item).

5. Discharge of the members of the Board of management from liability for their responsibilities in the financial year 2007. (voting item)

6. Discharge of the members of the Supervisory Board from liability for their responsibilities in the financial year 2007. (voting item)

7. Preparation of Regulated Information in the English language (voting item).

8. Clarification of the Reserves and Dividend Policy (non voting item).

9. Proposal to adopt a cash dividend of EUR 0.40 per ordinary share (voting item).

10. Adoptation of the updated Remuneration Policy for the Board of Management (voting item)

11. Approval of the performance stock arrangement, including the number of shares, for the Board of Management (voting item).

12. Approval of the number of stock options for the Board of Management and the number of stock options, respectively shares, for employees (voting item).

13. Composition of the Board of management (non-voting item). Notification of the intended re-appointment of one of the members.

14. Composition of the Supervisory Board (voting item).  Re-appointment of 2 members.

15. Proposal to authorise the board of managment to issue shares or rights to subscribe for shares in the capital of the company, subject to approval by the supervisory board (voting item)

16. Proposal to authorise the Board of Management for a period of 18 months to acquire the company's own shares. (voting item)

17. Proposal to cancel repurchased ordinary shares (voting item).

18. any other business

19. closing

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