February 16 2004
The Institute of Chartered Secretaries and Administrators recently published a guidance note on the conduct of voting at general meetings. The suggestions set out in this note are summarized below.
There are two possible methods as to how voting may be conducted at general meetings. Customarily, voting has tended to be carried out on a show of hands. However, as a result of the disruption of a number of high-profile shareholder meetings, some companies now deal with certain or all resolutions through a poll. If a vote is taken on a show of hands, every member has one vote, but any person who is there as a proxy for an absent member cannot vote on a show of hands in that capacity. If a poll vote is taken, each member has one vote for every share he owns. In this case a proxy can vote, exercising the same number of votes as the member he represents.
This method enables a company to deal with an issue instantaneously. It tends to be quicker, avoiding unnecessary formalities and extra cost, and the result is immediately available. Shareholders who attend the meetings can demonstrate publicly how they feel about an issue and those private shareholders who could feel overwhelmed by the larger holdings of institutional shareholders are placed on an equal footing.
Certain problems exist with expecting all business to be conducted on a show of hands. If a poll is demanded, an unsuspecting company may be taken by surprise which may lead to confusion, significant embarrassment and disruption to the proceedings. While giving each shareholder one vote is arguably a good measure, it is easy to see how a small group could manipulate the outcome. In a poorly attended meeting such a group can override a smaller number of shareholders who may have a larger number of shares. In this way the one shareholder, one vote situation could be seen to be undemocratic. Shareholders who cannot attend the vote may feel disenfranchised, as a common misconception is that proxies are ignored unless a poll is called. Where a vote is close, the decision as to whether the resolution is passed can be subjective unless an accurate count is taken.
Transparency is perhaps the major advantage of voting by poll. Shareholder votes are seen to be counted according to the number of shares held. An exact and definitive result is obtained, and much of the disruption which accompanies a show of hands is avoided.
The drawbacks of holding a poll vote include the time and paperwork involved. The voting cards must be distributed and collected, and extra time taken to count the votes. The general outcome of the poll may be known relatively quickly, but the actual result may not be known until some time after the meeting has been concluded. Shareholders, especially those with small holdings, may feel powerless against the larger holdings of institutional shareholders. Therefore, such shareholders may feel disinclined to attend.
In order to ensure the smooth running of a meeting if a poll is demanded, when carrying out a vote by show of hands certain precautionary measures should be taken. Shareholders should be questioned before the meeting to see if there are any possible topics on which a poll may be demanded. Certain administrative tasks should be undertaken, such as the drawing up of a script for the chairperson to use should a poll be called. Poll cards and a ballot box should be available if necessary. The company's articles should also be checked, as it is from here that the chairperson's ability to call for a poll normally derives.
If a poll is intended to be held on some or all resolutions, companies may take certain steps before and during the meeting in order to ensure that shareholders attending the meeting do not feel aggrieved by the lack of opportunity to vote on a show of hands. The pre-meeting notice should explain that a poll will take place and why this is so. Poll cards should be circulated in some way before the meeting, saving time and helping the meeting to run efficiently. The chairperson should explain the process and reiterate the reasons for the poll. Poll cards should be completed as each resolution is proposed.
Shareholders should be given the opportunity to ask questions on the issue at hand and express their views. The chairperson should monitor these questions and make sure that everybody gets their chance to talk. The chairperson should check that there are no further questions on each specific resolution as it is proposed. Care should be taken to find the correct balance between adequate debate on a matter and disruption of proceedings by an aggrieved party.
As it may take time to determine the results of a poll, many shareholders may have left the meeting by time they are announced. Companies are encouraged to display the results on their website as soon as they are available and listed companies should issue the results in a regulatory announcement to the market. As regards a show of hands vote, it may be advisable to issue an announcement of the results, simply saying that all the resolutions were passed. Importantly, the Combined Code on Corporate Governance requires, on a show of hands, the counting of all proxies and the indication of both the level of proxies cast for and against the resolution and the number of abstentions.
It would be not be correct to say that either system is better than the other. It is clear that there is debate as to which is more democratic.
Small companies and those which have lower shareholder attendance at their meetings, where there would be less chance of disorder, would perhaps be keener to avoid the extra effort which a poll vote requires. However, this is not to say they should not be ready for one.
Larger companies which seek the smooth running of the meeting and the transparency which accompanies poll votes are more likely to opt for this method.
For further information on this topic please contact Andrew Hoad or Jonathan Ling at Nabarro Nathanson by telephone (+44 20 7524 6000) or by fax (+44 20 7524 6524) or by email (firstname.lastname@example.org or email@example.com).
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