Q: The ‘against’ votes for some of our resolutions at our AGM have increased in the past few years. How can we mitigate this?
A: Try to identify your shareholder base, understand their concerns and communicate with them effectively. Consider using shareholder identification and proxy solicitation if necessary, which can help you understand who the real beneficial owners and voting decision makers are, especially for institutional investors.
In Hong Kong’s stock market structure, HKSCC Nominees Ltd (HKSCC) is a registered shareholder, under which there are many layers of custodian banks, brokers, institutional investors and retail investors. As the share register records information of registered shareholders only, ultimate beneficial owners or institutional investors may not be revealed. When major shareholders need to abstain on a certain resolution due to a conflict of interest, supporting votes from independent shareholders become critical. However, if you don’t know who your independent shareholders are, it’s far more difficult to know whether the resolution will be carried or not.
To manage this uncertainty, issuers can consider conducting an exercise of shareholder identification and proxy solicitation – working out who the underlying shareholders are and contacting them to provide them proactively with information on the reasoning behind your resolutions.
A shareholder identification report provides a snapshot of shareholder composition at a certain date, including those under HKSCC. It goes beyond the listing rule requirement on substantial holding disclosure (which does not require disclosure down to ultimate beneficiary owner level) and it includes the most up-to-date information. For example, under US SEC requirements, foreign institutions managing over US$100 million in assets must file their holdings on a quarterly basis: however there is a permitted time lapse of up to 45 days. This means that while you can consult such publicly available information, it may not be up-to-date enough for the purpose of specific shareholder identification. By conducting a thorough shareholder identification exercise, you can find out who your institutional investors and ultimate beneficial owners are, allowing you to plan investor relations more effectively.
When the shareholder identification is completed, issuers can make use of the full shareholder report and conduct proxy solicitation exercises to help communicate the purpose of a resolution. Such services can help you communicate the right messages to institutional investors and work on your investor relationships. They also help to ensure that voting instructions from custodians and brokers are received and processed by intermediaries and not lost in the chain. This is very important in securing sufficient supporting votes for contentious resolutions.
Using proxy solicitation, a FTSE-350 company in the UK recently managed to secure sufficient votes for a special resolution when originally they had received over 20% of votes against the proposal. The key institutional investors who had already registered a ‘no’ vote were identified and convinced, after representation from the issuer, to change their vote. In the end the special resolution was carried with more than 80% in favour.
Make sure to contact your registrar well in advance of your AGM so that they can assist with these services.
Ying-ci, Computershare Managing Director Computershare Hong Kong Investor Services Ltd