Seaman Kwok, Head, Corporate Secretarial, Boardroom Corporate Services (HK) Ltd, and Director, Boardroom Share Registrars (HK) Ltd, argues that more flexibility should be given to listed companies to use the most appropriate voting method for passing resolutions at general meetings.
The Hong Kong listing rules provide that ‘[a]ny vote of shareholders at a general meeting must be taken by poll’. The above rule – Rule 13.39 (4) of the Main Board Listing Rules and Rule 17.47(4) of the GEM Listing Rules – took effect as of 1 January 2009. However, the full rigour of the rule was mitigated as from 1 April 2012 with the stipulation that this was subject to the situation ‘where the chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands’. The author lobbied in the press and through written submissions to the Hong Kong Exchanges and Clearing Ltd (the Exchange) for the 1 April 2012 amendment. The change shows that, under suitable circumstances, there could be alternative arrangements under ‘one share, one vote’.
The previous practice was for voting on a show of hands on all resolutions unless a poll was demanded by the chairman of the meeting, or by a certain number of shareholders or a shareholder/shareholders having a certain percentage of the voting rights as specified by the listed company’s constitutional documents such as the articles of association or bye-laws.
The author believes that there are still a number of the drawbacks with the poll voting rule and there may be a need for some lateral thinking. The suggestions below are personal to the author and only intended to start a relevant discussion of the issues raised.
1. Time-consuming and no instant voting results
Shareholders present in person, by corporate representative or by proxy and voting at a general meeting, usually do not know or will not be informed of the voting results instantly on the spot as most listed companies will close the meeting before the votes cast have been scrutinised and counted. Therefore, only those shareholders who are smartphone users/personal computer-literate and can access the respective websites of the Exchange (as long as it is a day on which the Exchange is open for the business of dealing in securities) and the listed company can read the poll results announcement after 4:15pm on the date of the meeting at the earliest.
Though not a common practice, certain listed companies may arrange for a break of the general meeting to enable the scrutineers to verify and count the votes cast and the poll results to be announced before the meeting is closed. However, the greater the number of shareholders attending and voting at the meeting, the longer the time the scrutineer will take to finalise the poll results. This is a well-known reality, and perhaps it is time for a rethink as to why shareholders are required to wait for the voting results. There must be better administrative arrangements.
2. Costly and difficult to ascertain accurate voting results
From the company’s perspective, there are additional fees for retaining a scrutineer (which must be the listed company’s independent auditors, share registrars or external accountants) for dealing with the votes. From experience, this could range from four to five times the fees charged by the listed company’s share registrars in Hong Kong for dealing with votes by a show of hands at a general meeting.
Further, extra charges may be levied by the scrutineer if the verification and counting of votes have to be completed at the general meeting. In view of the time constraints and the possible associated human errors, accuracy of the poll results announced within a short time span on the spot cannot be fully guaranteed.
The situation could be mitigated by electronic means. However, currently, to the author’s knowledge, there are only three large listed companies in Hong Kong (namely AIA, the Exchange and MTR, each having a huge number of registered shareholders and higher shareholder attendance) which use electronic voting at their annual general meetings such that the poll results for each resolution can be announced promptly after the votes. However, the relevant costs are high and this may well be the reason that so few companies have adopted the electronic voting method.
3. No ultimate benefit
Minority shareholders will lose in the same ordinary resolutions whether a vote is by poll or a show of hands (unless they outnumber the controlling shareholders or substantial shareholders (as defined in the listing rules) or the ‘relevant shareholders’ (as defined below) who attend and vote at the general meeting. Also, even if the minority shareholders present outnumber the relevant shareholders, controlling shareholders or substantial shareholders at the meeting, a poll could be demanded by the latter before the declaration of the unfavourable voting results by a show of hands.
Additional administrative and other work as well as the associated costs (such as typesetting and translation costs) and time are required for preparing the poll results announcement in both Chinese and English to be published in accordance with the listing rules.
In view of the matters discussed above, the author believes that further thought needs to be given to the identified issues. The author believes that more flexibility should be given to a listed company
to use the most appropriate voting method for passing its resolutions at general meetings.
A review of the listing rules will show that written approval (in lieu of holding a general meeting to approve) is allowed for a major transaction from a shareholder or a closely allied group of shareholders who together hold more than 50% in the nominal value/number of the securities having the right to attend and vote at the general meeting (the relevant shareholders) if no shareholder is required to abstain from voting thereat (the absolute 50% majority rule).
If the relevant shareholders attend and vote on the ordinary resolutions proposed at any general meeting, each of the resolutions will be passed or will not be passed in the way they cast their votes at the meeting and the minority shareholders will not be able to reverse the voting results irrespective of whether the vote is by poll or by a show of hands. This is entirely consistent with the ‘one share, one vote’ principle, and the author is not aware of any severe public criticism of the absolute 50% majority rule.
Further, the author understands that the listing rules or their counterparts in the US, the UK, Mainland China, Australia and New Zealand do not require voting by poll on any resolutions at a general meeting. Nor has there been any evidence indicating that discussion or deliberation on any proposed resolution at a general meeting by the shareholders present is impaired if voting on the same is not taken by a poll (that is, by a show of hands instead). Voting by a show of hands means that each registered shareholder or proxy shall have only one vote, and under the Hong Kong Companies Ordinance, if a shareholder appoints more than one proxy, the proxies so appointed are not entitled to vote by show of hands.
In view of the above, the author’s thoughts are that there should be a discussion as to whether voting by poll at a general meeting should be only applicable to:
- any special resolutions on which the relevant shareholders are not required to abstain from voting, and
- all other resolutions on which the relevant shareholders or shareholders having a material interest are required to abstain from voting where the reasonable safeguards set out below are in place.
- The detailed procedures for demanding a poll is (a) stated legibly and prominently in the circular accompanying the notice of the general meeting at which the relevant resolution(s) will be considered and voted; and (b) explained clearly at that general meeting and questions from the shareholders or their corporate representatives and proxies regarding the same be answered thoroughly.
- The level of proxy received by the chairman of the general meeting (including the way the votes will be voted) be disclosed before the declaration of the voting results of a resolution if it is voted by way of a show of hands.
- The chairman must demand, and any director of the listed company present must demand or procure the chairman to demand, the voting by a poll if the level of proxy received by him/them together would indicate the opposite voting results by a show of hands had the relevant resolution been voted by a poll.
- The existing listing rules requirement that all votes on the resolutions (except those relating to a purely procedural or administrative matter)at a general meeting must be taken by poll be deleted on the one hand but be included in the Corporate Governance Code as contained in the listing rules as a Code Provision (subject to the ‘comply or explain’ principle). Arguably, this would result in sufficient pressure from a listed company’s competitors and market players to adopt a responsible approach.
In conclusion, as the mandatory poll voting rule has been implemented by listed companies for seven years, perhaps it is time for the Exchange to review and, if it considers it necessary, to amend or modify it.
Seaman Kwok FCIS FCS
Head, Corporate Secretarial, Boardroom Corporate Services (HK) Ltd, and Director, Boardroom Share Registrars (HK) Ltd