Last year, ESMA conducted a consultation on the topic of empty voting, designed to find out the nature and extent of the decoupling of voting rights from economic ownership. Last week, they published the responses received, and concluded that no regulatory action is necessary – possibly because the overwhelming majority of respondents could cite no concrete evidence of empty voting.
The most prominent examples of potential empty voting are where stock has been lent out, or sold after the record date for registering shares to vote but prior to the meeting. In both cases, it is held the entity in possession of the ability to exercise voting rights (either the borrower or the previous holder) maintains a voting right without bearing the economic consequences.
So it should be easy to work out if empty voting is occurring, just by looking at ownership records? Well, not at all, precisely because ownership (especially cross-border ownership) is notoriously difficult to establish because of the complexity and opacity of the ownership chain. Even where ownership is clearly established , the decision-making process of the investor is also important in determining the existence of ’empty voting’ (i.e. the degree to which the voting decision in practice lies with another entity, such as a proxy advisor).
In the context of ESMA’s other (more recent) consultation on voting (the regulation of proxy advisors), we have an interesting conundrum here. On the one hand, we have commentators saying that empty voting cannot be measured because of the complexity of ownership records, despite there being enough momentum to justify a regulatory consultation on the matter. Yet on the other hand, we have issuers citing statistics which claim to prove the degree to which proxy advisors are supposedly directing voting outcomes. And where we do present strong evidence of abuse in the voting chain the complaints are ignored (vote tapping, pooled nominess et al).
Without better information on the decision making processes of institutional investors or the nature of the ownership chain between investors and issuers, ESMA will struggle to reach conclusions on either question. But, with the line between politics and corporate governance blurring by the
day minute at the moment, a conclusion may yet remain to be seen.