Minerva’s problem is the shape of its shareholder register. Around 35 per cent of the shares are held by private investors, including many bought through execution-only brokers whose stock will be held in pooled nominee accounts. As David says, some execution-only brokers don’t try very hard to get the underlying holders to vote. This will almost certainly result in depressed turnout and with a stake of only 29.9 per cent Mr Kirsh has achieved voting control of the company.
In another case of thwarted voting, National Express’s rights issue saw some hedge funds wanting to back the Cosmen family, which opposed the fundraising. Despite instructing their prime brokers to vote against the rights issue, nothing happened.
The Times suggests that perhaps the Takeover Rules need to be reviewed and that a much lower ownership threshold of 19.9% should be introduced to force a bid.
“But this seems a drastic step for what does not yet seem to be a widespread problem. Shareholder voting turnout has actually been increasing in recent years. According to Manifest, the proxy voting agency, it reached 66 per cent last year compared with only 42 per cent in 1992.
The focus should be on persuading shareholders to vote and ensuring that the procedures for hedge funds actually work, rather than moving the goal posts.”
In Manifest’s view it isn’t just about making procedures work for hedge funds, they need to work for all investors. At the moment the banks and prime brokers are in the driving seat. All too often their policies and procedures on voting are predicated on what’s most profitable for them, not what’s best for their clients. Unfortunately we don’t have a MiFID requirement for “Best Execution” in voting. More’s the pity. The FSA rule book has been disappointingly silent on the exercise of shareholder’s ownership rights, concentrating far more on the market for transferability.
Lord Myners and the Treasury want to see a step change in the stewardship of companies. Without enabling legislation, or at least enforcement of existing rights, we wll continue to see democratic processes subverted for short term commercial, and conflicted gain.[David Wighton referred to extracts from Manifest’s European Proxy Voting Review 2009 which is available for purchase here].