Although of course this idea is not entirely selfless, we believe it offers two important advantages to public policy. First, more votes would be exercised: many readers - especially those using nominee accounts - do not vote because they find the process time-consuming and often complex; however they would be willing to give proxies to us. We assume you would agree with us that more voting by or directly representing the views of smaller shareholders is an unalloyed good thing. Second, by banding together and voting through a public medium such as the Investors Chronicle, individual shareholders' votes should count for more, for all the same reasons that in politics parties speak louder than individuals.
We should observe that if this idea could be made to work, we would expect the City sections of the quality press and many other bodies too, such as the UK Shareholders Association, to gather proxy portfolios in a similar way, each promoting voting policies on the main corporate governance issues that would engage their readers' attention. They would also report on how they planned to vote and had actually voted. Thereby, individual shareholders would be offered a variety of voting profiles and would be able to lend their voting capacity to whichever proxy holder most closely represented their views. For instance, as we said in our 11 May issue, our inclination would be to vote against many remuneration committee reports and we would be sceptical about the routine reappointments of auditors.
The reason for this letter is to describe a serious hurdle. Because arranging individual proxies for every company meeting would be impractical, our scheme rests on participants signing an "enduring proxy". We expected this enduring proxy would encounter many obstacles in practice, including sceptical registrars and you-cannot-be-serious stockbrokers. But it did not make it even that far. The statutory position on proxies (rooted in a Companies Act schedule called the Model Articles) requires shareholders to complete a fresh proxy for every meeting. Thus, although our readers wish to give us ongoing proxies, companies, stockbrokers and registrars would be unable to recognise it even if they were willing.
Even if we had solved this problem, a further major obstacle of course lay around the corner. This is that the only party able to give a proxy is the shareholder named on the register and in the case of our readers, this will often be the nominee company of the stockbroker, which is also geared up to deal with voting one meeting at a time – and rather expensively at that.
I am hoping you might be sympathetic to what we are trying to achieve and might ask your department to review the possibility of amending the regulations governing proxies. Section 146 of the 2006 Companies Act provides that shareholders "who hold shares on behalf of another person may nominate that person to enjoy information rights". This is to enable beneficial owners holding shares through nominee accounts to receive directly from the company its annual report and other communications. What is needed in our view is a provision similar to Section 146 providing for a shareholder to designate another party to enjoy voting rights. And whereas Section 146 offers nominee shareholders the option to designate information rights, it should of course instead give beneficial owners the right to them and any new provision to create enduring proxies should also make it obligatory rather than optional for agents to recognise these rights.
Once such a regime was in place, it would be fairly straightforward for stockbrokers handling nominee accounts to be obligated to recognise blanket instructions from individual clients to implement "master enduring proxies" whereby the client could assign in one action all his voting rights to another party until rescinded. And this might even reduce the workload in brokers' corporate actions departments. I said might.
Naturally companies, and on their behalf registrars and custodians, will warn you against the complications and expense involved in this course of action, but we feel sure you will be able to point out that when they find themselves implementing the forthcoming European Union Securities Directive, the extra hassle of creating enduring proxies will be very modest indeed.
