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Totting up shareholder rebellions is a feature of every UK AGM season. After all, significant dissent is still rare in meetings that, generally, produce overwhelming support for directors and boards. The median result is more than 95 per cent in favour, even on pay votes, according to Deloitte.
What counts as a meaningful protest vote is set at 20 per cent. The figure was only added into the corporate governance code in 2018, at the urging of Theresa May’s government, but the idea that “significant” votes against deserve explanation appears in 2013 legislation. The 20 per cent figure was subsequently agreed upon that year by a group of issuers and investors.
City reformers want to change that. The Capital Markets Industry Taskforce, an influential grouping led by London Stock Exchange boss Julia Hoggett, last week called the 20 per cent threshold “arbitrary and distorting”, arguing that “sufficient votes being cast to pass [a] resolution should be all that is required”.
This school of thought — like an unenthusiastic student — says a pass is good enough: the convention for a company with a sizeable vote against to explain how it will consult with shareholders, and for the result to be entered in the Investment Association’s “Hall of Shame” register, should therefore be scrapped, it argues.
CMIT’s proposals are interesting, in part because of the group’s apparent hotline to the Treasury. The unusual inclusion of the lobby group’s letter among the official government documents published alongside the Autumn Statement will not help City mutterings that the group, which has done a lot of work around reinvigorating the London market, is being afforded special status over other interested parties.
The task force is right, though, that the threshold is arbitrary. The actual effort involved in consulting with shareholders after such a vote is, say advisers, often pretty minimal. But the prospect of being put on the IA register can deter gun-shy boards from putting out proposals at which proxy advisers or certain investors would balk, even if they would win enthusiastic majority support elsewhere.
Contrary to popular belief, there has not been a notable rise in so-called low votes over the past decade: Deloitte says 8 to 12 per cent of FTSE 350 companies receive one each year on pay. But the rise of passive investing, proxy advisers and the internationalisation of shareholder registers arguably make it harder to reach all the investor base. Deloitte found that 40 per cent of FTSE 100 companies had suffered a low vote over the past five years, a figure that would drop to 25 per cent if the threshold for a significant vote against were raised to 30 per cent.
It seems reasonable to review the threshold. But the UK is not unique in having one. South Africa sets its limit at 25 per cent; Australia has the “two strikes” rule, where the board faces ejection if they suffer 25 per cent protest votes in consecutive meetings on pay. Even in the US, proxy adviser Institutional Shareholder Services assesses companies’ responsiveness to say-on-pay votes receiving less than 70 per cent support, and will recommend voting against pay proposals or board members if unsatisfied.
It is debatable how much difference scrapping the threshold entirely would make. Most boards would continue to engage, say advisers. External interest in low votes will not evaporate. Other organisations, such as ShareAction, could step in to maintain the register of dissent were the IA’s discontinued — and frankly, they would be likely to use that data more aggressively.
What the task force is really after is a symbol. One that lessens the hold on voting outcomes of the loathed proxy advisers, whom campaigners accuse of applying different standards between markets and failing to engage with companies — and one that tilts the balance of power between governance teams in large institutions and the portfolio managers, who reformers claim are at loggerheads.
Neither charge is entirely fair, or straightforward — not least because research published this month found that fund managers’ voting still is not aligned with the priorities and governance views of UK asset owners, aka their clients. Tweaking rules can only get London so far while those underlying tensions remain.