Shareholder Meetings and Practices in Leading Economies

 

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Shareholder communication in India has improved quite a lot in the last few years. Timely dissemination of information, use of electronic means for communication, provision of e-voting facility, etc. are some of the contributing factors in this increase of engagement and communication between minority shareholders and company management. Some of the facilities provided by Indian companies are in line with global standards whereas a lot is left to be desired in other areas.

This article compares shareholder meetings and communication practices followed by Indian listed companies with some of the leading economies in the world. The comparison is done on the basis of types of resolutions proposed, communication of shareholder meetings and ease in voting processes. The comparison parameters are: Ordinary & special resolutions – their relevance and requirements, time requirements for sending of meeting notices to shareholders, sending of meeting notices in physical as well as electronic form, provision of e-voting facilities and provision of voting by proxies. The countries compared with India are China and Japan in Asia, France and United Kingdom in Europe and the United States of America.

India

Shareholder meeting agendas in most of the leading countries (USA is an exception) comprise of two kinds of resolutions/proposals, viz., ordinary resolutions and special resolutions. Ordinary resolutions are proposed for ordinary business matters as appointment of directors, auditors, dividends, etc., while special resolutions are for proposals that result in alteration of the share capital, change in the MoA or the AoA, change in terms of remuneration of directors, mergers, sale of undertakings/assets and other special businesses. Ordinary resolutions require a simple majority of those participating in the voting while a special resolution requires either 2/3rd or 3/4th of majority depending on the countries.

Ordinary resolutions in Indian companies require a simple majority while special resolutions require more than 75% votes in favour to be approved. However, certain special resolutions, which are of interest to the majority shareholders/insiders, require the concerned shareholder(s) to abstain from voting. Companies give notice of the shareholder meetings at-least 21 days prior to the meeting (Sec-101-1 of The Companies Act, 2013). The notice is sent to shareholders either in physical form or in electronic form (emails) if an email address has been is provided. Provision of e-voting facility a recent phenomenon which has been mandated for the top-500 listed companies. However, many companies outside this category are also availing of the e-voting facility. NSDL (National Securities Depository Limited), CDSL (Central Depository Services Limited) and Karvy are the three platforms which offer e-voting facilities to the shareholders. In case of companies where e-voting facility is not provided, resolutions are put to vote through show of hands or a poll, if demanded (Sec-107-1). Proxies, as is the case in all the leading countries, are allowed to cast votes.

Summary of Shareholder Meetings and Practices in Leading Economies

India

China

Japan

Ordinary Resolution More than 50% More than 50% More than 50%
Special Resolution More than 75% More than 66.6% More than 66.6%
Notice of Meeting 21 days 20 days for AGM and 15 days for other meetings 14 days
Meeting Notice – Physical form Yes No. Details are provided through newspapers Yes
Meeting Notice – Electronic form Yes, if email is provided No Yes
e-Voting Process Yes, top 500 listed Companies avail Yes Yes, but only for foreign and institutional investors. ~400 listed Companies avail
Voting by Proxy Yes Yes Yes

France

UK

USA

Ordinary Resolution More than 50% More than 50% Yes
Special Resolution More than 66.6% More than 75% No, but Supermajority voting provisions are there
Notice of Meeting 15 days 21 days for AGM and 14 days for EGM 10 days before record date
Meeting Notice – Physical form Yes Yes Yes
Meeting Notice – Electronic form No Yes, if investors opt Yes, if investors opt
e-Voting Process Yes, through VOTACCESS Yes Yes, through a vote service provider
Voting by Proxy Yes Yes Yes

China

Ordinary resolutions require a simple majority while special resolutions require a 2/3rd (66.67%) majority. Notice of the meeting is sent at-least 21 days prior to an AGM and 15 days prior to a special meeting. Notices are not sent directly to shareholders in either physical or electronic form. However, meeting details are provided through the newspapers. E-Voting facility is provided through the Shanghai Stock Exchange (SSE) Online Voting System.

Japan

Japanese shareholder meetings are notorious for the ‘sokaiya system’ – the corporate bouncers and share unit system which makes it impossible for retail shareholders holding few shares to attend meetings. In the share unit system, shareholders are invited to the meetings with regards to the number of share units they own, instead of actual number of shares. A share unit typically consists of a number of shares, e.g., 100 or 1000 shares. Hence, a retail shareholder holding fewer shares will not be eligible to attend the shareholder meeting or cast his/her vote. Another bad practice is the holding of AGM of most of the companies on the same date at the same time making it impossible for the shareholder holding shares of multiple companies to attend meetings in each of the companies. However, steps are being taken to address these concerns by the government and the regulatory agencies.

Like China, ordinary resolutions require a simple majority while special resolutions require a 2/3rd (66.67%) majority. Notices are sent at-least 14 days before the shareholder meeting through both physical and electronic form. E-Voting facility is provided only for foreign and institutional investors through the Tokyo Stock Exchange (TSE) Electronic Voting Platform. There is no information on whether or not retail resident shareholders avail any e-voting facility.

France

Shareholder meetings in France require a quorum of at-least 1/3rd of members of the company. However, if proposals related to amendment of AoA are to be placed, a minimum of 50% of shareholders must cast their votes. Like China and Japan, ordinary resolutions require a simple majority while special resolutions require a 2/3rd (66.67%) majority. Special resolutions are for proposals of amending the AoA. French companies also have the concept of a ‘unanimous resolution’ for which unanimous approval is required. Increasing shareholders’ liabilities and obligations requires such proposals.

Notices are sent at-least 15 days prior to the meetings through physical copies. Electronic means for shareholder communication is not used by companies. E-voting facility is provided mostly by VOTACCESS platform; other platforms also provide this service, although to a very lesser extent.

United Kingdom

Shareholder communications in UK and India are similar to each other. Ordinary resolutions require a simple majority while special resolutions require 3/4th (75%) majority to pass. Meeting notices are provided at-least 21 days before AGMs and 14 days before EGMs, in physical form or through emails, if investors opt for it. E-voting facility is provided through Sharevote and other platforms. UK based companies also provide the option to register votes through telephonic voting, although it is used rarely.

United States of America

Resolutions, by default, are approved through a simple majority in the United States. While there is no concept of a special resolution, supermajority voting provisions are present. Through the supermajority voting requirement, a proposal can be approved only if it receives a greater level of support than a simple 50% majority. As per NYSE exchange rules, notices are sent at-least 10 days before the record date for the meeting. There are many vote service providers like Broadridge, ISS, etc., through which investors can cast votes on resolutions.

Conclusion

When compared under the above parameters, Indian practices are in line with the global counterparts. However, the level of engagement from the shareholder’s side has not seen a dramatic upsurge in the recent times. The practice of e-voting is a welcome change but needs a greater level of investor education in order to make them aware of and comfortable to use the facility. Also, the low penetration of internet in India may be a factor in e-voting taking some time to strengthen retail shareholders’ participation in corporate actions. However, actions taken to strengthen minority shareholders’ rights, in form of increased disclosure requirements, abstaining majority shareholders to vote in certain proposals, increased accountability on directors – both non independent as well as independent, as well as e-voting, will definitely motivate shareholders to have a greater say and increased participation in company matters.

Soumya Dash, Analyst, InGovern Research Services