Bringing Automation To the Proxy Ballot Box
February 28, 2011
It's that dreaded time of year again. Proxy voting time.
Thousands of companies around the world typically hold their annual meetings from March to July, leaving fund managers worried about whether they have the right information about corporate agendas and whether they have enough time to digest the contents and cast ballots, before balloting is over. They even have to worry about who can vote, how and when, from a legal standpoint. And automation of the process isn't always the norm.
Some of the worry could turn to relief thanks to advancements in standard messaging and electronic procedures from the Society for Worldwide Interbank Financial Telecommunications, Broadridge and Euroclear. Regulatory changes are also helping promote the automation.
In November, HSBC Securities Services in Hong Kong became the first bank to use the new International Organization for Standardization 20022 proxy message formats introduced by SWIFT in 2008.
The new formats were used to communicate information on corporate agendas of Hong Kong companies through Broadridge Financial Solutions.
HSBC in Hong Kong can also send Broadridge, the world's largest proxy distribution and voting firm, it has accepted or rejected the vote instruction using an ISO 20022 compliant message.
SWIFT, based in Belgium, operates a global messaging network that transports both ISO 20022 messages, based on the World Wide Web's eXtensible Markup Language, as well as older messages that use ISO 15022 formatting. But only the ISO 20022 standards are geared to proxy messages.
Neither SWIFT nor Broadridge could provide figures on the volume of messages now sent through the ISO 20022 format by HSBC, but both tout the merits of reducing operational risk.
"Receiving corporate agendas in ISO 20022 formats allows us to process them more quickly without concern for potential errors in reinterpreting information appearing in free format texts," says Elizabeth Maiellano, senior director of institutional product strategy for Broadridge. HSBC officials were unavailable for comment.
Using the new ISO 20022 format also makes it easier for Broadridge to reconcile any information received from HSBC with data from exchanges and other sources. HSBC Securities Services in Hong Kong had previously used the ISO 15022 message format to send corporate agendas to Broadridge for onward distribution to institutional investors.
"Even the ISO 15022 corporate action messages were not ideal because they were specialized for corporate action notifications," concedes Karin De Ridder, global market manager for asset servicing at SWIFT. "As a result, corporate shareholder meeting information provided by issuers or their agents was either incomplete or required the use of additional narrative text which could lead to misinterpretation and errors."
Euroclear, the Brussels-based family of international and European local securities depositories has also teamed up with Broadridge, to electronically disseminate general meeting information to Euroclear's bank and brokerage members; manage pre-meeting registration for shareholders where applicable; collect voting instructions from shareholders; transmit voting instructions to issuers and confirm votes were cast.
Investors will then cast their votes through Broadridge's ProxyEdge service as well as the SWIFT network and another Broadridge service called Investor Mailbox.
Although the service is set to be launched in the Netherlands, the goal is to extend the service to other European markets where Euroclear serves as the national securities depository.
"It is still very cumbersome to receive information on corporate agendas in a straight-through processing approach and cast votes in some markets such as France, which remain largely paper-based," says Mohamed M'Rabti, director of product management for Euroclear in Brussels.
"The Netherlands was chosen first for our service with Broadridge because it adopted pan-European legislation promoting shareholder rights last summer," he says. "The country also is working on a new domestic regulation which would allow issuers to know who all their investors are."
The affiliation comes just three years after the European Commission adopted the Shareholders Rights Directive, which requires companies headquartered in the European Union member countries to create standards to remove obstacles to shareholder voting.
Those include allowing shareholders to vote electronically if they wish and corporations to disclose the voting results on their websites. Last year, EuropeanIssuers, a trade group representing about 9,200 European companies, also recommended that European securities depositories play a greater role in ensuring standardized electronic proxy communications and voting by investors.
Although such initiatives have gone a long way to promoting good corporate governance and efficiency, it's not a panacea. Each European Union market is free to interpret pan-European legislation as it wishes; France still requires "wet signatures" on proxy ballots which makes electronic voting impossible. And in other markets corporations must check with their bylaws to know if they can comply with the legislation. Euroclear U.K. & Ireland, the U.K. & Ireland's central securities depository, already offers an electronic proxy voting service.
There are even more practical obstacles. Most U.S. institutional investors typically receive information on U.S. corporate agendas and cast their votes electronically through a service offered by Broadridge. But when it comes to overseas meetings, fund managers must rely on a series of financial intermediaries to receive information and cast their vote.
The information on corporate agendas typically comes from local newspapers or banks in either paper, proprietary message formats or the older ISO 15022 compliant format. That means that investors may find out about corporate agendas either too late to vote or not at all. Some of those overseas banks and brokerage firms are using Broadridge to outsource the process of contacting investors and collecting votes electronically.
Broadridge's Maiellano is hopeful that HSBC Securities Services' adoption of the new ISO 20022 message formats will boost interest from the other 300 subcustodians which use ISO 15022 message types to communicate information on corporate agendas to Broadridge.