PwC loses count of CITIC vote

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There was one more surprise to come from CITIC Pacific's AGM - "big 4" accountants PwC had miscounted the vote, by an enormous margin, leaving MD Henry Fan with 225m votes fewer than any other director. The error escaped notice until Webb-site.com rang the bell. The HK Society of Accountants should investigate, as this further undermines investor confidence in our voting system.

PwC Loses Count of CITIC Vote
8th May 2003

"Can I really be so unpopular with my bosses?"

Perhaps that thought when through the mind of Henry Fan Hun-ling (Mr Fan), Managing Director of CITIC Pacific Ltd (0267) as he read the Webb-site.com coverage of his firm's Annual General Meeting, in which we remarked:

"One puzzle in the poll...is that the votes in favour of Mr Fan's re-election were only 949.6m, which is less than the total of shares held by CITIC and Mr Yung, and some 225m votes fewer than voted in favour of the other directors. So at least some of CITIC or Mr Yung's shares were not voted in favour of Mr Fan. We wonder why."

Mr Fan, who had chaired the AGM in Mr Yung's absence, yesterday ordered a recount, and guess what? Big-4 accounting firm PricewaterhouseCoopers (PwC), the auditors of CITIC Pacific who acted as scrutineers of the vote, and Tengis, one of the six registrars now owned by Tricor, had missed not 1 or 2 votes in their tally, but 225,410,961 votes.

While this may be re-assuring for Mr Fan, who now clearly has the full support of Mr Yung and CITIC for his re-election, it does make us wonder how dependable PwC's scrutinising system can be with such a huge error.

Perhaps the lost votes were contained on only one or two proxy forms representing all those shares, but those same shares on the same forms were voted and counted for all the other candidates on the ballot, so how could PwC have missed this? The most obvious check, which we did, was to note whether the total votes cast were materially different from the number of votes cast on other candidates.

If investors are to have confidence in Hong Kong, then it is essential that our shareholder democracy is made transparent, trustworthy and dependable. So we urge the Stock Exchange of Hong Kong Ltd (SEHK) to amend its Listing Rules to require that:

all votes be held on a poll, 1-share-1-vote;
the results of the poll be certified by the auditors as scrutineers, and disclosed by company announcement to the Stock Exchange; and
all polling materials, including proxy forms, ballot papers and tallies, be kept for 7 years, the same period that business records are required by tax authorities to be kept. This will allow for recounts and appeals if necessary.

While the error in this case didn't affect the passage of the resolution, it could be crucial if errors had been made, for example, by the scrutineers on the privatisation vote for Henderson Investment, which was blocked by a margin of 0.03% of the issued shares, or the Boto sale, which was passed by a 53%:47% margin.

Perhaps PwC stands for "Problems with Counting". This may well be a case for the Hong Kong Society of Accountants, as regulator of PwC, to investigate. We need to know why this happened and how to prevent it happening again.

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PwC Loses Count of CITIC Vote 8th May 2003

PwC Loses Count of CITIC Vote
8th May 2003