Citibank's response on vote-stuffing
19 June 2014
Citibank has responded to our article yesterday with the following statement, in full:
"As custodian, Citi is in no position to unilaterally create or initiate any instruction with respect to corporate events such as proxy voting. Such instructions are initiated by the holder of securities or their duly appointed delegates. Citi will continue to act on authenticated instructions from our contracting clients or their appointed delegates."
These legalese gymnastics simply won't wash. Citi was named as custodian in TDR prospectuses (including Yorkey), and whether it receives instructions directly from the issuer's management, or via the depositary registrar (in this case, CTBC Bank), it should not accept instructions to appoint a single discretionary proxy on behalf of the entire TDR issue. It is blindingly obvious that by doing so, they are facilitating vote-stuffing, because it is impossible that 4,114 TDR holders would each want to appoint the same human to vote their shares at his or her discretion (for or against). Nor would those TDR holders knowingly delegate their voting rights to management, even if it is buried somewhere in the depositary agreement.
It is also clear from Citibank's Depositary Receipt brochure that they regard discretionary proxies as part of their service when they do act as depositary to ADR issues. The TDR structure is probably a direct import from America. This is morally unacceptable. The New York Stock Exchange on 1-Jul-2009 amended Rule 452 to prohibit their broker members from voting client shares without instructions from beneficial owners on director elections.
For Citibank to shrug its corporate shoulders and claim to just be following instructions is no different in principle to turning a blind eye to instructions which amount to money-laundering, for which Citigroup is currently under investigation. Any agreement they have with the issuer or the depositary of TDR programs should prohibit voting instructions which are not from beneficial owners.
The response is most disappointing because they could have taken the moral high-ground and said "alright, we hadn't thought about this, it is clearly inappropriate and not consistent with Citibank's commitments to shareholder rights, nor is it consistent with rules in our home market, so we will not accept such instructions in future, and will obtain representations from depositaries that all instructions are from beneficial owners" - but they didn't. Instead, they just went into denial of responsibility. Think again, Citibank. Do the right thing.
If you are a shareholder, institutional or retail, how would you feel if your broker or custodian voted your shares, or appointed a management-nominated proxy to vote your shares, without your instructions? Again, we call on the HKMA and SFC to stop this practice which threatens shareholder democracy and corporate governance in Hong Kong.
Update: you've read the article, now watch the video on CNBC.
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