Webb-site.com launches Project Poll
3 March 2003
In Jan-02, Hong Kong Exchanges and Clearing Ltd (HKEx) launched a consultation on the corporate governance aspects of its Listing Rules. We made a 5-part submission, and 337 members of the investing public supported us with e-mailed submissions, which HKEx controversially chose to count as a single submission, while counting 110 submissions from unnamed listed companies separately, even though many were probably inter-related.
If that sham of a consultation process seems familiar, then it's probably because you've been to a typical Hong Kong General Meeting where each resolution is decided on a show of hands (OPOV, or one-person-one-vote), and almost all the publicly held shares are represented by a single person from HKSCC Nominees Ltd (owned by HKEx), who raises a single hand on each resolution, while the listed company swamps her with employee-shareholder hands and then declares the resolution "passed" without further ado. All the proxy votes sent in by absent investors are not counted, and nobody knows how many shares would have voted in favour or against each resolution.
The Jan-02 consultation on the listing rules included a section on general meeting procedures. In our piece Count The Votes, we submitted that one-share-one-vote (OSOV) is an essential principle of shareholder participation in corporate governance, and that Hong Kong's Victorian town-hall system of a show of hands is incompatible with international best practice.
In its consultation and conclusions, HKEx said that it plans to amend the rules (they are not yet out) to require a poll on connected transactions and other matters on which independent shareholder approval is required, but not on "less important matters".
That is a half-baked pudding which we will not eat. The subtext of HKEx's response is "we know that controlling shareholders will normally determine the outcome, so who cares what the public shareholders think?" This overlooks the fact that you don't have to win each vote to make your point, but there's no point in standing up if you won't be counted.
If, for example, the majority of independent shareholders voted against the reappointment of an independent director, but the controlling shareholder used his 51% shareholding to re-elect his friend, then the market should still be informed of the outcome and the level of the opposition. Similarly, if directors' pay has gone through the roof while profits head through the floor, then a protest vote against their ability to set their own pay would be in order.
We cannot even begin to contemplate management accountability in Hong Kong without transparency in the voting process.
We warned in our article a year ago that if HKEx didn't fix this rule, then Webb-site.com would do so. Well, they didn't, and we will. It is shameful that it has come to this, but in the interests of holding management accountable to shareholders, and bypassing the glacial pace of regulatory reform, we will set an example by introducing polling to the largest companies in Hong Kong.
We are taking advantage of a little know provision in company law, and today announce the launch of Project Poll.
At some expense, funded by Webb-site.com editor David Webb, and quite a bit of legwork, we have acquired 10 shares in each of the companies in the Hang Seng Index, and of course 10 shares in HKEx itself. We wouldn't want them to feel left out! We have arranged for 5 persons to be a member of each company, each holding 2 shares.
Under Section 114D of the HK Companies Ordinance, 5 members (registered shareholders) of a company, present in person or represented by a proxy, can require a poll to be held. David Webb or another proxy will attend each general meeting of each company and require a poll on each resolution on behalf of the 5 members. Incidentally, if listed companies collude to hold simultaneous meetings Japanese style, then we may need a few volunteers to attend them - so contact us if you can spare the time!
Project Poll is not intended to be disruptive but to improve the transparency of shareholder meetings and the accountability of management. You'll probably hear howls of protest from the listed companies claiming that counting votes is incredibly expensive and time consuming. Don't believe it. Democracy is cheap. The process of conducting a poll is very simple. In summary:
- HKSCC Nominees Ltd (owned by HKEx) which, as nominee of the clearing system, represents most public shares, will send in its proxy form as usual, stating the total number of shares it represents in favour and against each resolution.
- Most other registered holders will vote by mailing in their proxy. The deadline for receiving proxies is usually 48 hours before the meeting. By the time of the meeting, the registrar will already know the total of all proxies received, for and against each resolution.
- A few (mostly retired) registered shareholders or proxies will attend the meeting, and each will be handed out a ballot card as they enter, recording the number of shares they are entitled to vote. If they have also sent in a proxy card, this will be removed from the pile to avoid double-counting.
- After discussing each proposed resolution, or after all discussions, the ballot cards will be completed, collected and tallied, added to the proxy votes of absent owners, and the results will be announced. For most companies, with few shareholders present, this will not take long. In the case of large turnouts (such as the MTRC), the meeting may be adjourned and the results announced later.
- For best practice, we recommend that the poll be scrutinised by the auditors, who should certify the results.
That's all there is to it. In case you are wondering, 5 of the HSI companies are not incorporated here. 4 are incorporated in Bermuda, and 1 (HSBC Holdings plc) lives in England, where it holds its meetings. We'll get that covered too. Section 77(5)(b) of the Bermuda Companies Act requires a poll if demanded by 3 members, and Section 373 of the UK Companies Act has a similar provision for 5 members to demand a poll.
Believe it or not, there's nothing yet in the rules to require the results of a poll to be published, although HKEx has proposed it. So in the meantime, if companies do not publish the results, Webb-site.com will.
Open the doors
Public companies should hold their meetings in a public manner. Non-registered shareowners, or potential investors, have a right to know how a company deals with its shareholders in general meeting. Sadly, most companies in Hong Kong hold their shareholder meetings behind closed doors, with no observers from the media allowed. We're going to change that too!
You may have wondered why each member of Project Poll holds 2 shares, not 1. That is because Section 114C(2) of the HK Companies Ordinance allows each member to appoint two proxies by law, or more than 2 if the Articles of the company allow it. We will use our spare capacity to appoint journalists as proxies to attend the meetings. If you are a journalist and want to witness a little piece of history in shareholder activism, contact us and we will try to accommodate you. Obviously this offer is limited to 5 journalists per meeting, so book now - tickets will be scarcer than the Rolling Stones, but a lot cheaper, as we won't be charging.
A message to listed companies
For those of you in the Hang Seng Index, you now know that you will be holding a poll in your General Meetings this year, and probably for ever after. You have plenty of time to prepare. You can steal our thunder by voluntarily announcing, in your notices of Meetings, that voting on all resolutions will be by a poll, and that the meeting will be open to media observers. Bonus points for any company which does this, but we will still be there just in case.
For those of you who are not in the Hang Seng Index - well, it is an antique index anyway, but you can enhance your transparency by making the same commitments.
For shareholders in other listed companies
We don't have the manpower resources to cover every listed company, which is why we have started with the big ones in the index which normally represent over 70% of market capitalisation. but if your company is not in the index, and you want a poll in its general meeting, and are willing to attend, then we can provide 4 more members to hold 1 share each to appoint you as proxy, and you can then demand a poll yourself. Just contact us and we'll tell you how. You will need to pay stamp duty and registrar fees which should come to about HK$8.50 per member.
There is one resolution proposed at each Annual General Meeting which sticks out like a sore thumb for minority shareholder objection. It is the general placing mandate, which allows management to dilute your property rights (your share of the company and its assets) by up to 20% at any time in the year without further approval, by issuing shares in a placing to supposedly independent third parties without offering them to you first in a rights issue.
In our next article, we will launch Project VAMPIRE (Vote Against Mandate for Placings, Issues by Rights Excepted), the campaign against the general mandate in its current form. Project Poll means that even if we don't block the general mandate, we will succeed in registering the level of opposition of public investors to it.
© Webb-site.com, 2003