Published November 13, 2008

Funds want voice for their buck at AGMs

Changes to voting rules sought, but funds allay concerns of listed companies

By UMA SHANKARI

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(SINGAPORE) An increasing number of funds that have money invested in Singapore-listed companies now want to have a say in how the company is run. And their participation, they feel, is increasingly important in light of the current economic crisis.

For a start, more fund managers would like to attend annual general meetings (AGMs) and extraordinary general meetings (EGMs). But right now, these funds, who hold their shares in companies through custodian banks, find themselves locked out of meetings as their names are not on shareholder registers.

To get over this obstacle, an industry-wide effort to get more seats at meetings is now gaining strength. And if they succeed, fund managers also want to change the way votes are counted at meetings.

Right now, voting at AGMs and EGMs is done by a show of hands - which means every attendee gets an equal say. Fund managers, on the other hand, think that a shareholder holding 10 per cent of a company's stock should get 10 times as many votes as a shareholder owning one per cent.

'More fund managers want to engage companies through AGMs and EGMs,' says Peter Taylor, head of corporate governance at Aberdeen Asset Management Asia. 'The financial crisis is making engagement more urgent.'

Says another fund manager: 'A lot of us want to attend meetings. But right now, there aren't enough spots for us. The way companies are run seems more important today than a year ago.'

As matter stands now, most fund managers and high net worth individuals who invest in companies listed here hold their shares through nominee companies of local custodian banks, such as Raffles Nominees and DBS Nominees. Because a fund manager's name is not on the shareholder register, it formally has no right to attend meetings.

To compound the issue, most Singapore companies (listed and unlisted) allow a shareholder who is entitled to attend and vote at a shareholder meeting to appoint no more than two proxies to attend and vote in his place. While companies have the option to allow a greater number of proxies, few do so.

Local custodian banks in Singapore often use both proxy cards to vote for their clients. Even if the custodian bank decides to aggregate all voting instructions on one proxy card, leaving one free to be given to a client, it still means that the bank must choose among clients if more than one wishes to attend a meeting. Typically, the biggest client or the first request wins.

Such dilemmas are increasing, industry players tell BT. What fund managers want now are amendments to the Companies Act and the Singapore Exchange's listing rules to allow nominee companies operated by custodian banks to appoint multiple proxies to shareholder meetings.

The Asian Corporate Governance Association (ACGA) - which represents about 80 members, including global and regional pension and investment funds - made a submission in October 2007 to the Monetary Authority of Singapore, the Accounting and Corporate Regulatory Authority and the Singapore Exchange to allow these changes. But the movement has now become more urgent with more fund managers than ever wanting to have their say.

'Multiple proxies would remove current obstacles to fund managers participating in such meetings and would strengthen Singapore's position and reputation as a leading financial centre in Asia,' says Jamie Allen, secretary general of Hong Kong-based ACGA.

Both ACGA and several fund managers BT spoke to are hopeful that revisions to the Companies Act, which could come in mid-2009, will allow multiple proxies. The authorities have set up a working group to look at this issue, BT understands. If the much-wanted changes go through, then more equitable voting and electronic voting will be next on ACGA's agenda, Mr Allen says.

The two-proxy rule in Singapore differs from the legal norm or market practice in other major financial markets with which Singapore competes, such as Hong Kong and the UK, according to Mr Allen. It also appears to be incongruent with Singapore's policy of encouraging the active participation of institutional and other investors at shareholder meetings, he says.

While custodian banks here tell BT that they are in favour of allowing multiple proxies, there is some resistance from listed companies - which are concerned that shareholder meetings could get out of control, BT understands. But fund managers insist that there are likely to be just five to 10 fund managers attending each meeting at most, which companies listed here can easily accommodate.