Meeting with Link Asset Services

I recently attended a meeting with Link Asset Services who claim to be the largest UK share registrar. In addition to me there were two senior managers from Link and two ShareSoc directors (Mark Northway and Mark Bentley). ShareSoc and I do of course have a long-standing interest in ensuring shareholders can and do vote their shares at General Meetings. Other matters discussed were the problems created by nominee accounts, in the Shareholder Rights Directive (SRD), in the Central Securities Deposit Regulation (CSDR), in dematerialisation, and many other issues related to shareholder’s rights. I hope that rather technical, long-winded sentence does not put you off reading this note because there were many important issues discussed.

We first discussed one of the personal issues I had raised with Link – namely the issue of paper proxy voting forms not being issued by many companies. See previous blog post on that subject at one company here: https://roliscon.blog/2018/09/20/worldwide-healthcare-trust-agm-but-no-proxy-voting-form/ . One of the reasons we are getting poor corporate governance and wildly excessive director pay in some companies is because private shareholders generally do not vote at General Meetings.

It was explained that one reason for this change is that it does actually increase the percentage of shareholders who vote. It seems if investors receive a paper proxy card, they often put it aside to deal with later but never do, or perhaps can’t be bothered to go to a post box. Link’s experience is that investors are more likely to vote when prompted to do so by email (even more so, if SMS can be used).

Link gave us some figures on proxy voting which as we already knew are astonishingly low. For shareholders on the register only 5.5% actually voted in the last year, out of 5.6 million holders. The percentage of shares that were voted was much higher at 63% but that is probably because institutional investors do vote more reliably.

The low turnout of individual shareholders I would guess is for a number of reasons. Some think they have no influence on the outcome which will be determined mainly by institutional shareholders so don’t vote except on critical events, those on the register may be long-standing holders of one or two paper share certificates, but the big problem by far now is the number holding their shares in nominee accounts where the broker does not provide an easy to use proxy appointment system. More on this issue later.

I did express an aversion to using the Link app (SignalShares) to vote but was assured it was easy to use and I would still get paper annual reports if requested. However, I have since tried to register for the app and as a Personal Crest member it’s damn difficult. It asks several questions which were difficult to answer. It not just requires your Investor Code (which will be on dividend payments, IF the company pays a dividend). But it also asks for your Crest Id, which no Personal Crest member normally ever needs to know and I could not easily find, and your Crest Member Account Number and I have no idea what that is at all. So I gave up. I still feel that paper proxy voting forms should therefore be sent to shareholders, particularly Personal Crest Members. If a Notice of a General Meeting is being posted, as is legally required, it’s not much more cost to include a proxy voting form.

I have had problems with registering for voting services with other registrars so I still feel it is unsatisfactory to remove paper proxy voting forms. Suggesting you can phone up to get one if necessary is not a satisfactory solution. Just time wasting. Even if I could manage to register for their app, that would still leave the problem of having multiple accounts and multiple log-ins for different holdings. It’s just too complicated. I might have to use my own form as I have previously suggested if Link and the companies that employ them persist with this approach – see https://www.roliscon.com/proxy-voting.html . Link stated that they were perfectly happy with this (as they are legally required to do), as long as the form was filled in clearly.

If all the registrars could get together and provide a common electronic voting system for all share holdings that was easy to use, and register for, then I would welcome it. But at present it’s a dog’s breakfast of a system.

Other matters discussed with Link were:

Impact of Brexit. One issue here is that companies listed on the Irish stock exchange are currently registered within the Crest system but that would no longer be approved if the UK exits, particularly on a “hard” Brexit. There may need to be an alternative clearance system put in place for Irish listed companies.

Dematerialisation: Nothing is happening, as usual no progress it seems. It would be required if we had stayed within the EU or agree regulatory compliance of financial services with them, but the Government has other things on its mind at present.

Ensuring all shareholders in nominee accounts are enabled to vote via their nominee operator. This requires a simple change to the Companies Act which again is not likely to happen in the near future. Note that some brokers do provide an easy to use service in this regard – e.g. the Share Centre with their own system and others via Broadridge. But investors still have difficulties with AIM companies and knowing when a vote is due. It was suggested it would be helpful if registrars or nominee operators could advise shareholders when a vote was due via email. Even those nominee operators who don’t offer a voting service legally have to do so for ISA accounts under the ISA regulations. It was agreed that it was key to getting people to vote that they be notified by email or text message when a vote was due, although personally I would not be keen on text messages.

An alternative is for all nominee accounts to be uploaded to the share register before a vote takes place and then registrars could solicit votes from everyone. But there are potential timing issues here.

Improving voting turn-out. Another reason why many shareholders do not vote, in addition to the reasons given above, is because they do not understand the resolutions on AGM agendas, or cannot easily decide how to vote. For example, Remuneration Reports can now run to many pages. Will private shareholders spend the time to read that part of the Annual Report and understand it? Unlikely particularly as many will not even see the Annual Report. ShareSoc is working on an initiative to tackle this problem which is for them to provide a proxy advisory and voting service that will actually vote an investor’s shares based on ShareSoc recommendations if they register for the service.

The impact of the CSDR. This is being implemented in UK law. The problems at Beaufort were discussed and the fact that nominee holdings are generally “pooled”, i.e. undesignated and hence there are no individual holdings recognised in the Crest system. This means there can be problems when a broker collapses because the shares held by clients may not have been recognised in the pooled share registrations. In fact this did not seem to be a significant problem at Beaufort whose records were generally accurate but has been at other failed brokers. There needs to be some regular reconciliation of client holdings to pooled Crest holdings it was suggested. Needless to say this would not be a problem if designated (i.e. personal named) accounts were used, which are supported by Crest already. One aspect that might help is that one of the new CSDR regulations (38.5 was mentioned) requires an account to be designated if the client requests it. But will the brokers even tell their clients about this?

The trend in share registration was discussed. The numbers of individual shareholders on share registers is not falling apparently, which contradicts what I was told by one broker a few years ago when he said that dematerialisation will not become a problem as soon all paper share certificates will disappear. That appears not to be the case. We do need dematerialisation, i.e. a new electronic share registration system. But Personal Crest members are declining rapidly as brokers are now actively discouraging the use of that system and withdrawing it.

Attendance at General Meetings. Not only are the number of proxy votes submitted by shareholders low but attendance at AGMs is also low. In small cap companies there are often no ordinary shareholders present – and that’s not just companies who hold their AGMs at inconvenient times or inconvenient locations. It was generally agreed that “hybrid” AGMs were the way to go, i.e. having both a physical meeting and on-line interactive web-cast where you can ask questions. In the short-term just web-casting an AGM can be helpful to some investors.

Regulation of share registrars was discussed. This is something I have advocated recently. Registrars are a key component in the UK financial system so it is odd that they are not regulated. I suggested that possibly some informal code of practice could be developed – perhaps sponsored by ICSA – as a step in the right direction.

In summary it was a useful meeting and no doubt some of these issues will be discussed in future meetings.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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