Important initiatives from SEB to make the proxy voting process in Denmark more efficient
Recent years have seen a considerable increase in foreign shareholders’ interest in Danish listed companies, and thereby in foreign shareholders’ wish to exercise active ownership. Unfortunately, the proxy voting process in Denmark is still both complicated and inefficient, even though the participants in the proxy voting chain, including SEB and VP, have done their best to increase its efficiency.
At the end of September 2018, 53 per cent of the share capital issued through VP Securities A/S was registered to foreign owners. Most of this share capital was registered to nominee accounts, which means that the de facto foreign shareholder is not registered by name in the relevant company's shareholder register.
In 2018, it is estimated that more than 50,000 foreign shareholders, mainly institutional investors, sought to exercise active ownership in the Danish companies in which they had invested. Yet during the 2018 AGM season, 37 per cent of the voting instructions were dismissed, due to non-compliance with formalities (according to VPs annual AGM analysis) – primarily due to lack of approval of powers of attorney (PoA).
Danish proxy voting “regime” presents challenges
“It is hardly a secret that the proxy voting process in Denmark is not on a par with other processes and standards – or with the proxy voting process in many other countries. From a practical viewpoint, one of the key obstacles to achieving an efficient proxy voting process in Denmark is the requirement for the owner to be registered in the company’s shareholder register, with a PoA being required from the beneficial owner. The PoA has to be sent through the chain of stakeholders and intermediaries, i.e. shareholders, custodian banks, proxy agents, sub-custodian banks, share registrants, issuers, and so on. This ‘journey’ gives rise to several challenges and risks of error,” says Lasse Larsen, Head of Investor Services Denmark at SEB.
In cooperation with other intermediaries in the value chain – and at the express request of the large international custodian banks – in recent years SEB has worked on optimising the Danish proxy voting process. Among other things, SEB has developed a semi-automatic process for connecting PoAs in place with voting instructions received, as an element of easing the approval of PoAs.
SEB has developed a process for more efficient handling of PoAs
“In short, the process ensures that once a PoA has been approved, the approval applies across companies – so that you only have to perform the time-consuming procedure once. This has harmonised the process, increased efficiency, minimised risk and reduced the number of errors. We give high priority to cooperation across the value chain, since mutual initiatives are necessary to ease the proxy voting process. This also signals to the global community within our field that steps are being taken to create mutual understanding and interpretation of the process. We have therefore offered use of our process to VP,” says Lasse Larsen.
“At VP we are pleased that we have had the opportunity to use the same methodology as SEB. After adapting it to our specific role in the value chain, we have – like SEB – achieved increased efficiency,” says Flemming Merring, Head of Issuer Services at VP.
“We have done what we can to optimise the proxy voting process, but the current regulatory framework entails a number of constraints on any further significant optimisation.” Lasse Larsen, Head of Investor Services Denmark at SEB.
Light at the end of the tunnel?
Unfortunately, the current regulatory framework entails a number of constraints on any further significant optimisation of the proxy voting process. Yet there may be light at the end of the tunnel, since the amended Shareholder Rights Directive adopted in April 2017 and subject to implementation in the individual EU countries gives opportunities to simplify the proxy voting process in Denmark. The Directive states that it must be ensured that intermediaries, such as the nominee account holder, facilitate the exercising of rights by shareholders, including the right to vote at general meetings.
“What is needed is to allow for a kind of ’nominee shareholder‘ and ’nominee licence‘ in the Danish Companies Act, under which a nominee can act as a shareholder, but be instructed by the actual shareholder. Then no proxy will have to be presented and rejections will fall to a minimum.” Flemming Merring, Head of Issuer Services at VP.
“However, this may be easier said than done, since it is not safeguarded by the text of the amended Directive, nor by the recently approved implementing regulation, which sets minimum requirements for the transmission of information and facilitation of the exercising of shareholders’ rights. What is needed, in VP’s view, is to allow for a kind of ’nominee shareholder‘ and ‘nominee licence’ in the Danish Companies Act, under which a nominee can act on the basis of a nominee PoA from the de facto shareholder. If this idea is implemented, the ’nominee shareholder‘ will be registered in the company's shareholder register and thereby authorised to vote as a shareholder. This means that no proxy will have to be presented – giving a marked simplification compared to the current proxy voting process,” says Flemming Merring.
“We hope that lawmakers will seize the opportunity to make the necessary regulatory changes in connection with the implementation of the amended Shareholder Rights Directive.” Lasse Larsen, Head of Investor Services Denmark at SEB.
“I really hope that some of the elements in the amended Shareholder Rights Directive and its implementation will pave the way for significant streamlining of the proxy voting process, even though the Directive does also present some challenges. We will – hopefully together with the other participants in the proxy voting chain – do our utmost to promote the implementation of the necessary regulatory changes to facilitate the exercising of shareholders’ rights and to put Denmark in the top quartile where we rightly belong,” Lasse Larsen concludes.