Tuesday, 10 November 2009

Why how shareholders vote matters

I'm at home looking after The Boy today, and he's currently in mid-snooze so thought I would bung up a link to a paper (PDF) on 'corporate voting' that looks interesting, though I don't share its approach. I found this remark particularly interesting:
"[I]n principal-agent settings, voting provides legitimacy to a system by which agents act for the larger group. It serves both to legitimize the choice of the agent as well as a means to monitor the work of the agent."
There is a really bad argument advanced in some quarters that voting doesn't matter that much. I understand the point - though I would counter that it is often made by organisations whose own voting is sometimes questionable - and it has some validity. But I think it hugely underestimates the legitimising function voting performs. All those votes fund managers cast in favour of executive remuneration policies matter, those votes against trade union-backed resolutions matter, and their votes against governance-related resolutions matter. Unless it genuinely is the case that the issue being voting on has been dealt with, a vote in favour is an endorsement, will be read as such by the company, and will be portrayed as such to the market. When Stuart Rose survived the LAPFF resolution at the M&G AGM this year he didn't say "I take on board the scale of the vote in favour" he said "we won". Companies know this, so should trustees. And they should hold their fund managers accountable for questionable voting decisions.

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