Latin American Corporate Governance Roundtable

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Latin American Corporate Governance Roundtable
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Voting Rights and the Right to Vote
Stephen H. Dover, CFA - March, 2001
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Protecting the Residual Owners
A History of Shareholder Voting
In Person (Community rights)
Local Ownership, Meaningful Communication /
Control
By Proxy (Investor rights)
Dispersion Leads to Disenfranchisement
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Residual Owners Vs Management
Entrenched Management
Agency Problem
Management controls the voting process
Management controls Board of Directors
Excessive Compensation not linked to shareholder
value
Small shareholders incorrect presumption of
protection
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Is this really a need for shareholder
participation?
Part I
The Wall Street Rule - Vote with your feet
If management is not trust worthy dont buy the
stock
Legal / Regulatory control is enough
Market Control Self regulation
Non-voting shares offer participation in profits
and liquidity
A minority vote is powerless anyway
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Is this really a need for shareholder
participation?
Part II
Institutional Investors have a Fiduciary Duty to
vote
Participation can incent better management
An active independent Board can change management
The threat of replacement improves management
Encourages investing instead of trading
The Wall Street Rule Value left on the table
Trust is the oil of the market
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Non-voting shares
Looks like stock, but its not
What is the value of a meaningful vote?
Residual ownership VS right of participation in
profits
Dependent on benevolence of majority owners
Increases importance of regulation for protection
Basic right should be full participation in
profits (tag along)
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Key Problems and Policy Recommendations
Institutional shareholders need to take a more
active role
Shareholders should exercise their right to vote
as a fiduciary duty
Minority rights of non-voting shares should be
vigorously upheld
Institutional investors should develop a voting
policy
Voting policies (especially mutual funds) should
be disclosed
Passive (index) funds should vote no Wall Street
Rule benefit
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Key Problems and Policy Recommendations
Voting rules should be modified
Voting rules need to be simplified and
standardized
Adequate time to vote
No open issues (other business) on the agenda
Include reasonable shareholder initiated proposals
Greater use of proxy voting services
Allow mail and internet voting
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