SOME DISTANCE TO GO YET
Asia’s proxy voting score: is fair-to-poor good enough?
By Jennifer Lee

Proxy voting is an investor’s main chance – other than walking away – to influence management decisions. Yet the proxy practices of many Asian companies remain stuck in the 19th century. In that era, practices were downright quaint. Voting was by a show of hands (someone who owns a thousand shares has the same influence as someone with one). Notice of meetings was given just two weeks before the date because most investors lived in the same jurisdiction and so found it easy to attend. Contemporary companies in the US and Europe recognize that foreign ownership of shares is on the rise, and are making efforts to see that their proxy voting system gives those investors a chance to voice their opinion. But on the whole, the proxy voting in many Asian countries remains subpar compared with more developed markets.

Among the ten countries (see table) cited in a recent survey by the Asian Corporate Governance Association last month, Hong Kong ranked number-one, but still well below benchmarks in the US, Australia, and the UK. Twenty-two large institutional investors with combined assets of more than US$3 bn who are active in Asian equities responded with their opinions on ten issues surrounding proxy voting. On each issue, guidelines were provided as to what constitutes “best global practice” and “worst global practice”.

Hong Kong – including Chinese Hong Kong-listed companies because respondents were voting for markets, not where companies are based – earned the top spot because it received the most rankings for best global practice (16%) and it ranked best in nine questions out of the ten. Where it excels: giving timely notice of shareholder meetings, giving shareholders enough time to vote before meetings, providing enough information about the issues on the ballot, not clustering meeting dates together, publicizing vote results, and having an independent audit of vote results. But it also received its share of worst global practices (7%). Japan earned the most worst global practice scores (30%), primarily in areas such as timely notice of shareholder meetings, enough time to vote before meetings, and clustering of meeting dates.

Across the board it seems that Asian companies are better in the lead-up to a meeting than they are on the follow-up. For all of Asia, respondents felt that Asian companies in general are good at spreading meeting dates out, of making translated materials available, not bundling resolutions, giving enough time to vote, and giving enough notice of shareholder meetings.

But the areas that need improvement, they noted, include having an independent audit of vote results, publicizing vote results, providing enough and timely information, confirming that a vote has been received, and not voting by show of hands versus voting by ballot/poll. Says the report: “Proxy voting systems in Asia are, by and large, seriously antiquated and in need of improvement … Removing the many impediments to proxy voting would, we believe, contribute to stronger and more efficient capital-market development in Asia.”

Although Hong Kong scored highest, with Singapore a close second, this does not mean they are world-class proxy managers. When given a value ranking, Hong Kong’s 67% is only “fair”, Singapore at 61% is also “fair”, while countries from Malaysia at number-three (58%) and below are rated “poor to fair” or “poor”. The benchmark countries: the US, Australia, and the UK fare better, the US with 79%, UK with 77%, and Australia with 76%, all rated “fair to good”. Note that none of these fall into the category of “excellent”.

Not everyone is unhappy. Stephen Ho, vice president and fund manager at Hansberger Global Investment, a fund with approximately US$9 bn under management, says that his experiences with proxy voting in Asia have been positive, but that could, in large part, be due to the fact that his firm uses Institutional Shareholders Services (ISS), a US-based company that sends out meeting agendas, analyzes what companies are asking, and even makes recommendations on which way a client should vote. (ISS was a participant in the survey.) “ISS is good because it applies one standard across the globe,” says Ho, though he admits to having voted against their recommendations on occasion.

In line with the survey, Ho finds Hong Kong companies to be timely enough on their release of information, and of the three main markets he votes proxies in, Hong Kong is easier than Singapore and Japan, he says. Still, he “would like to see more direct information from the company.” He typically hears the results of a vote when he receives the next announcement of a general meeting, and cannot know whether his vote had an impact or not.