Corporate Governance and Proxy Voting

It’s not very visible to a lot of people.

A first thing to realise is that it is not something that many people will come across daily. It would be interesting to see if a little poll will proof this statement.


A lot is said and written about Corporate Governance in general. It is a subject that has many aspects and it continues to evolve. Below you will find a description of the backdrop of the industry.

In the years between 2000 and 2010 it had become an increasingly relevant topic in the US. Famous cases in which adequate corporate governance failed were “Enron” and “Worldcom”. In other countries similar problems were observed. New legislation was or would be passed on several continents.

The most well known legislation that came into effect in the United States of America was the Sarbanes-Oxley (SOX) Act of 2002 and its main aim was to help protect investors from fraudulent financial reporting by corporations. A helpful guide explaining the Act can be found here.

The latest version of the UK Corporate Governance Code (formerly known as the Combined Code) sets out standards of good practice for listed companies on board composition and development, remuneration, shareholder relations, accountability and audit. The code is published by the Financial Reporting Council (FRC). On 16 July 2018 the FRC published the updated UK Corporate Governance Code. The new Code applies to accounting periods beginning on or after 1 January 2019

The new code is accompanied by an updated guidance on board effectiveness and UK Corporate Governance Code 2018 highlights.

It’s a fascinating field and it’s easy to get carried away. For practical reasons on this site (, we’ll just say that Corporate Governance is “all activities to control a company”. In general there will be many stakeholders involved in controlling the company like; employees, suppliers, customers, banks, (local) governments, environmental groups etc. For the scope of this website we will zoom in on only the management of the company and the shareholders as stakeholders that control a company.

From the management of the company’s point of view the Code explains in detail what the rules are that Companies “should” comply with (note that it is a Code that is introduced on a “comply or explain” basis, due to the fact that a “one size fits all” approach is not deemed just).

From the Investor’s point of view, the most important passage in the Code is:

  • Investors should engage constructively and discuss with the company any departures from recommended practice. 
  • When considering explanations, investors and proxy advisers should pay due regard to a company’s individual circumstances. 
  • Proxy advisers have every right to challenge explanations if they are unconvincing, but explanations must not be evaluated in a mechanistic way. 
  • Investors and proxy advisers should also give companies sufficient time to respond to enquiries about corporate governance reporting.

So the idea is clearly that shareholders and directors get in contact with each other and that they communicate. That may sound easy enough but the distance in the relationship between the management of the company and its shareholders has increased in two ways: structurally – because in recent decades shareholders have become more institutionalised and geographically – because the financial system has become more globalised. So, on the one hand investors are expected to engage with the company to ascertain if the company has followed the rules and should discuss deviations that have been ascertained. On the other hand there is a great distance between investor and board of the company.

Because of the greater distance between them, there is an increased need for ways to control the management. An important tool is called “Proxy Voting” at the annual general shareholders meeting (AGM).

“Proxy voting” means that the shareholder who is not able to attend the AGM in person can legally authorise somebody to cast votes on their behalf. This can be done electronically.

Corporate Governance and Corporate Actions are closely intertwined. Many Corporate Actions Events are subject to prior shareholder approval at the AGM. These proposed Corporate Actions will appear in the meeting agenda as voting points. The AGM itself can also be seen as a Corporate Actions Event.

There is one more problem for investors. How do you know how you should vote for the several voting points at the AGM. It’s difficult enough to study all of this for one company, but many investors hold several shares. And imagine the people holding tracker funds in their pension (for example S&P 500) – it would be impossible to vote on 500 AGM’s! In the latter case, the fund manager would vote on investors’ behalf and they can hire help from Proxy Advisers (aka Proxy Research Providers). These are companies that study the voting items of companies in detail and provide a voting advice that clients can follow. They usually carry out the actual casting of the votes as well. Recently these companies have come under scrutiny mainly because of too much market concentration, perceived conflicts of interest and transparency issues. This has resulted in the publication of the Best Practice Principles for Shareholder Voting Research by the BPP Group.

It’s mostly institutional investors like pension funds, wealth management funds and other fund managers that use the services of proxy advisers. It’s not something commonly used by individual investors. So how would individual investors make a meaningful vote on an AGM? Well the answer to that is not entirely clear… It’s good to note that most retail banks / brokers do not actively offer Proxy Voting to their retail clients. Most of them would act if the investor makes a request to vote on a particular meeting, but this is more the exception than the rule. And this is why the proxy voting probably remain mostly “out of sight” of retail investors. This seems to be the case in Europe for sure.

With the above in mind, let’s have a look at the nitty gritty. How do AGM’s work?


This is roughly how the process of an Annual General Meeting works:

1) announcement of the date, time and venue of the meeting by the company

2) announcement of the meeting’s agenda and the voting points by the company

3) shareholders to submit their elections for each of the voting points in combination with a “power of attorney” to the person who will cast the votes on their behalf (often this person or legal entity will offer the same service to other shareholders) at the meeting. For each voting point the shareholder can vote “yes”, “no” and “abstain”.

4) the votes will be cast and counted

5) announcement of the results by the company.


Many corporate actions events are subject to shareholder approval at the AGM, for example:

* rights issues

* mergers & acquisitions

* stock split

* reverse stock split

* name change

* assimilation

* bonus issue

* cash dividend

* return of capital

* company buy-back programmes

* spin-offs

* etc

Example of an agenda of an AGM (based on a real world agenda):

  1. Opening
  2. Overview of the Company’s business and financial situation (non-voting item)
  3. Discussion of the Annual Report 2007 and approval of the financial statements for the financial year 2007 (voting item)
  4. Evaluation of the performance of the External Auditor by the Board of Management and the Audit Committee (non-voting item).
  5. Discharge of the members of the Board of management from liability for their responsibilities in the financial year 2007. (voting item)
  6. Discharge of the members of the Supervisory Board from liability for their responsibilities in the financial year 2007. (voting item)
  7. Preparation of Regulated Information in the English language (voting item).
  8. Clarification of the Reserves and Dividend Policy (non voting item).
  9. Proposal to adopt a cash dividend of EUR 0.40 per ordinary share (voting item).
  10. Approval of the updated Remuneration Policy for the Board of Management (voting item)
  11. Approval of the performance stock arrangement, including the number of shares, for the Board of Management (voting item).
  12. Approval of the number of stock options for the Board of Management and the number of stock options, respectively shares, for employees (voting item).
  13. Composition of the Board of management (non-voting item). Notification of the intended re-appointment of one of the members.
  14. Composition of the Supervisory Board (voting item).  Re-appointment of 2 members.
  15. Proposal to authorise the board of management to issue shares or rights to subscribe for shares in the capital of the company, subject to approval by the supervisory board (voting item)
  16. Proposal to authorise the Board of Management for a period of 18 months to acquire the company’s own shares. (voting item)
  17. Proposal to cancel repurchased ordinary shares (voting item).
  18. any other business
  19. closing

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