- Direct voting allows shareholders to vote on resolutions directly, rather than appointing a proxy or representative to vote on the shareholder’s behalf
- Allowing shareholders to direct vote enhances shareholder engagement and reduces the scope for abuse of member rights
- It’s perfect timing to seek shareholder approval at your AGM for constitutional changes to allow for direct voting
Attendance at AGMs has been declining steadily. For example, Computershare has found that only 0.158% of its clients’ shareholders attended AGMs in 2015.[1] Coupled with the high costs of holding an AGM and the fact that shareholders can be globally dispersed and unable to attend physical meetings, more and more companies are considering virtual AGMs. A key part of an AGM is voting and, for most companies, this is limited to attendance or proxy voting. Accordingly, implementing “direct voting” is an important step in increasing shareholder engagement and moving towards conducting virtual AGMs.
Direct voting – what is it?
Direct voting is a form of voting that allows shareholders to cast their vote, either online or by completing a voting form, on resolutions of a general meeting without having to attend the meeting in person or appoint a proxy or corporate representative to vote on their behalf. By enabling direct voting at your company’s general meetings, shareholders are able to have full control over their votes and can promptly and securely vote without the need to physically attend. The convenience of direct voting may also encourage greater shareholder engagement and participation.
Direct voting can sit alongside the proxy system and, in most cases, only requires minor amendments to your constitution. Direct voting improves the exercise of voting rights because it removes the need for a shareholder who is unable to attend the general meeting to transfer their voting rights to a proxy or representative.
For these reasons, we recommend including a resolution in your 2017 notice of annual general meeting to amend your company’s constitution to allow for direct voting.
How does my company implement direct voting?
The Corporations Act 2001 (Cth) (“Corporations Act”) already allows direct voting, provided that the company’s constitution explicitly provides for it. Therefore, your company will need to propose constitutional change to shareholders via a special resolution at a general meeting. We recommend that at the time the Board approves the associated Notice of general meeting, it also set governing rules and the process by which direct votes will be received and recorded. For companies that use external share registries, the share registry can then be informed of the rules and the agreed process.
Many of the same processes that your company currently uses for proxy votes will be applicable to direct voting and can operate alongside the current system of voting by proxy or representative. Below you will find details about certain aspects of the direct voting process. Most of these processes should be familiar to you as they already apply to proxy voting.
How will direct voting work?
If a shareholder wishes to utilise the direct voting option, they will complete a binding voting form. This form can be lodged by post, by fax or electronically and should be lodged no later than 48 hours prior to the general meeting (as is the case for proxy voting).
Shareholders who have completed a direct voting form are still able to attend the general meeting (if your constitution allows for this). Accordingly, we recommend that the amendments to your constitution allow for shareholders to attend the meeting and subsequently change their vote, whether lodged by proxy or a direct vote.
Similar to proxy forms, a direct vote can be withdrawn without the shareholder attending the general meeting. When you make the changes to your constitution, it is a good idea to set out how the company will handle circumstances where a shareholder wants to withdraw their direct vote.
Should you choose to implement direct voting, your company, or your company’s share registry, will be responsible for receiving and counting the direct votes. The procedure will be identical to that currently used for the lodgement of proxies.
It is at the discretion of the company to decide whether direct votes should be counted at the general meeting on a show of hands. The first option is to exclude direct votes from being counted on a show of hands. The rationale here is that direct voters are not present at the meeting and therefore shouldn’t be deemed to be present. The second option is to include direct votes when determining votes on a show of hands. Including direct votes in this way can ensure that direct votes bring additional certainty and engagement to shareholders and allow additional shareholders to participate in the initial vote in the voting process.
The Governance Institute of Australia recommends that ASX listed companies adopt the first option, so that direct votes and proxies are recorded in the same manner.[2]
In addition to the requirement contained in section 250J(1A) of the Corporations Act that the chair inform the meeting of the proxy results, we recommend that the chair also inform the meeting whether any direct votes have been received and how the direct votes were cast prior to calling for the resolution to be determined. Building on the requirement contained in section 250J(2) of the Corporations Act, if the total of the direct votes and proxies result in a different outcome to the outcome on a vote on a show of hands, the chair should call for a poll.
How are direct votes recorded?
The minutes of your general meeting should include the details of direct votes cast along with those details of proxies received. For publicly listed companies, when providing ASX with the details of proxies received, you can simply add to the release the number of direct votes cast on each resolution.
How can direct votes be authenticated?
Currently, the Corporations Act allows for electronic authentication of an appointment of a proxy in accordance with Corporate Regulation 2G.2.01.[3] We recommend that your constitution adopt the current wording in the Corporations Act and allow for the same electronic authentication process for direct votes.
What are you waiting for?
There’s no real downside to allowing direct voting, in fact, direct voting will enhance your company’s existing investor relations initiatives to proactively engage with members. Accordingly, we recommend taking the opportunity to amend your constitution to allow for direct voting at your annual general meeting this year. While allowing direct voting may result in slightly higher initial costs in setting up an electronic voting system, the benefits of greater shareholder engagement will add value to your corporate governance processes which, in turn, reaps rewards for your company in the long term.
If you’d like further details about how to implement direct voting for your company, drop us a line at hello@cdandco.com.au or call 03 9614 2444.
Insight by Laura Morgan
[1] Computershare, ‘Intelligence Report: Insights from company meetings held in 2015’ (March 2016) <https://www.computershare.com/au/Documents/Intelligence%20Report%20-%20Insights%20from%20company%20meetings%20held%20in%202015.pdf>
[2] Chartered Secretaries Australia, ‘CSA’s guide to implementing direct voting’ (2006).
[3] Regulation 2G.2.01 of the Corporations Regulations 2001 provides that electronic authentication of an appointment of a proxy must include: (a) a method of identifying the member; and (b) an indication of the member’s approval of the information communicated. Further, if a member appoints a proxy by email or Internet-based voting: (a) the member must be identified by personal details (for example, the member’s name, address and date of birth); and (b) the member’s approval of the information communicated must be communicated by a form of security protection (for example, the entering of a confidential identification number such as a shareholder registration number or holder identification number).