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