Listed companies are characterized by having a high number of shareholders and usually, having a diverse structure of shareholders: institutional shareholders (public authorities, pension funds, investment funds, hedge funds, insurance companies) and individual shareholders, local and foreign investors.
Usually the investors are interested in:
- Dividends (periodical progressive dividends)
- A good market price for the shares in their portfolio
- A good liquidity to have the possibility to sell in good conditions
However, some investors have other interests, that may be in divergence:
- To extract as much as possible from portfolio companies (public authorities when the state budget needs money, hedge funds)
- To a have a sustainable business (employees, long time investors, institutional investors that have sustainability reporting obligations)
- To appoint candidates for entering the boards of portfolio companies (shareholders owning more than 5% of the share capital of a company)
- To have an investment strategy for developing the business (controlling shareholders)
- To have certain transactions implemented (sometimes such shareholders have a potential conflict of interests as there are interested in a transaction that is not profitable for the portfolio company, but it is profitable for the shareholder via other relationships)
The interests of the investors are diverse and sometimes there are certain items where the results of the votes reflect a situation where ideas of the investors are not aligned between them or with the management proposals. Sometimes, a big debate in a listed company starts from an item where are significant votes against, when a proposal is approved by shareholders with less than 80% of the votes.
The situation evolves after it and the unhappy shareholders succeed to attract on their side other shareholders, initially neutral. The subject may reach the state when the management is dismissed if there is not a proper stakeholders’ engagement strategy. From practice, it is much easier to convince somebody to vote against than to vote in favor.
If there are more than 20% against on a specific subject, a strategy may be activated in order to find a solution that is acceptable for all parties involved.
We keep a register of material ‘against’ votes (the ‘Register’), tracking significant shareholders votes against the resolutions proposed by the management or by a significant shareholder of the most important companies listed on Bucharest Stock Exchange.
The idea of keeping the Register of shareholder votes was inspired from the UK model, where the corporate governance code applicable to companies listed on London Stock Exchange states what the management of a listed company needs to do when 20 per cent or more of votes have been cast against the board recommendation for a resolution:
- the management of the company should explain, when announcing voting results, what actions it intends to take to consult shareholders in order to understand the reasons behind the result
- an update on the views received from shareholders and actions taken should be published no later than six months after the shareholder meeting
- the board should then provide a final summary in the annual report and, if applicable, in the explanatory notes to resolutions at the next shareholder meeting, on what impact the feedback from shareholders voting against has had on the decisions the board has taken and any actions or resolutions now proposed
In Romania there are no explanations after a significant vote against, but we observed how such situations have changed the relationship between the management and the shareholders of the listed companies.
The Companies that registered significant votes against during 2023 are:
CONPET SA (COTE)
FONDUL PROPRIETATEA (FP)
HOLDE AGRI INVEST S.A. (HAI)
MedLife S.A. (M)
ROMGAZ SA (SNG)
NUCLEARELECTRICA S.A. (SNN)
Transgaz (TGN)
TERAPLAST SA (TRP)
TTS (TRANSPORT TRADE SERVICES) SA (TTS)
The ball is now with the management of the listed companies mentioned above, or with their shareholders: who has more to win in each company above? Is there possible to have a win-win situation?
The Register kept by Valgreen is available here https://www.valgreen.ro/copy-of-votes-against-public-register