IRISH VOTING
Project Scope
Following the 2021 AGM season, shareholders became concerned that the efficacy of the voting process had been negatively impacted by changes in the Irish market. This is a particular issue at a time when scrutiny of voting records from both clients and wider society is high.
Nine investors came together to form an Investor Forum-convened Working Group, to share data and experience, collectively investigate the issue and make the case for change. The Group sought to identify the key contributory factors through meetings with participants representing every part of the voting chain. The objective of the project was to remove the barriers to investors being able to exercise effective stewardship.
Context
When the United Kingdom left the European Union, Euroclear UK & Euroclear UK & Ireland, the operator of the CREST system, required an additional permission to act as issuer central securities depository (“CSD”) for securities constituted under the laws of Ireland. This additional permission was granted on a time limited basis only. Euroclear Bank (“EB”) was selected to provide a replacement holding and settlement system for securities of Irish companies with effect from 12th March 2021. The Euroclear Bank model is an ‘intermediated’ or ‘indirect’ system, which is structurally different to CREST. Relevant securities are held by Euroclear Bank’s wholly-owned Nominee, who are the shareholder on the register.
Subsequent to the migration to Euroclear Bank, investors observed:
- a material increase in shareblocking;
- an increased level of disintermediation in the voting chain;
- shorter time frames for decision-making; and
- lower levels of voter turnout at the 2021 AGMs of Irish companies.
Investors were concerned that the unintended consequence of the change of CSD was an erosion of their rights as beneficial holders in the equity of Irish listed entities. The benefits that the Shareholder Rights Directives intended to convey to institutional investors – including timely conveyance of information, confirmation of vote, increased transparency, and a prohibition of share blocking – appeared to have been negatively impacted by the systems changes.
Project notes
The Forum wrote a project note for investors sharing the Working Group’s findings. The Forum also engaged with the Irish Markets Committee of Euroclear Bank to ensure that the Committee fully understood the perspective of institutional investors in Irish equity markets and to encourage engagement and change in advance of the 2022 voting season. (Notes and correspondence are available on request to Members only.)
The final Project Note (link in the Notes section above) set out the background to six significant issues, an explanation of the concerns, and the outcomes that were achieved following engagement with various stakeholders. A discussion of five further issues is provided, to illustrate the complexity of the transition and the resulting system.
The Annex details the actions of the Working Group during the course of the project.
Outcomes
One tangible outcome of the project has been the identification of the source of the unnecessary blocking flags, and the rectification of the issue. In itself, this should result in a higher voting turnout for the majority of meetings in 2022.
EB have sent user guidance to clients in the form of their March newsletter, to help them understand the various issues, and have requested that this information is cascaded throughout the voting chain. We hope that the clarification and enhanced understanding will be beneficial to the market.
Maintaining the dialogue that has now been established will allow future issues to be addressed in a more timely way, and should help move the system towards the best possible infrastructure and service provision for the benefit of all participants in the Irish market.
Given the rapid pace of change we are likely to see further innovation from both existing service providers and new providers to help resolve the outstanding issues in the current system. We have encouraged EB to work with all parties to ensure its own services evolve to meet the rising expectations of companies and end investors.