Project Scope
During 2018, a Member alerted us to two ADR voting issues:
- auto-proxy (the discretionary voting by companies of the uninstructed shares of ADR holders) and
- non-solicitation of votes.
We were asked to investigate these issues which have the potential to impact not only ADR holders but also aggregated voting outcomes, and therefore all shareholders.
Key Actions
- We reviewed the depositary agreements of the 29 UK-listed companies with listed ADRs to establish the current status.
- Members of the investor working group reviewed their voting systems to identify whether non-solicitation was a wide-spread issue
- The Investor Forum legal panel summarised the regulatory requirements for NYSE and NASDAQ listed instruments.
- The Forum wrote tailored letters directly to the Chairs of all the companies, applauding those with best practice arrangements and requesting clarification or specific changes in other cases.
Outcomes
- We believe it is an excellent example of how investors can work collectively to clarify their understanding of an issue, provide a clear investor view of the need for change and then follow up with companies to enhance best practice.
- The companies generally acknowledged the concerns of members regarding the inconsistency of elements of the Depositary Agreements (DAs) of their ADR programmes with principles of good UK corporate governance.
- Auto-proxy
- 11 companies were approached to request a commitment not to use auto-proxy rights in future:
- 9 agreed, one did not respond, and one did not agree.
- 11 companies were approached to request a commitment not to use auto-proxy rights in future:
- Voting solicitation
- The absence of pro-active voting solicitation does not appear to be a widespread issue:
- 7 out of the 20 companies we contacted committed to amending their agreements on this point; others felt NYSE listing rules offered sufficient protection.
- The absence of pro-active voting solicitation does not appear to be a widespread issue:
Statement of Best Practice
The Investor Forum and investors in its ADR Working Group have established the following principles of Best Practice for the Depositary Agreements for UK-listed companies with listed ADR programmes:
- Registered ADR Holders should receive notice of meetings and solicitation of proxy.
- If voting instructions are not received from the Registered ADR Holders, the shares should not be voted. The Depositary should not direct votes, and no discretionary proxy should be granted to a person designated by the Company to vote the Deposited Securities represented by ADRs as to which the Depositary has not received instructions from the Holders.
Our full project note can be found here, identifying the companies that we wrote to and the commitments and changes that resulted from the project.
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