The procedures followed by listed companies to determine the number and outcome of the votes cast at the shareholders' general meetings have received little attention in legal literature.

In Spain, in the absence of mandatory legal rules, most  listed companies determine the way in which votes should be cast and counted at general meetings in their internal regulations. These regulations generally include a system of voting presumptions for counting shareholder votes and the subsequent determining of the majorities within the general meeting, presumptions which vary depending on the resolution in question. In the case of resolution proposals relating to matters on the agenda, a system known as 'negative deduction' is used. This method states that votes in favour are considered to be those corresponding to the shares of all the shareholders that are present (personally or by proxy) at the general meeting and appear on the list of attendees. The presumption applies to all shares other than those for which the holder or proxy agent expressly informs the notary (or meeting secretary) that they are voting against the resolution, are casting a blank ballot or abstain (and hence the name of 'negative' deduction).

However, in the case of resolution proposals relating to matters that are not included on the agenda (of which there are only two types under Spanish Law: the removal or dismissal of the directors and the bringing of a corporate liability action against the directors), the rule is reversed and a system of 'positive deduction' is applied. In this case, those votes that correspond to all the shares of the shareholders present in person or by proxy at the general meeting are considered to be votes against the proposal, always taking into consideration the list of attendees. Only those votes corresponding to shares belonging to the holders present or represented by proxy that expressly inform the notary (or meeting secretary) that they are voting in favour, casting a blank ballot or abstaining are then excluded or deducted from the presumption.

In general, the legal doctrine dealing with these presumptions of votes has overwhelmingly tended to conclude that they expose a corporate governance malpractice, if not an outright unlawful act. Although the doubts surrounding the validity of these systems of presumptions are of a different nature, in general they are based on the fact of replacing the individual and personal vote of the different shareholders with presumptions that, although rebuttable, may not exactly correspond to the real intention of at least some of the shareholders.

In a recent paper published in SSRN, however, I argue that this system has an overwhelmingly practical justification and is also fully compatible with the general principles which apply to the exercise of voting rights in listed companies, which are based on a vast system of presumptions of far greater relevance referring to the actual ownership of the shares. The application of a system of presumptions is a simple and effective way of allowing votes on the different agenda matters to be held in an expeditious manner, avoiding the need to count each vote individually and, therefore, also reducing the risk of frequent interruptions and of unnecessarily protracting the meeting. Also, the application of opposite presumptions depending on the type of proposal in question is clearly justified, considering that, in practice, the proposals put forth by the board of directors are generally approved by significant majorities of the share capital -often close to unanimity- as opposed to the resolution proposals put forth by shareholders, which are generally rejected. Moreover, shareholders are always entitled to express their intention to vote in a given way, in which case the presumptions do not apply.

 

Javier García de Enterría is a Corporate Partner of Clifford Chance.