Shareholder engagement takes a central role in corporate governance and is the focal point of many (soft) regulatory initiatives to stimulate long-term value creation. It is also one of the goals of the Revised Shareholder Rights Directive (SRD II) that requires institutional investors and asset managers to develop an engagement policy to foster the sustainability of their investees. In the Netherlands, the implementation of the SRD II was approved in November 2019. Already prior to this implementation, the Dutch Stewardship Code, emphasizing the engagement role of institutional investors in Dutch listed companies, came into force in January 2019. Eumedion, a Dutch not-for profit platform that represents the interests of institutional investors in the Netherlands, and its institutional members developed this Dutch Stewardship Code.
In our recent paper, ‘Shareholder Stewardship in the Netherlands: The Role of Institutional Investors in a Stakeholder Oriented Jurisdiction’, of which an edited version will be part of the Cambridge University Press volume ‘Global Shareholder Stewardship: Complexities, Challenges and Possibilities’ (eds D Katelouzou and D Puchniak), we investigate institutional investors’ voice in the Netherlands, focusing on shareholder voting in particular. We built a new dataset of shareholder voting behaviour at general meetings of 29 large Dutch listed companies for a five-year period (2015-2019). We collected voting and other data from different sources, including hand-collected minutes of the meetings and data from the Proxy Insight and Refinitiv Eikon databases. Our sample of institutional investors’ voting decisions totals 633,976 votes, including yes and no-votes, abstentions, voting splits and occasionally the decision not to vote. The database includes 83,299 records of votes from Eumedion’s institutional members.
For almost 97 per cent of the voting decisions in our database, institutional investors voted in favour of a resolution, and similar results were found for the votes of Eumedion’s institutional members. To see whether there is a larger spread in voting decisions and thus higher numbers of no-votes for controversial voting items, we further investigated four highly relevant voting items in more detail: amendments to the articles of association, board elections, discharging the board members and remuneration items.
Although often considered controversial, the average approval rates of these four voting item categories are quite high too, ranging from 94.7 per cent for remuneration items and about 95 per cent for the amendments to the articles of association, to 97.2 per cent for the discharge of the directors and 98.1 per cent for the election of directors. The average of the votes of the institutional investors in general and Eumedion’s institutional members are very similar.
However, when investigating the results for individual voting items at the investee level, we found a number of substantial differences in the voting behaviour between all shareholders, the institutional investors and the Eumedion members. For example, for the re-election of one of the supervisory board members the overall opposition was just 4.85 per cent against, while 22 per cent of the institutional investors and even 74 per cent of the Eumedion members voted against. The voting rationale and shareholder meeting minutes show that Eumedion members voted against this director because the considered lack of independence.
In the empirical part of the paper, we find that for the approval of the amendments to the articles of association, institutional investors show statistically significant higher dissent rates than all shareholders. The same holds for remuneration proposals: the approval rates of Eumedion members are statistically significantly lower than of all shareholders, with a difference of almost six per cent (96.7 per cent versus 91 per cent). Moreover, these Eumedion members are even more critical than all institutional investors jointly (94.9 per cent): the difference is statistically significant with almost four per cent. These differences become even more outspoken in companies with a higher ownership concentration.
Overall, we observe that institutional investors critically consider controversial proposals that could negatively affect shareholder rights, like some of the tabled amendments of the articles of association as well as remuneration packages of directors that are considered to contain insufficient or inappropriate incentives. Compared to other shareholders, institutional investors show significantly higher opposition rates. Particularly, Eumedion’s institutional members show even higher opposition rates than other, more often cross-border, institutional investors. While many institutional investors are critical vis-à-vis a number of management proposals and vote against the proposal, it seldom results in a rejected vote, often due to the attendance of a major shareholder supporting the management proposals.
The results from our study raise important questions as to whether the current voting system, often based on simple majority approval and the one-share-one-vote principles, is appropriately balancing the powers between engaged shareholders on the one side, and the board and allied shareholders on the other side. Particularly, when there is an influential or controlling shareholder, the voice of other shareholders falls short. The new Dutch say on pay rule with a 75 per cent approval requirement could be a step forward but we believe that other voting systems, like the majority of minority (MoM) voting rule for some of the agenda items (like independent directors in the UK), could enhance the effects of stewardship of, in particular, engaged institutional investors.
Christoph van der Elst is Full Professor at Tilburg Law School, the Netherlands.
Anne Lafarre is Assistant Professor at Tilburg Law School, the Netherlands.