Corporate governance practices are becoming more important to investors, especially when making their investment decisions. The quality of corporate governance mechanisms on which shareholders’ incentives rely depends on the way general meeting (GM) participation is exercised.
Corporate governance practices are becoming more important to investors, especially when making their investment decisions. The quality of corporate governance mechanisms on which shareholders’ incentives rely depends on the way general meeting (GM) participation is exercised.
GM processes are becoming more complicated and costly for investors, with the increasing institutionalisation and globalisation of share ownership. Financial cross-border services typically involve a long chain of intermediaries, and with additional barriers such as national laws that restrict electronic voting and market practices such as share blocking, the complexity of GM procedures has increased. Furthermore, manual workflows and non-automated exercise of shareholder rights increasingly create inefficiencies for issuers, intermediaries and investors.
In an ideal corporate actions management model, issuer entities that are the information sources should have direct links to the system used by shareholders and their agents. This would enable issuers to make GM-related notifications in a timely manner to allow custodians, shareholders and their agents to process and respond. Carrying out core GM processes such as issuer notifications, shareholder registrations, meeting day arrangements, proxy assignments and voting through a centralised and secure electronic platform would enable organisations and investors to work more productively, efficiently, consistently and securely within tight deadlines.
In this regard, central securities depositories (CSDs), being the central data warehouses for capital markets that maintain securities accounts at the top-tier level of the holding chain, are good candidates to operate platforms for corporate actions and GM processes. In particular, CSDs operating direct securities holding systems (that allow segregation of accounts at the level of beneficial owners) and can remove complexities regarding the exercise of shareholder rights. Intermediaries, banks and issuers develop services for the exercise of financial and managerial rights by shareholders due to their membership in CSDs.
A single electronic platform such as the Electronic General Meeting System, or e-GEM, which was developed by Merkezi Kay?t Kurulu?u A? (MKK), the CSD of Turkey, is an alternative solution to the relatively inefficient sub-processes and costs in all GM processes that are faced by all stakeholders.
MKK’s e-GEM aims, first and foremost, to raise the level of corporate governance in Turkey to the level set by global regulations, industry standards and best practices. The system achieves this by introducing a platform for borderless participation to GM-related processes. In fact, e-GEM established a more effective practice by connecting issuer companies directly with shareholders, utilising the direct securities holding structure operated by MKK.
Improvements in corporate governance practices in Turkey brought by e-GEM are observed in the increasing number of GM participations for both domestic and foreign shareholders. Although the new regulation only requires Borsa Istanbul-listed companies to allow their shareholders to attend GMs electronically, following e-GEM’s launch in October 2012, the first GM was held on e-GEM by an unlisted company.
Since the launch of the system in October 2012, more than 350 companies have conducted their GMs through e-GEM, with the total number of electronic GMs reaching 1,085 in the three years since the system’s implementation. The total number of GM participations stands at 22,617 this year, a 148 percent increase over 2011. The average rate of foreign investors’ GM participation via e-GEM is around 98 percent this year, a five-fold increase in foreign investors’ GM attendance.
What e-GEM can bring to capital markets in Africa?
The efficient exercise of shareholder rights, such as in cross-border voting, is among the most important aspects of global principles and standards concerning corporate governance. Electronic GM platforms are widely recommended by global principles and standards as ideal systems that can improve corporate governance mechanisms. Increased transparency improves the level of corporate democracy by protecting the rights of minority shareholders.
As an electronic means of enabling management of GM processes, e-GEM provides considerable savings in time and operation costs, eliminates excess paperwork and redundant processes in assigning proxy, and gives the ability to attend (concurrent) GMs electronically with the capability of e-voting.
Above all, supported by the amendments made in the relevant legislations, corporate governance practices might be further developed and boundaries to cross-border voting could be removed in Africa, which may lead to increase in foreign investors’ interest and willingness to invest in African capital markets.
