Corporate Governance, Cross-Border Voting and the (Draft) Principles of the European Securities Law Legislation—Enhancing Investor Engagement Through Standardisation

Abstract

This paper analyses recent developments with respect to institutional investors and crossborder voting. Based on a cross-country comparison of more than 20 countries, we show that the recently enhanced regulation imposes an implicit duty to vote on institutional investors. This implicit duty refl ects the regulators' expectation that institutional investors exercise their voting rights in order to comply with good corporate governance standards. The duty-to-vote concept puts institutional investors in a diffi cult situation today because they face signifi cant barriers to cross-border voting that are mainly due to the public good structure of corporate governance and confl icts of interests of issuers, intermediaries and other stakeholders which regulators could not remove due to ineffi ciencies of the regulatory process and limited regional jurisdiction. Analysing the Market Standards for General Meetings provided by the Giovannini Joint Working Group on General Meetings as well as the principles of the European Securities Law Legislation framework, this paper shows that a cooperative solution is the best method to overcome the present problems of and the disincentives to invest in cross-border voting. A well-structured voting platform can overcome said barriers. Drawing on network effects and the economics of standardisation in software markets, the paper develops a suitable framework, including the functions and the ownership structure of such a voting platform. It then recommends how legislators and regulators can support a voting platform that enables investors to exercise their voting rights efficiently to fulfi l their duty to vote. If a sufficient number of first movers are motivated to achieve lasting improvements for a substantial issue of their own and the public good, enhanced voting shold result. The initial outlay could be substantially (if not fully) reduced by eliminating costs for redundant and time-consuming services in the present voting chain.