Flaws in proxy voting system

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The system for voting by proxy at shareholders’ meetings is flawed and in need of improvement. These were the findings of an investigation by the AFM into transparency and verifiability in the voting chain.

The AFM (The Netherlands Authority for Financial Markets) reached this conclusion on the basis of, amongst others, interviews with key parties in the Dutch market, including custodians, providers of voting chain services, issuers, and investors and their representatives. The Report of the AFM investigation into the voting chain was published on Monday 24 March.

One of the rights enjoyed by shareholders is to vote on the items on the corporate agenda. But nowhere near all the shareholders of (large) listed companies are able to attend the Annual General Meeting. For practical reasons, they often opt to vote by proxy. This practice is particularly prevalent in cross-border voting and among institutional investors with internationally diversified portfolios.

Reliable voting chain

However, shareholders and companies have little or no insight into the system nor guarantees that the votes have passed correctly through the voting chain and have not gone missing. Growing attention for investor engagement is prompting investors and issuers alike to demand clearer insight into the way investors engage and how they have voted. A reliable voting chain will help achieve this.

There are both technological and legal reasons for the lack of verifiability and transparency in the voting chain. A great many players use different, unconnected systems and different electronic documents.


The current European Directive allows jurisdictions a lot of scope for different types of implementation. This results in differences in record dates (the date when it is decided whether someone has voting rights), amongst other things, but also in interpretational differences about who has voting rights. Custodians, who besides having custody of shares also provide services for the voting rights attached to those shares, are free to decide the cut-off date for casting votes. All of this creates unnecessary confusion and pushes up levels of customization and costs.

The players also have divergent interests. As a result of an interest in, for instance, maintaining the status quo, or the absence of any sense of urgency, no active efforts are being undertaken to find solutions. Verification that votes have been cast is sluggish or non-existent.

Recommendations and responses

The AFM concludes the report with recommendations for improvements in the voting chain. On the one hand, amendments to international and European regulation are desirable in order to harmonize record dates and cut-off dates, and to establish obligatory cooperation for custodians. Given the international context and complexities, adaptations to the Dutch regulations alone would not ease the situation.

At the same time, the market parties can play an important role in the voting chain by, for example, exchanging standardized data. The shareholders can also play a role by insisting on receiving confirmation that their votes have been processed and cast in accordance with their instructions. The AFM will take steps to persuade international platforms, such as ESMA, and the Dutch Corporate Governance Code Monitoring Committee to place the issue on their agenda.

The AFM has therefore presented its report to the Chair of the Corporate Governance Code Monitoring Committee, Professor Jaap van Manen. The Corporate Governance Code Monitoring Committee welcomed the AFM investigation and indicated that it will take the outcomes on board in its work and research into the role of the shareholder.

At the same time, the AFM has asked Eumedion and the VEB association of shareholders, as representatives of investors, to respond to the report, which was welcomed by both organizations. 

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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