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Latin American Corporate Governance Roundtable

Latin American Corporate Governance Roundtable. Voting Rights and the Right to Vote. Stephen H. Dover, CFA - March, 2001. Protecting the Residual Owners. A History of Shareholder Voting. In Person (Community rights). Local Ownership, Meaningful Communication / Control.

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Latin American Corporate Governance Roundtable

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  1. Latin American Corporate Governance Roundtable

  2. Voting Rights and the Right to Vote Stephen H. Dover, CFA - March, 2001

  3. Protecting the Residual Owners A History of Shareholder Voting In Person (Community rights) Local Ownership, MeaningfulCommunication/Control By Proxy (Investor rights) Dispersion Leads to Disenfranchisement

  4. Residual Owners Vs Management Entrenched Management Agency Problem Management controls the voting process Management controls Board of Directors Excessive Compensation; not linked to shareholder value Small shareholders incorrect presumption of protection

  5. Is this really a need for shareholder participation? Part I The Wall Street Rule - Vote with your feet If management is not trust worthy don’t buy the stock Legal / Regulatory control is enough Market Control: Self regulation Non-voting shares offer participation in profits and liquidity A minority vote is powerless anyway

  6. Is this really a need for shareholder participation? Part II Institutional Investors have a Fiduciary Duty to vote Participation can incent better management An active independent Board can change management The threat of replacement improves management Encourages investing instead of trading The Wall Street Rule: Value left on the table “Trust” is the oil of the market

  7. Non-voting shares Looks like stock, but its not… What is the value of a “meaningful” vote? Residual ownership VS right of participation in profits Dependent on benevolence of majority owners Increases importance of regulation for protection Basic “right” should be full participation in profits (tag along)

  8. Key Problems and Policy Recommendations Institutional shareholders need to take a more active role Shareholders should exercise their right to vote as a fiduciary duty Minority rights of non-voting shares should be vigorously upheld Institutional investors should develop a voting policy Voting policies (especially mutual funds) should be disclosed Passive (index) funds should vote: no Wall Street Rule benefit

  9. Key Problems and Policy Recommendations Voting rules should be modified Voting rules need to be simplified and standardized Adequate time to vote No open issues (“other business”) on the agenda Include reasonable shareholder initiated proposals Greater use of proxy voting services Allow mail and internet voting

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