Unilever: Votes and Voices

Proxy plumbing adds complexity to hotly-contested simplification plan

The proposed Unilever vote in October is raising City eyebrows. When the CIO of a UK insurer takes to the pages of the financial media voicing concerns over a voting issue you know it's serious. David Cumming, head of equities at Aviva Investors, Unilever's 9th largest shareholder recently made a rare appearance to speak out against Unilever's proposed restructuring.

If the vote passes, Unilever's dual UK/NL corporate structure will be "streamlined" into a single Dutch company, meaning numerous complications for shareholders. Cumming has since been joined by a number of other UK funds including Columbia Threadneedle and M&G all expressing doubt over Unilever's intentions.

Whether you are for or against the proposals, its implications are far-reaching. It is also clear just how unclear many investors are about the way their votes will be counted towards the final result.

What's the problem?

Unless you hold real shares, either in certificated form or in a designated securities account, your votes may be counted but your voice will not.

For the proposals to proceed, Unilever doesn't just need a 75 per cent majority of shares voted in favour for the resolution to pass, it also needs the majority of voting shareholders to approve. This, in theory, puts all shareholders, irrespective of size on a "one shareholder one vote" standing.

When is a shareholder not a shareholder?

But what exactly is "a shareholder"? As far as the company is concerned, and this is because of company law, it will be the name on the share register on the record date. The name on the share register isn't the same as the beneficial owner, i.e. the underlying fund or individual. And this matters, because for the past 20 years or so, more and more shareholders have either been forced or financially nudged into holding their shares through pooled nominees by their custodian banks or platforms. Not because it is good for shareholders, but simply because it is good for custodian bank profitability.

Why does this matter? In simple terms a pooled nominee is one single legal shareholder who holds the underlying shares in trust for beneficiaries. A pool could comprise anything from one to thousands of "owners" be they funds or individuals. The only way to be certain that your voice will be heard as a shareholder, is to be out of the pool and in your own name, either certificated or through a "designated account". Unilever's structure has an added complication in that many shareholders hold ADRs, American Depository Receipts (ISIN US9047677045 or CUSIP: 904767704), which have their own voting procedures and custody complexities.

The law is clear even if the plumbing is not

Regular readers will know that we have consistently flagged the dangers of pooled nominees and the implications for shareholder accountability and proxy voting integrity. The English courts are also clear about the operation of Companies Act 2006; it was recently ruled on in a landmark case in 2013 Eckerle and Others v (1) Wickeder Westfalenstahl GmbH and (2) DNick Holding plc [2013] EWHC 68 (Ch).

What should shareholders do? We're not going to step into a heated debate about the rights and wrongs of the proposals, ultimately that's an investment decision that we're not regulated to make. What we do recommend is that you take stock of your custody arrangements as quickly as possible so that you know exactly where you stand. Voting via a designated account is, as we've always maintained, better for shareholders, better for companies and better for good governance.

The clock is ticking. Record date for the meeting is October 24, two days before the first meeting. If you would like to know more about how The Manifest Voting Agency supports informed voting get in touch: hello@minerva-analytics.info