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The term “proxy plumbing” describes the labyrinthine US system for channelling shareholder votes into corporate outcomes. If real pipes and stopcocks were involved, exasperated householders would install better equipment. Investors put up with leaks and breakdowns out of habit. Procter & Gamble’s spat with activist Nelson Peltz shows reform is needed.
In most developed markets, boards and their challengers — including activists and hostile bidders — fight hard to sway shareholders during crunch votes. The US is unusual in letting opposed camps canvass support through the distribution of their own voting forms, or proxies.
Shareholders can switch their vote several times. Neither camp knows for sure whether the last vote in their favour is the final vote cast, which is the only one that counts. The result is “proxy battle hell”, according to Sarah Wilson of investor consultancy Manifest. There is a scramble to influence wavering investors, fuelled by in-match commentary from the agency that tallies the votes at the end.
False confidence and fuzzy numbers emboldened P&G to claim victory over Mr Peltz last month. Big mistake. Scrutineer IVS Associates judged the veteran activist had, by the narrowest margin, won a seat on the board and the chance to nudge the consumer goods group towards greater efficiency.
Two things should happen, even if a forensic recount keeps Mr Peltz out of the boardroom. First, P&G must work harder to raise margins. Second, regulators should reform proxy plumbing more deeply than proposed.
Ideally, shareholders should vote only once, via a single form registered with an body that supplies no running commentary. This would deliver clear outcomes and forestall sneakiness. It would save money for investors, too. Today’s system produces rents for banks, brokers and specialist agencies. Like cowboy plumbers, they charge steeply for unnecessary services.
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