Delisting Rule: Check only, no balance.

These requirements have evolved over time. The level of approval is defined by the nature of the decision. Some decisions require simple majority approval, while more important items require supermajority approval. In some situations, statutory voting requirements can be very stringent. For example, passing resolutions regarding resolution plans and delistings requires the following voting pattern:

First, the number of votes in favor of the proposal by a listed company’s common shareholders (non-controlling shareholders) must be at least twice the number of votes against it. This is similar to an excess of half of minority shareholders.

Second, more than three-quarters of the voting rights of listed company shareholders (including controlling shareholders) must be in favor.

And finally, the number of voters in favor of a proposal must be higher than the number of voters against it.

Although the above requirements make decision-making very comprehensive, they are prone to abuse by a small number of stakeholders.

Achieving a minority supermajority makes it very difficult for a company to get twice as many positive votes for every negative vote. This means that less than a third of the valued minority shareholders could block the proposal. Because not everyone votes, it may be difficult to get a positive vote from the remaining two-thirds. For example, consider a company in which 70% of shareholders are controlling shareholders and the remaining 30% are public shareholders. Some of the public categories are held by retailers who typically do not vote. In such cases, a small group of 5-7% (or less) of all shareholders voting against could potentially block the deal. Because it is virtually impossible to get all the remaining non-dominant voters to vote. In order to make more rational decisions, it is urgent to review related regulations. Moreover, as voting is underway to secure a majority of voters, a new scenario is unfolding. Until now, votes from institutions or general shareholders were recognized as one vote. For example, if a mutual fund votes, it counts as 1 vote, and if I vote as an individual shareholder, it still counts as 1 vote. Now a new category of shareholders who manage diverse portfolios has emerged: discretionary portfolio managers (PMS). From market practice, we know that some of these portfolio managers vote on behalf of majority folio holders through proxies provided during client onboarding. These Powers of Attorney (PoA) typically authorize the PMS to attend shareholder meetings, vote, or act on behalf of its client shareholders. Therefore, the PMS can instruct the trustees to vote against or in favor of the resolution.

Effectively, PMS’s PoA arrangement allows one portfolio manager to vote on behalf of multiple shareholders, with each folio counting as one vote. This act of voting on the decisions of a PMS manager is similar to voting by a mutual fund manager. However, unlike mutual funds where only one vote is counted regardless of the number of unit holders, in case of PMS each folio holder is counted as a vote. Given that there is only one decision maker, a random portfolio manager’s vote should be treated as a single voter instead of being based on the number of folios held.

The situation in which PMS makes decisions on behalf of multiple shareholders is completely unexpected and must be corrected immediately. Otherwise, you enter a realm where one person running a PMS can overturn the decisions of minority, supermajority, or majority shareholders.

We all believe in the democratization of decision-making, but I would say that this has actually swung the pendulum in the other direction. Let us balance the checks we make.