The institution of a shareholder’s voting advisor has been operating in the Polish legal system for almost a year and still few people know about its existence. What are the competences of such an advisor? What is the basis of the advisor’s operation? First of all, the voting advisor helps shareholders to consciously exercise their voting rights at general meetings of shareholders and acts at a request of shareholders or the company.
Who is a shareholder’s advisor?
Pursuant to Art. 4 § 1.16 of the Code of Commercial Companies, this is a legal person that professionally and based on commercial principles analyses information disclosed by or coming from public companies to third parties (shareholders of public companies) to enable such third parties to make decisions concerning voting rights stemming from their shares. Such services include presenting studies to shareholders, providing advice connected with exercising their voting rights at meetings of shareholders or giving voting-related recommendations. Such materials are prepared by qualified natural persons being employees of a given entity. It seems essential to define the term qualified, because procedures applicable to the assurance of relevant qualifications to people hired by the advisor are one of the advisor’s cyclical information duties.
Genesis of the institution
This institution is based on a model of a proxy firm or a proxy advisor in American law. This is an entity that professionally advises the company’s shareholders on exercising their voting rights at the meeting of shareholders. The most frequent examples of services provided by such entities include: explaining the agenda, providing vote management software, developing a voting policy, performing a due diligence of the company, and managing votes, including the exercise of voting rights. Contrary to Polish regulations, which do not impose an obligation to formalise a relationship between an advisor and an investor, such services are often provided on the basis of a power of attorney. In addition, the Polish legislator has not limited the scope of the advisor’s contracting parties solely to shareholders. Given these regulations, it may be concluded that the advisor may also act at a request and for the company.
In accordance with statutory requirements (Art. 4024 – 4026 of the Code of Commercial Companies), the activity of the advisors is open and transparent, given their significant impact on decision-making at public companies. They are obliged to publish information on the preparation of analyses, recommendations and advice concerning voting on their website on a cyclical basis (once a year). They must also report on the application or non-application of principles of professional ethics, as well as on the existence or potential existence of contradictory interests or business relations which can influence the preparation of their analyses, advice or recommendations concerning voting, as well as on actions taken by the advisor to eliminate or limit or manage such contradictions between interests. The scope of obligations set out in the law is not limited and may be extended with other information that is important from the point of view of an investor or a company. In addition. the information must be available free of charge for at least three years from their publication.
On the one hand, this will enable the shareholders to familiarise themselves with methods and manners of operation of a given entity and to choose a relevant advisor. On the other hand, advisors will not be able to provide services by use of prohibited, i.e. illegal or contrary to the principles of professional ethics, methods or to abuse their position.
What is interesting, the information obligation concerning services provided is imposed not only on the advisor. Such entities like employee funds, investment fund companies or insurance and reinsurance companies must also prepare and publish their yearly reports on the performance of an engagement policy, where they describe, among others, the way they use the services of the shareholder’s voting advisor. Otherwise, they will be is punishable by a fine, restriction of freedom or imprisonment of up to one year.
Given the above regulations, the fact that the legislator has not introduced any penalty for the violation of the information publication obligation by the shareholder’s advisor seems absurd. However, any failure to publish such data will decrease potential investors’ trust to the unreliable advisor, which will have a significant impact on such an advisor’s market position and will discredit its competitive position. In addition, the provision of untrue data will be subject to liability under general principles.
The institution of the shareholder’s voting advisor is a positive solution. Professional analyses prepared by such an entity will let shareholders learn the specifics of a given issue that is submitted for vote and will also indicate consequences of a decision made by the meeting of shareholders. This will improve the shareholders’ involvement in binding decision-making and may prevent hostile acquisitions.
Soon a year from the establishment of the institution of the advisor will pass. Therefore, the first information on methods and manners of the advisor’s activity must be published. It will help understand an unknown entity and will present the specifics of its operation in practice.