e-GEM of a system
11 March 2015
MKK’s Yakup Ergincan suggests that the Turkish model is the best way forward for electronic general meeting management systems
Image: Shutterstock
General meeting (GM) processes are becoming more complicated and costly for shareholders with the increasing ease of cross-border investments. Manual workflows and non-straight-through processing (STP) that still dominate national practices, due to the long chain of intermediaries, create inefficiencies for issuers, intermediary institutions and investors. Information flow in GM processes does not generally provide sufficient time for all parties involved (ie, custodians, shareholders and their agents) to process and respond to information in a global setting. Management of all GM processes, from issuer notifications to voting through a centralised and secure electronic platform, can enable issuer companies and shareholders to work more efficiently, consistently and securely within short deadlines.
Global best practices and principles in the management of GM processes were set up around the world in order to remove difficulties that investors are facing in exercising managerial rights, particularly, when their securities are held cross-border. These standards depict features of an optimal GM management system that can be implemented by regulatory institutions, stock exchanges, central securities depositories (CSDs) and other service providers.
Firstly, in an ideal model, information related to GMs should flow between issuers and beneficial owners through electronic means and in globally accepted message standards. Secondly, the practice of share blockage for shareholder identification purposes should be replaced with electronic methods. The GM management system should also serve communication between related parties within operational deadlines. Thirdly, electronic voting should be enabled as it is a timely and cost-effective method.
Furthermore, an ideal GM management system should enable monitoring of company management in an efficient way, such as by getting in direct communication with company representatives, at least during meetings.
Lastly, an ideal model should provide fast and easy access to meeting results following conclusion of GMs. Shareholders should be able to receive all relevant information that flows from companies regarding meetings. The model should establish better communication between companies and investors to ensure more informed exercising of managerial rights,which will lead to improved corporate governance and investor protection.
CSDs that maintain securities accounts at the top-tier level of the holding chain are ideal institutions for operating central electronic GM platforms. In particular, CSDs that operate direct account holding models that allow easy identification of, and access to, beneficial owners can remove inefficiencies in the exercise of shareholder rights by establishing these platforms.
The central electronic GM platform in Turkey, Electronic General Meeting System, or e-GEM, which was launched by MKK, the CSD of Turkey, in October 2012 following the mandates of the new Turkish Commercial Law and Capital Markets Law, presents an ideal solution to the growing inefficiencies and costs in all GM processes. The system, for the first time in the world, enables issuers, beneficial owners and proxy holders to manage the whole GM process for meetings that are broadcasted live on the same platform.
Through e-GEM, shareholders can register for and participate in GMs from anywhere with an internet connection, by using the e-signature framework and assigning proxies without any paper documents. Shareholders and assigned proxies are recorded in the list of attendees, which is available on the system one day before the meeting (MD-1) without the need to resort to share blockage.
e-GEM eliminates costly pre-meeting procedures for issuer companies by giving them the ability to upload meeting documents to the system. Shareholders and intermediary institutions are automatically notified on a real-time basis via SMS, email and ISO formatted messages through SWIFT upon the upload of documents and information by companies to the system, and they have the ability to view and download these documents. Shareholders can remotely cast their votes on agenda items that can be accessed on the system before and during meetings.
Integration of MKK’s Central Dematerialized System with the Public Disclosure Platform (PDP), paved the way for establishing a GM process management model in Turkey. The integration of two systems and the transfer of PDP management to MKK facilitated implementing STP, starting with the distribution of GM-related information from the issuer company all the way to beneficial owner shareholders using international message formats.
e-GEM delivered new capabilities in meeting day procedures by providing sophisticated solutions. The platform establishes a single point of access for investors, enabling them to attend several GMs on the same day. Shareholders and proxy holders can attend concurrent meetings simultaneously conducted on the same day through e-GEM. Meetings are broadcast live, and shareholders can make comments and suggestions, ask questions and cast their votes. Voting results can be monitored on the system upon the finalisation of the voting process. Meeting documents, audio-visual records and voting results are archived on the platform for future access.
Improvements in GM processes that are brought about by e-GEM significantly increased GM participation, both for domestic and foreign shareholders in Turkey. Although the new regulations mandated convening of electronic GMs only for listed companies, following e-GEM’s launch in October 2012, the first GM that took place on the platform was of an unlisted company.
Since the launch of the system in October 2012, 346 companies (including non-listed companies such as KPMG and Gittigidiyor.com, an eBay subsidiary) conducted their general meetings through e-GEM, with the total number of electronic GMs reaching 749 in two years of the system’s operation. Total GM participation was 20,701, which corresponds to a 127 percent increase in 2014 over 2011. The number of GM participants has increased 146 percent since e-GEM became operational.
An important factor behind this increase is the significant rise in foreign shareholder participation since the launch of e-GEM. Indeed, the number of foreign shareholder participants to annual GMs in Turkey has gone up by 490 percent 2011 and 2014. In addition, the share ratio of foreign shareholders increased from 33 percent in 2011 to 84 percent in 2014. Some 98 percent of foreign shareholders opted for e-GEM as a way of virtually attending meetings, while 90 percent of domestic shareholders chose to be physically present at the meetings in the last year.
Participation by institutional investors, who are mostly comprised of foreign investors, went up by 342 percent, whereas individual participations dropped 45 percent between 2011 and 2014. The share ratio of institutional investors in GMs increased from 46 percent to 87 percent in the same period. Furthermore, the share ratio of institutional investors attending GMs through e-GEM was 94 percent last year.
The new hybrid model that allows both physical and electronic attendance to GMs in Turkey harmonised local market practices in GM management with global standards and best practices. Improvements in GM operations such as the implementation of STP in shareholder notification through communication channels including SMS, email and SWIFT messages, removal of share blockage for shareholder identification purposes, efficiency in proxy operations, the introduction of new GM convocation deadlines (MD-21), and the introduction of record dates (MD-1) raised Turkish market practice to the level of standards set by international bodies of experts.
PDP 4.0 project, which was initiated by MKK following the transfer of PDP’s management from Borsa Istanbul to MKK, will introduce new improvements in GM operations such as direct electronic voting by foreign beneficial owners through SWIFT, using ISO-compliant message formats (ISO15022 and 20022). Moreover, PDP 4.0 will enable the use of XBRL (Extensible Business Reporting Language) in the distribution of corporate data and implement a fully bilingual (Turkish and English) platform. The planned upgrades that will be finalised in 2016 will generate further significant efficiencies in GM-related processes in Turkey.
Global best practices and principles in the management of GM processes were set up around the world in order to remove difficulties that investors are facing in exercising managerial rights, particularly, when their securities are held cross-border. These standards depict features of an optimal GM management system that can be implemented by regulatory institutions, stock exchanges, central securities depositories (CSDs) and other service providers.
Firstly, in an ideal model, information related to GMs should flow between issuers and beneficial owners through electronic means and in globally accepted message standards. Secondly, the practice of share blockage for shareholder identification purposes should be replaced with electronic methods. The GM management system should also serve communication between related parties within operational deadlines. Thirdly, electronic voting should be enabled as it is a timely and cost-effective method.
Furthermore, an ideal GM management system should enable monitoring of company management in an efficient way, such as by getting in direct communication with company representatives, at least during meetings.
Lastly, an ideal model should provide fast and easy access to meeting results following conclusion of GMs. Shareholders should be able to receive all relevant information that flows from companies regarding meetings. The model should establish better communication between companies and investors to ensure more informed exercising of managerial rights,which will lead to improved corporate governance and investor protection.
CSDs that maintain securities accounts at the top-tier level of the holding chain are ideal institutions for operating central electronic GM platforms. In particular, CSDs that operate direct account holding models that allow easy identification of, and access to, beneficial owners can remove inefficiencies in the exercise of shareholder rights by establishing these platforms.
The central electronic GM platform in Turkey, Electronic General Meeting System, or e-GEM, which was launched by MKK, the CSD of Turkey, in October 2012 following the mandates of the new Turkish Commercial Law and Capital Markets Law, presents an ideal solution to the growing inefficiencies and costs in all GM processes. The system, for the first time in the world, enables issuers, beneficial owners and proxy holders to manage the whole GM process for meetings that are broadcasted live on the same platform.
Through e-GEM, shareholders can register for and participate in GMs from anywhere with an internet connection, by using the e-signature framework and assigning proxies without any paper documents. Shareholders and assigned proxies are recorded in the list of attendees, which is available on the system one day before the meeting (MD-1) without the need to resort to share blockage.
e-GEM eliminates costly pre-meeting procedures for issuer companies by giving them the ability to upload meeting documents to the system. Shareholders and intermediary institutions are automatically notified on a real-time basis via SMS, email and ISO formatted messages through SWIFT upon the upload of documents and information by companies to the system, and they have the ability to view and download these documents. Shareholders can remotely cast their votes on agenda items that can be accessed on the system before and during meetings.
Integration of MKK’s Central Dematerialized System with the Public Disclosure Platform (PDP), paved the way for establishing a GM process management model in Turkey. The integration of two systems and the transfer of PDP management to MKK facilitated implementing STP, starting with the distribution of GM-related information from the issuer company all the way to beneficial owner shareholders using international message formats.
e-GEM delivered new capabilities in meeting day procedures by providing sophisticated solutions. The platform establishes a single point of access for investors, enabling them to attend several GMs on the same day. Shareholders and proxy holders can attend concurrent meetings simultaneously conducted on the same day through e-GEM. Meetings are broadcast live, and shareholders can make comments and suggestions, ask questions and cast their votes. Voting results can be monitored on the system upon the finalisation of the voting process. Meeting documents, audio-visual records and voting results are archived on the platform for future access.
Improvements in GM processes that are brought about by e-GEM significantly increased GM participation, both for domestic and foreign shareholders in Turkey. Although the new regulations mandated convening of electronic GMs only for listed companies, following e-GEM’s launch in October 2012, the first GM that took place on the platform was of an unlisted company.
Since the launch of the system in October 2012, 346 companies (including non-listed companies such as KPMG and Gittigidiyor.com, an eBay subsidiary) conducted their general meetings through e-GEM, with the total number of electronic GMs reaching 749 in two years of the system’s operation. Total GM participation was 20,701, which corresponds to a 127 percent increase in 2014 over 2011. The number of GM participants has increased 146 percent since e-GEM became operational.
An important factor behind this increase is the significant rise in foreign shareholder participation since the launch of e-GEM. Indeed, the number of foreign shareholder participants to annual GMs in Turkey has gone up by 490 percent 2011 and 2014. In addition, the share ratio of foreign shareholders increased from 33 percent in 2011 to 84 percent in 2014. Some 98 percent of foreign shareholders opted for e-GEM as a way of virtually attending meetings, while 90 percent of domestic shareholders chose to be physically present at the meetings in the last year.
Participation by institutional investors, who are mostly comprised of foreign investors, went up by 342 percent, whereas individual participations dropped 45 percent between 2011 and 2014. The share ratio of institutional investors in GMs increased from 46 percent to 87 percent in the same period. Furthermore, the share ratio of institutional investors attending GMs through e-GEM was 94 percent last year.
The new hybrid model that allows both physical and electronic attendance to GMs in Turkey harmonised local market practices in GM management with global standards and best practices. Improvements in GM operations such as the implementation of STP in shareholder notification through communication channels including SMS, email and SWIFT messages, removal of share blockage for shareholder identification purposes, efficiency in proxy operations, the introduction of new GM convocation deadlines (MD-21), and the introduction of record dates (MD-1) raised Turkish market practice to the level of standards set by international bodies of experts.
PDP 4.0 project, which was initiated by MKK following the transfer of PDP’s management from Borsa Istanbul to MKK, will introduce new improvements in GM operations such as direct electronic voting by foreign beneficial owners through SWIFT, using ISO-compliant message formats (ISO15022 and 20022). Moreover, PDP 4.0 will enable the use of XBRL (Extensible Business Reporting Language) in the distribution of corporate data and implement a fully bilingual (Turkish and English) platform. The planned upgrades that will be finalised in 2016 will generate further significant efficiencies in GM-related processes in Turkey.
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