Something is still wonky in the machinery of shareholder democracy, according to Paul Myners in his latest report into institutional investor voting. Things have improved from a few years ago. Then, institutions showed only cursory interest in the resolutions of the companies they owned. They often didn’t get around to voting their shares at all.

Now there is vigorous internal debate within institutions on contentious issues such as directors’ pay and the reelection of board members. These days, virtually every institution exercises all its votes and many publish how they vote (albeit many months after the event).

The problem is that, despite all the good intentions, vast numbers of their votes just don’t get counted. It’s a plumbing problem. Along the chain of command, from pension fund to fund manager to voting agent to custodian bank to registrar, lie serious blockages.

Mr Myners cites a study of one FTSE 100 company last year where 5 per cent of the votes cast by investors appear to have been “lost”. Most commonly, investors overstated the number of shares that they were entitled to vote, resulting in the instructions for all their shares being rejected. Sometimes documents were mislaid. Often, voting instructions were simply not carried out. This is a technical problem, rather than anything more sinister. In corporate governance, we have moved from the era of the rotten borough to the era of the hanging chad. But still shareholders’ desires are being disregarded.

The common practice of stock lending has complicated matters, too. At best, this disenfranchises the economic owners of a business; at worst, it gives votes to people who may cast them in a manner contrary to the owner’s interests (the lending of Fortis stock to hedge funds who want to derail its joint bid for ABN Amro may prove to be a telling reminder of this).

A 5 per cent failure rate would never be tolerated in any Western democracy’s political elections. Of course, most company resolutions are carried by an overwhelming majority, but there have been occasions when such a swing could have made all the difference. Unless the system is cleaned up, one day a blue chip will be seriously embarrassed.

Fund managers, custodians and companies have a big part to play, but ultimately it is the share owners – the pension funds and insurers – who are the paymasters and have the muscle to force their agents to get the systems working properly.

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