Minority shareholders rare but still here
Foraging goes downhill for capitalism’s footsoldiers. Rob Stock and Madison Reidy report.
Richard Gray has been buying shares since 1983. He sold $50,000 worth of them to buy his first home. He took a hit last year when children’s clothing retailer Pumpkin Patch collapsed, but the ‘‘phenomenal’’ growth of his Mainfreight shares kept him afloat.
Today he owns a slice of 95 New Zealand Stock Exchange (NZX) listed companies.
Gray attends about 70 annual shareholder meetings each year to meet the directors in charge of his investment face-to-face.
However, he said, the quality of the catering had ‘‘deteriorated’’ from the roast and beers affair it once was.
‘‘Some of the catering the companies put on is terrible, some of it is not even fit for human consumption. Companies used to put wine and beer on, they hardly do anymore.’’
He said he always made a point of attending the SkyCity Entertainment Group meeting. It had the best perks.
‘‘When you go there you get an envelope that has a $20 food voucher, plus gaming vouchers, a parking voucher and a pen.’’
At this year’s Sky City’s meeting, two elderly shareholders were spotted filling their handbags with giant chocolate biscuits.
Such occasions are often a day out for hundreds of elderly investors who rely on consistently high share dividends to supplement their NZ Super and private pension incomes.
In the packed foyer of the SkyCity Theatre the surreptitious cookieswiping went unnoticed as other, largely grey-haired shareholders tucked into the copious supply of sandwiches, croissants, biscuits and cakes.
Question time at the meetings was always interesting, Gray said.
‘‘Some of the companies, they pay their directors far too much … Shareholders get up and challenge them. Some listen to you and some don’t.’’
SkyCity’s board had just installed a new chief executive after disappointment over the performance of its Darwin casino, and construction delays for its International Convention Centre.
But shareholders gave the board an easy ride. Directors faced questions instead about adding rooftop gardens, training more apprentice chefs and making lobby areas more attractive.
The friendly tone of the meeting quite belied the company’s share price performance, which was down to around $3.70 from around $4.70 a year ago.
Quite another face of the minority shareholder was on show at the Fletcher Building annual meeting just a few days later.
Chairman Sir Ralph Norris admitted he had expected to face a ‘‘firing squad’’ following massive write-downs on building projects including the conference centre.
This was mum and dad shareholders as a force to fear, fulfilling one of their three key roles: to bring discipline to the companies they own shares in.
The night before the meeting, Norris and his fellow directors voluntarily decided to give themselves a 20 per cent pay cut.
It was one of a number of moves that won shareholders over to allow them to hold onto their high-paid board seats to fix the mess Fletcher finds itself in.
Norris told the Sunday Star-Times the timing of his pay cut was not strategic.
Shareholders provide companies with capital. They also provide information, helping to value the company through the trading of shares.
And they provide discipline, through their power to oust boards and sell their shares if they don’t like the direction of the company.
But the ordinary direct shareholder is a rarer beast than he or she once was.
The rise of the managed funds and pensions industry, including KiwiSaver, has seen the proportion of company shares held by ordinary people in their own name decline, though there can still be an economic advantage for experienced investors in avoiding high managed fund fees.
Justin Fox, a former editorial director of Harvard Business Review, wrote recently that in the 1950s, households owned more than 90 per cent of the shares of US corporations. It’s now down to half.
Jeff Matthews from Forsyth Barr says something similar has happened here.
‘‘It’s just a function of how our markets have grown,’’ he said.
KiwiSavers have large exposures to big New Zealand companies. Unlike direct investors, KiwiSavers aren’t expected to know anything about those companies, and have no role in keeping their boards honest and disciplined.
It’s the fund managers who do that. They have such power that when they want to talk to the board, they just call them up on speed dial.
By the time Norris faced the shareholders, Fletchers had hammered out a turnaround plan, and won the backing of institutional investors.
Direct investors do not have that kind of power, and may struggle with information overload, unlike the well-resourced fund managers.
Keeping tabs on one company means a lot of reading and thinking. Doing so on many is far harder.
Direct investors get over that by banding together. Some do it through investment advisers such as Forsyth Barr, whose research analysts come up with recommendations on whether a company is a ‘‘buy’’ a ‘‘sell’’ or a ‘‘hold’’.
Others join the Shareholders’ Association.
Individual shareholders’ contributions to annual meetings can, at times, seem random, unrealistic, or contrary to their financial interests. However, merely putting a question, or a resolution in front of a large audience shows courage.
One shareholder at the Auckland International Airport (AIA) annual meeting prefaced his question citing research that the human race would be extinct within a decade.
His three resolutions asked the company to investigate ways fuel could be transported to the airport by ship and stored onsite; find ways to further limit CO2 emissions; and lobby the Government for debt-free money to fund climate-friendly reforms.
Another asked whether oversized luggage would be allowed on the proposed light rail to the airport.
While some interjections from shareholders seem trivial, they can result in change.
SkyCity chief executive Graeme Stephens said after the company’s meeting, that it was now likely the Auckland casino would get a rooftop garden.
Boards and management listen, though not all shareholders are given the same attention.
The Fletcher Building annual meeting highlighted two groups of minority shareholders whose interests were at odds with those of many fellow stock owners.
Mathew Oates works as a truck driver for Fletchers, and holds several thousand dollars of its shares, entitling him to speak at meetings.
The giant bearded Oates was at a sizeable protest outside the venue, waving placards and calling for higher pay.
He had travelled from Hamilton to Auckland to ask the chairman himself for a pay rise. ‘‘We would like to know when Fletcher Building can pay us a decent wage that is competitive with other companies?’’ asked Oates, dressed in fluoro orange uniform and steelcapped boots, braving the ire of his employers.
The response from Norris was just 34 seconds long.
‘‘Our pay rates are competitive and if we look at the increases that have taken place in wage rates … those increases have been significantly above the rate of inflation.’’
Oates thanked Norris for his time, despite obvious disappointment. ‘‘It was what I expected and what I have heard before.’’
A second group of protestshareholders were shut down even more directly.
They were from the Protect Ihumatao group, who have fought to try to stop Fletchers from building 500 houses near Auckland International Airport on land the group says is historically significant.
There were hisses of indignation from other shareholders, indicating they felt the protesters had less of a right to speak than those interested in financial returns.
Norris called for the sound to be cut off from the microphone during two of the protesters’ speeches, indicating he felt the same way.