Small shareholders set for power boost

Shake-up may give investors a bigger say over fat-cat pay and takeover battles

MILLIONS of small shareholders could be given more power to block takeovers and challenge fat-cat pay at Britain’s biggest firms under a major shake-up later this year.

The Mail on Sunday understands that officials are considering a package of measures to revolutionise the way private investors vote on big issues.

It would mean that firms will no longer be able to keep investors in the dark about crucial votes if they hold shares through stockbrokers such as Hargreaves Lansdown, AJ Bell or Barclays.

Voting would also be made far easier for private shareholders when they want to object to hostile bids, bumper bonuses or plans to relocate companies abroad.

Small investors may also be given an automatic right to attend annual meetings – without having to ask permission, as many do today.

And firms could be banned from using a legal loophole that means they have the power to give each stockbroker a single block vote to represent tens of thousands of shareholders.

The plans, which will be discussed by officials from the City watchdog and Law Commission before being presented to the Government as potential new laws in the autumn, would empower savers, who hold £254billion worth of shares in UK firms.

Experts hope to reignite the small shareholder revolution that took off in the 1980s with Margaret Thatcher’s privatisation of firms such as British Gas, but has since faded. Now companies including Lloyds Bank, BT, Vodafone, BP and Royal Mail all have large contingents of private investors.

Peter Parry, policy director of the UK Shareholders’ Association, which is advising officials on the law changes, said: ‘The private shareholder has been ensnared into holding their shares in a way that disenfranchises them from acting as responsible owners of the business in which they have invested. This has led effectively to ownerless corporations.’

Cliff Weight, a director at ShareSoc, another group representing small investors, said: ‘Low rates of voting by individual investors mean opportunists can overly influence takeovers.’

The Law Commission, a body set up to recommend law changes to the Government, is working on a shareholder voting report and will meet officials from the Financial Conduct Authority and Financial Reporting Council on April 1.

A key law change under consideration could force companies listed on the stock market to register every single shareholder as an individual.

Currently, most people who hold shares through stockbrokers do not hold the legal title to the shares they own. These are held by a stockbroker instead as the legal owner, in what are called ‘nominee’ accounts.

Up to 90 per cent of private investors now hold shares in a ‘nominee’ account after it replaced paper share certificates as the default way to buy and sell shares. Many are likely to have no idea that they are not the legal owner of their shares, as they still profit from the rising prices and receive dividends as normal.

The £405million takeover of Yorkshire miner Sirius Minerals by Anglo American also showed how shareholders can find it difficult to join forces to block takeovers.

Under the court process for the Sirius vote, brokers such as Hargreaves Lansdown and AJ Bell received one vote each to account for all the shareholders on their books. In total, 78,000 Sirius shareholders owned shares through nominee accounts but just 1,314 different shareholder votes were counted. However, the value of their shares was also taken into account for the final outcome. The vote passed and investors lost huge sums on the last-gasp rescue deal.

The Mail on Sunday understands that the Law Commission is considering banning counting votes like this.

A retired geologist who owned shares in Sirius through an Isa with an online stockbroker told The Mail on Sunday he received no communication about the takeover. He says when he asked about voting, he was referred to the Sirius ‘registrar’, Link Asset Services, and gave up.

A spokesman for Business Secretary Alok Sharma said: ‘We recognise that the system can make it difficult for individual investors to have a say.’