YOU have the power to make firms kinder. Here’s how to wield it – and make a profit
WHAT if I told you that you had the power to change companies for the better – while still making a profit? Or that you could challenge a chief executive on their company’s environmental policies or help rein in excessive pay or even boot out an underperforming fund manager?
Well the chances are that you already have this power – you’re just not using it.
Millions of investors have rights over the companies in which they hold shares. And yet just a handful use them – often because they don’t even know it’s possible or as a result of it being made difficult for them.
It may have been investors in Gamestop who hit the headlines earlier this year when they used their power to humble some mighty hedge funds. But if they choose to use it, millions of ordinary investors have more farreaching powers than this.
WHAT POWERS DO SHAREHOLDERS HAVE?
THE beauty of investing in companies is that one share equals one vote. That means an individual who owns a few shares in a company has the same rights as a fund manager or a pension fund that holds a much larger stake. You are just as entitled to vote for or against the strategy of that company as anyone else.
You also have the same right to get involved and ask difficult questions of the company’s leadership team and board.
The annual general meeting is ideal for this, says Jeremy Fawcett, founder of consultancy Platforum. He says: ‘Companies put out plenty of glossy information for shareholders about their finances and strategies. But sometimes you want to see the whites of the eyes of the people you’re investing in. Investors have that opportunity every year. The AGM is an unsanitised, unscripted environment.’
WHY DIDN’T I ALREADY KNOW ABOUT THIS?
PROBABLY because your investment platform is failing to tell you.
All investment platforms have mechanisms to allow customers to engage with the companies in which they hold shares. But the systems are often clunky, poorly publicised and rarely used.
For example, in theory it is possible for Hargreaves Lansdown customers to attend company annual general meetings and vote. But the FTSE100 listed company admits that in reality less than one per cent of eligible customers vote – and it has seen no improvement for years.
But perhaps that’s not surprising. Hargreaves Lansdown customers are rarely told when an AGM is due. If they want to vote, they have to get in touch in advance and Hargreaves will pass on their wishes.
Rival investment platform AJ Bell says it doesn’t have data on how many customers vote or attend AGMs, other than to say that it is ‘a very small percentage’.
It adds that it is exploring whether it can automatically alert customers to all AGM votes. Customers who wish to vote have to contact AJ Bell by secure message or phone at least five days in advance with their request. The exception – as with Hargreaves Lansdown also – is for
AGM resolutions that are likely to have a material effect on customers’ shareholdings. In these cases all affected customers are notified.
Fidelity says customers can vote, receive notifications and attend meetings through its third-party provider Broadridge. Customers need to sign up to the service located in the ‘preferences’ section of their secure account. Cliff Weight, director of investor campaign group
ShareSoc, says wealth platforms make it so difficult for customers to engage that they are ‘disenfranchising individual shareholders’.
He says: ‘Most platforms don’t even pass on information and if you want to vote the method offered is practically prehistoric. As a result they’re throwing away millions of shareholder votes.’
Weight believes platform Interactive Investor is better than most.
Eight per cent of its eligible customers voted last year at annual general meetings – a low turnout, but likely to be several times higher than most of its rivals.
It alerts customers who opt in for notifications of forthcoming annual general meetings when there is a vote and they can click through from the platform to exercise their right.
But chief executive Richard Wilson admits there is still more to do. He says: ‘ShareSoc kindly thinks we’re the best of the bunch at encouraging voting, but that doesn’t mean to say our process is perfect.’ He admits that even he doesn’t vote all the time as it’s easy for it to become another thing to add to the to-do list.
He adds: ‘In today’s age of consumerism, if it’s not slick and pain free, it’s not happening. The user experience has got to be easy.’ Interactive Investor is working to improve its processes and last month wrote to customers urging them to use their votes.
WHY CAN’T FIRMS CONTACT SHAREHOLDERS DIRECTLY?
MOST people own their shares through an investment platform. In general, this makes life easier; you can see all of your holdings in one place, it’s straightforward to buy and sell – and you can hold shares inside tax-free wrappers such as Isas and Sipps.
But there is a huge downside: technically you don’t actually own the shares you hold. Instead, you have what is called a ‘beneficial interest’ in them. So you have rights over the shares, but it is not your name on the share certificate, but rather that of the investment platform.
Simon Crinage, head of investment trusts at asset manager JPMorgan, warns that this means shareholders often get left out. He says: ‘Many investment trusts put a lot of time and effort into producing communications and quality documents for their shareholders.
‘But they are obliged to send them to the registered shareholder – which is the platform, not the ultimate shareholder. It is then up to the platform to pass them on and to notify shareholders when it is time to take action and vote. But in reality, many don’t.’
WHAT IS THE FALLOUT OF INVESTORS NOT VOTING?
JPMORGAN’S Crinage warns that when voter turnout is low, the votes of those who do turn up have a stronger sway. As larger investors
are more likely to vote, they will end up having a greater influence and the interests of smaller investors may be overlooked.
Annabel Brodie-Smith is communications director at the Association of Investment Companies. She agrees that platforms must do more.
She says: ‘Most platforms allow investment company shareholders to exercise their rights, but it isn’t always obvious how to do it, and it can be more difficult and fiddly than it should be.’
She adds: ‘If shareholders in investment companies are engaged, then the trusts can respond better to their needs.
‘With so many shareholders now holding their shares through platforms, it’s vitally important they play a part in shaping the strategy and direction of the companies they are invested in. These decisions should not just be left to large investors.’
The association has recently launched its ‘shareholder engagement award’ to recognise investment platforms that are doing a good job of helping shareholders have their say.
SMALL SHAREHOLDERS CAN BE SIDELINED
SMALL investors are sometimes treated like second class shareholders. For example, when a company issues new shares, existing shareholders should have the right to buy them before others get a look in. This is known as pre-emption rights. But increasingly, companies ask shareholders to vote to waive their pre-emption rights, so they lose this ability.
When shareholders fail to turn up and vote against this motion, it gets carried and they lose their rights.
Wilson explains: ‘You have this crazy set-up where, because people don’t vote, the board sanctions a resolution that allows small shareholders to switch off their pre-emption rights so they don’t need to be asked if there’s a share raise.
‘It’s a systematic undermining of shareholders’ rights, delivered through a voting system which everyone knows no one uses. It’s a fundamental wrong.
‘For me this whole system is perpetuating a disenfranchisement or an isolation of retail investors. Institutional investors get all the fat and the retail shareholders pick up the gristle.’
IS ANYTHING IN THE SYSTEM IMPROVING?
ALEX Denny is head of investment trusts at Fidelity. He believes that the changes companies have had to make during Covid may have longterm benefits.
He says: ‘Investment trusts have had to move their AGMs online over the past year. As a result, attendance has improved because investors no longer have to travel to attend.
‘Hopefully, investors will be able to attend in person again, but ideally we will keep a hybrid model where people can attend online or in person.’
Also, bosses of the three biggest investment platforms are calling for ordinary shareholders to be given a look in when companies list for the first time on the London Stock Exchange.
Andy Bell of AJ Bell, Chris Hill of Hargreaves Lansdown and Richard Wilson of Interactive Investor wrote an open letter last month demanding a consultation on whether companies coming to market should be obliged to include ordinary investors.
They claim that ordinary investors are excluded from around 93 per cent of all share launches, citing the Hut Group, Dr Martens and Moonpig as recent high-profile examples. They believe that involving ordinary investors in new listings will help improve shareholder engagement.
SO, FINALLY, HOW CAN I EXERCISE MY RIGHTS?
SIGN up for alerts on upcoming votes and AGMs. Your platform should enable this. If it doesn’t – or if it makes it difficult – ask it to improve.
As Fawcett explains: ‘Platforms claim there is no appetite for shareholder information, but while their offerings are poor there will be no appetite. It’s chicken and egg.’
You have shareholder rights over any companies or investment trusts in which you hold shares. So the message is: USE THEM.