Retail investors grow in power
As retail investors grow in number, online share trading platforms are looking to encourage their thousands of members to use their voting rights. Online investment platform Sharesies more than doubled its funds under management last year to pass $2 billion from more than 500,000 investors.
Sharesies investors collectively own more than 5 per cent of Air New Zealand, their largest percentage holding of a NZX50 company.
But unlike traditional share investors who buy whole shares, Sharesies’ stake in listed companies is split between thousands of investors, some of them holding only part-shares.
The part-shares and whole shares are pooled together in a Sharesies nominee company on behalf of the investors.
The structure allows Sharesies to offer investors access to the market at low costs, but it also makes it difficult when it comes time to vote the shares.
Currently, Sharesies staff decide if a shareholder vote is of interest to its members and what information it provides to them.
Common reasons for holding a shareholder vote include bringing a new director to the board, a share consolidation plan, or response to a proposed takeover bid.
Sharesies head of investment Gus Watson says that in most cases the company will tell members only about votes that have the ‘‘potential for material impact on the share price’’.
But few Sharesies investors choose to cast their vote, even when the issue is of crucial importance, such as a company merger.
Just 40 per cent of Sharesies’ Rocket Lab shareholders voted on the space company’s merger with Vector Acquisition Corp ahead of its listing on the Nasdaq last August.
And just 20 per cent of Sharesies Mercury Energy shareholders voted on the proposed bid to buy Tilt Renewables.
Watson says the process is not ideal and the company plans to introduce an automatic share voting process.
‘‘The reason why we haven’t done this already is we want to do this well. That means with appropriate education alongside any voting options, explaining why investors should care. We want to make voting accessible to everyone,’’ he says.
As the size of share holdings increase it will become more important for Sharesies to use its weight in company votes.
The company does not yet have the processes in place to handle the millions of votes that could potentially be cast by its members. The solution to the problem will probably be found in automation technology.
Hatch Invest already offers share voting to its 150,000 members.
Unlike the Sharesies nominee structure, Hatch investors directly own the shares or part-shares they have bought.
Hatch managing director Kristen Lunman says the ability to vote in any company decision they choose is crucial to the experience of investing.
‘‘Voting is shareholding. If you hold a slice of a company you should have some influence over the way the company is run. I’m not going to sit and claim that someone’s three Apple shares is going to influence what a company does, but it is still your right to vote and you should have a say,’’ she says.
As votes are cast by individual shareholders on the Hatch platform, Lunman has no visibility over which way Hatch users are voting, a system she says is more independent than a nominee structure in which votes are cast through the platform.
Paul Brownsey, chief investment officer at Pathfinder, says the company, like many KiwiSaver and managed fund companies, uses a proxy service that votes on behalf of investors.
‘‘You could call it auto-voting, but those auto-votes are based on a particular policy that we have put in place. As an ethical fund manager we have a policy on those votes that aligns with our ethical policy, but we also have an analyst on our staff that can overrule any proxy votes,’’ he says.
Pathfinder and other fund managers use a proxy voting service because it can become near-impossible to attend every vote for every one of the more than 250 companies the funds invest in.
But it also means that investors in the funds can trust a fund manager to vote in accordance with their ethical framework policy, Brownsey says.
Retail investing platforms could be more powerful if the platforms gave voting guidance to their investors over certain issues, he says.
University of Auckland associate law professor Alex Sims says investing platforms have a responsibility to encourage their users to vote.
‘‘Just because people are buying these shares doesn’t mean they are going to vote. The platform needs to do something. Just sitting back and expecting them to engage won’t do it,’’ Sims says.
When a new generation of investors
choose to vote together they can effect positive change, she says.
Sims points to Apple investors forcing the company to allow the sale of spare parts so that consumers have the right to repair.
‘‘If platforms continue to grow at the rate we are seeing, we could soon see them mobilise their subscriber base. I wouldn’t be surprised if we saw them start to put directors on boards in the near future.’’
Sims says while changing a company from the inside through voting shares is not new, the technology of investing platforms allows the process to be amplified.
‘‘The question is, does Sharesies want to take on an active role here or be passive in that process? Because as the money increases the more weight investors will have to push for change.’’