How shareholders can make a stand
Whether it's Marks & Spencer's shareholders putting pressure on the company to appoint a new chairman, Northern Rock investors challenging the government's compensation scheme, or chef Hugh Fearnley-Whittingstall trying to get Tesco to adopt new animal welfare standards at its annual general meeting, more shareholders are now standing up for their rights.
"Private shareholders are getting more active," says Roger Lawson, communications director for the UK Shareholders' Association (UKSA). "It used to be considered very un-English to make a stand and any questioning was typically done behind closed doors.
"But it's really a positive thing and we find that in those countries where there's more shareholder activism, you tend to get healthier companies."
How to stake your claim
However large or small your stake, by being a shareholder in a company you have a number of rights. These include attending and speaking at annual general meetings, and voting on any issues raised.
But while these are your rights as a shareholder, exerting them is not as straightforward. This is because most share portfolios are held within nominee accounts.
Although these deliver easier administration and the ability to buy and sell faster, because your shares are registered in your stockbroker's name you don't automatically receive shareholder rights.
You can get round this by holding paper certificates, although this can be inconvenient and costs tend to be higher, or by finding a broker that will enfranchise its nominee account holders.
David Bennett, chief executive of the Association of Private Client Investment Managers and Stockbrokers (APCIMS), says that some of his members will pass voting rights on to clients who hold their shares in nominee accounts.
He explains: "In principle, everyone agrees that allowing shareholders to take a more active role in the companies in which they invest is a good thing, but the practicalities make it difficult. Therefore, if being able to exert your rights is important to you, check with the broker before you set up an account with them."
Among those that do pass on shareholder rights are Rathbones and Brewin Dolphin. Jane Sydenham, investment director at Rathbones, explains: "Our policy is to vote with the company, but if a client says they want to vote against we can carve out a portion of the vote so they can have their say.
"We don't find it happens very often, but if there's a major issue or a client has a particular allegiance then it's good to be able to pass on this right."
Brewin Dolphin has been passing on shareholder rights to nominee account holders for many years - something Charlotte Black, director of group corporate affairs, believes is very important. "We are seeing more people use their voting rights, especially when it's a big issue.
"For example, we saw a lot of interest from shareholders for the recent vote on whether Stuart Rose should remain as chairman at Marks & Spencer, and we also get a lot of interest - often from angry shareholders - when companies release their remuneration reports," she explains.
To enable as many clients as possible to take advantage of their voting rights, Brewin Dolphin has an online proxy voting service for anyone holding stock in its nominee accounts.
Here, you can see all the companies that are open for voting and, providing you hold the stock, you will be able to register your vote on an online form up to five working days before the meeting. "Not a huge number of people are taking advantage of this, but it's a growing number," Black adds.
She would like to see more information made available to shareholders to encourage them to stand up for their rights.
"I'd like to see more publicity of the issues being raised before the AGM. Unless private investors sign up for annual reports, they won't necessarily get any information on what is being voted on," she explains.
While there are ways to make your lone voice heard, clubbing together with other shareholders can increase the volume substantially. This has become increasingly common in the last year or so, as a backlash against the banks' activities.
"The action of the banks in particular has made many shareholders very angry," says Lawson. "We're approached by thousands of disgruntled shareholders, from other companies as well as the banks, and where we feel they have a case we can set up an action group to represent their interests."
As well as gaining significant publicity, by clubbing together the cost of taking action can be greatly reduced. For example, although shareholders can pay £50 a year to be full members of the UKSA, when you only join an action group campaign you may be asked for a donation or a registration fee.
"This could be around £15 to £25 to cover the cost of buying the share register, contacting other shareholders and the legal expenses," says Lawson.
As well as getting vocal through the UKSA, the Investors Association was launched in February to represent the rights of investors as well as shareholders.
It recognises that although collective investments have become more popular for gaining equity exposure than direct share ownership, they give investors virtually no say over the way the companies in which they invest operate.
To address this, it plans to set up campaigns to champion the rights of investors affected by the actions of companies, and is currently campaigning on behalf of investors who subscribed to the rights issue made by the Royal Bank of Scotland in April 2008.
Fund managers are also stepping up their pressure on companies, helping to make them more accountable to shareholders and investors. For instance, Legal & General, which manages billions of pounds on behalf of its investors, has corporate governance in place to determine how it votes at the AGMs of the 600 or so companies in the UK.
It recently used its clout with HSBC by supporting Eric Knight, chief executive of Knight Vinke Asset Management, who had unsuccessfully but repeatedly raised questions about the bank's strategy.
"It's important to engage in the companies in which we invest," says Andy Banks, head of corporate governance at Legal & General.
"Our rules on matters like remuneration are based on those set down by bodies such as the Association of British Insurers and the National Association of Pension Funds, but we also have other rules, such as no donations to political parties."
This type of action, as well as that of the action groups, representative bodies and individual shareholders will help to make companies more accountable to those that own them.
This article was originally published in Money Observer - Moneywise's sister publication - in November 2009
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.
Often used by stockbrokers to ease the administration of buying and selling holdings on behalf of their clients, a nominee (the broker) holds securities on behalf of investors (the “beneficial owners” of the securities). Holding securities through a nominee is cheaper, but the disadvantage is that beneficial owners of shares forego certain rights enjoyed by shareholders on the register, such as the right to vote at an annual general meeting (AGM) or extraordinary general meeting (EGM) and the right to propose AGM or EGM resolutions. Holding securities through a nominee still entitles the shareholders to dividends, rights issues etc.
Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.
Every limited company must hold an annual general meeting for its shareholders once a year to consider the company’s accounts, reports of directors and auditors and it is the only opportunity for shareholders to express their feelings to the board of directors. Shareholders also vote on the appointment/re-appointment of directors, although this may be sent to shareholders as a postal ballot.