Shareholders of the world unite
Buying shares is about making money. It means singling out those companies you think are set for good times and making sure you get to enjoy the party too. But all too often, investors forget that by becoming a part-owner of the company they acquire not just a share in the profits, but a right to have a say on how it's run. You may even get a few perks thrown in as well.
Okay, so the rights of small shareholders aren't such that you can cruise into the company's office and tell the boss what you think, but you do get the right to vote and take part in its annual general meeting. This might not seem like that big a deal, but it can be a great opportunity to make your voice heard.
'Private shareholders can have a disproportionate influence in a company as they may talk more loudly and forcibly than institutional investors,' says Roger Lawson a director of the UK Shareholders Association, which represents the interests of small shareholders. 'Larger investors are often wary of saying controversial things in public.'
Richard Hunter, head of equities at stockbrokers Hargreaves Lansdown agrees: 'There is something to be said for using your shareholder status to prod companies that appear to be drifting or directionless, to keep them on their toes. Companies should be willing to share their reasoning on the current strategy for the company, even with their smaller shareholders.'
Shareholder demand for accountability in the boardroom has soared in recent years, with the number of investors voting at company meetings doubling over the last decade. About 60% of shareholder votes in top companies were cast during the last season of annual general meetings, around twice the level of 10 years ago, according to corporate governance watcher PIRC.
Making a difference
Recently, there has also been a rise in 'shareholder activism' from small shareholders who want to make their voice heard. For example, the burgeoning ethical-shareholder industry is affecting corporate behaviour, as was demonstrated in 2007 by a small shareholder in Tesco.
Ben Birnberg, a retired solicitor, wanted to force the supermarket to adopt higher standards in its dealings with suppliers and farmers in low-wage countries. He gathered enough support to force the issue of ethical trading with suppliers onto the agenda at its AGM.
Birnberg, who is also the company secretary at War on Want, won the support of more than 100 shareholders to force Tesco to include a resolution demanding higher standards to be put to shareholders. Initially, the request was refused, but Birnberg turned to measures included in the Companies Act to force the retailer to comply. Under Section 376 of the Act he needed the support of at least 100 other shareholders who held an average of 2,000 shares each.
'Simply by turning up at a general meeting and asking awkward questions, a shareholder can prompt national coverage and punch well above their weight,' says Hunter.
For example, there was a lot of pressure put on British Gas by smaller shareholders over 'fat cat' salaries. Anger erupted in 1995 after a 75% pay rise was given to Cedric Brown, then chief executive of the newly-privatised energy supplier. They decided the chairman's package was totally unreasonable, and launched a campaign against it.
'Other companies then became wary of giving hefty packages to directors,' says Lawson.
It's for this reason that, when small shareholders feel they are being treated unfairly, they tend to group together, adds Jim Wood-Smith, head of research for stockbroker Williams de Broe.
'Though they may not be able to muster enough votes to make any difference, an organised group of activists can put enough bodies on the ground in or outside a company meeting to get noticed.'
In November 2006, new legislation gave thousands of investors who hold their shares in nominee accounts access to almost all the same basic rights as those with direct shareholdings in companies.
Nominee accounts such as individual savings accounts are used by many small shareholders, because these are the most convenient way to hold shares electronically. Before this change, shareholders in nominee accounts were denied many of the rights granted to direct shareholders.
But, under provisions included in the Company Law Reform Bill, nominee shareholders who indicate that they wish to receive company statements will now be legally entitled to do so. More importantly, nominee shareholders now have a legal right to receive investor information from the companies in which they hold shares, including reports and accounts and other financial statements. For the first time they will also have the right to speak and to vote at company meetings.
Gavin Oldham, chief executive of The Share Centre, is 'delighted' with the change in law. 'This will make share ownership come alive for many investors.' The new rules came into force on 31 December 2007. However, while most companies will voluntarily extend shareholder perks to nominee account holders, this new law still does not force them to.
While shareholder benefits and perks are an added extra to investing in a company, they should not be the sole reason - the company and its performance should be primary reasons for choosing them. But perks can be useful, and canny investors can save substantial sums if they use them wisely.
The majority of companies offering incentives are in the retail, hotel, travel and leisure and housebuilding sectors.
But - as ever - the devil is in the detail. In many cases, a minimum holding is required to qualify for benefits and you may need to hold them for a certain period of time before claiming.
There are cases of so many clauses that it is not worth the investor's while.
Also, check what form the benefit will take. You may need to apply for discount cards, or vouchers may be hidden inside annual reports. Sometimes, you may even need a letter or share certificate when purchasing goods in shops, whereas in others you simply need to tell the sales assistant when buying items.
Of course, most companies hope that by offering perks its shareholders will be incentivised to spend more money and be loyal to them. But this can still work in your favour, however. Perks can prove useful in the run-up to Christmas, for example, when bulk buying presents for family and friends. So, if you do have shares, it's worth checking whether dividends are the only perk of the investment.
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.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
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.