“Giving Personal Shareowners a Voice” was the title of a meeting yesterday (3/7/2014) organised by Gavin Oldham of The Share Centre. It was organised to discuss a number of concerns about shareholder engagement with companies and the rights of individual shareholders. It was attended by a number of “stakeholders” interested in this area including representatives from the BIS, FRC, WMA, Wider Share Ownership Council, ShareAction, UKSA, ICSA, a number of journalists and myself representing ShareSoc.
The first topic covered was the failure of private shareholders to engage with the companies they own. For example by attending general meetings and voting their shares. Incidentally on the same day it was reported that at a General Meeting of Sports Direct, where a controversial bonus scheme for Mike Ashley was narrowly voted through, was attended by 3 shareholders and was over in six minutes. Other people present complained about the lack of attendance of institutions at such meetings and the fact that sometimes you can turn up at meetings of smaller companies and find you are the only shareholder present. With twice as many shareholders now in nominee accounts as are on the registers of companies, is there are problem with Part 9 of the 2006 Companies Act which was designed to provide information and other rights to nominee shareholders?
One of the big problems is that many brokers (and not just the smaller ones) do not offer such rights because it is currently optional for stockbrokers to support them. Or if they do they don’t publicise the fact, or charge a fee (for example Hargreaves Lansdown have recently introduced a charge of £10 if you wish to vote your shares). Should it therefore be made mandatory for nominee operators to offer such a facility? There was general agreement in the meeting that this should be considered.
I later pointed out that it was important to make such facilities easy to use (as The Share Centre does for example) to improve the level of engagement. It’s worth pointing out that without “information rights” which deliver an Annual Report and Notice of Meeting, investors do not even know when meetings are taking place or that it is time to vote.
We moved on to discussion of the exercise of voting rights. The Share Centre had done a survey of 1,500 investors who had opted in for communication from companies but even of those some 66% don’t vote on resolutions. Peter Swabey from ICSA reported that now institutional voting levels had reached 70 to 75 percent when it used to be as low as 50%, but only 10 to 20 percent of registered holders vote. So it is clear that private shareholders often do not vote unless an important issue is on the agenda. I pointed out that according to our own member survey there was a particular problem with nominee accounts though where almost nobody using them voted simply because of the difficulty of doing so (whereas that was not the case if they were registered holders) – most of our members do not use the Share Centre (there are a large number of stockbrokers and our members use a variety of brokers and often more than one) which accounts for the even lower numbers voting than the Share Centre reported.
AIM shares are another problem because they are not currently covered by Part 9 so companies have no obligation to support the provision of information. It was generally agreed that they should be added which could be done by a simple regulatory change (i.e. it does not require a change to primary legislation).
Another problem was overseas registered companies which are not bound by the UK Companies Act. It was suggested that one way to have them included would be to include a provision in the Listing Rules although some attendees suggested this needed a bit more consideration as it might invoke “reciprocal” requirements by foreign exchanges.
The meeting then discussed encouraging shareholder participation. For example it was apparent from the Share Centre survey that only a minority of investors were aware of rights for shareholders to request circulation of information, table shareholder resolutions, obtain an independent report on a poll and require web site publicity of audit concerns.
It was reported that the number of requests for additional resolutions in the UK was minimal (possibly as low as one or two per year), which compares very unfavourably with most other countries. For example, it is very common practice in the USA. I pointed out the practical difficulties of doing it (having done it in the past).
There are two normal requirements to add a resolution to an AGM: either shareholders representing 5% of the shares or 100 shareholders with an average of £100 nominal capital invested need to support it. The latter requirement was a particular problem because nominal share prices bear no relation to market value so it can mean a very high figure in practice (£138,000 for FTSE 350 companies). There seemed to be general agreement that this should be changed to be based on market value instead. A figure of £2,000 was suggested although Mr Swabey expressed reservations. Note that he did acknowledge that the cost to a company of adding a resolution to an AGM agenda was very low but adding a general meeting was high (there is already a higher threshold of 10% of shares for such requisitions of course). Unfortunately such a change would require primary legislation (i.e. a change to the Companies Act).
This was a useful meeting to discuss some of the problem areas that should and could be tackled. As readers may now understand, this is a very complex area. I did in conclusion point out that the existing system is unfortunately the result of grafting on additional processes to a quite archaic structure and that it would be better to start from scratch. For example Catherine Howarth of ShareAction pointed out the inability to confirm that votes had actually been recorded (there is no audit trail which any decent IT system would provide). I noted that I would like to see nominee accounts banned but accept that we will have to live with them so it was important to improve the support of nominee account holders in terms of information and voting rights.
It was mentioned that the issue of “dematerialisation” (from the CSDR regulations) was under consideration and one of the key issues is how this is introduced – for example by a new “name on register system” or via nominee accounts. Kimberley Bingham from the BSI said it was at the forefront of her mind to support names on registers so that might be a positive sign, but nothing much is likely to happen quickly in this area because it is not going to be mandated until the 2020s.
The meeting certainly helped in inform the attendees and there seemed to be some consensus on many of the issues raised by Gavin Oldham.