During the recent general election it was striking how often people said they were not going to vote.
ANDREW HERBERTS
During the recent general election it was striking how often people said they were not going to vote. Reasons were many and varied, but the outcome was the same.
For me, non-voters have gone some way to surrendering the right to complain about how the country is governed or indeed to have an opinion about it. A spoiled ballot paper at least is an engagement in the process.
Publically quoted companies are not democracies. Shareholders have the right to vote on certain issues placed before them at annual general meetings and collectively they can change the board running the company. However, in most structures, votes are weighted by share count so while each share is equal, individual shareholders' influence varies widely.
Thus most of us do not think that we can influence the way companies are managed. Many share registers are dominated by large holders, typically pension funds or other large scale investment funds and these holders can dominate votes when controversial items appear on AGM agendas.
If we take executive pay as an example even egregious examples of reward for poor performance can go unpunished by shareholders or boards (who should be representing shareholders' interests). Equally other questionable practices often go unchallenged by boards or shareholders. When they come to light, a public outcry leads politicians to consider knee jerk legislation - generally ill thought through and damaging to all.
Often, poor corporate behaviours punish shareholders, so why has shareholder response been so weak?
A couple of reasons spring to mind. If you as a shareholder have significant misgivings about the operations or policies of a company it is unlikely that you are going to buy its stock. Hence you cannot vote.
The control of most large blocks of shares lies in the hands of institutional fund managers and the fact is that they are paid to take moral positions. They are paid to deliver returns. So again, they are very unlikely to take stakes in companies whose management practises they disapprove of.
Equally they are not poorly paid themselves so naturally many will be reluctant to vote against pay settlements to which they themselves aspire to. It would seem churlish. I am afraid that many act less as business owners than as speculators. There are examples of managers and institutions that do not fall into the characterisation above, but they are by no means in the majority.
So, in this context can we do anything but stand on the touchlines and fume? Or can we exert some, if minor, influence. It is not easy, but it is possible. Note that large blocks of shares are rarely controlled by the direct owner. Mostly they represent shares beneficially owned by someone else and that someone else is often you and me. Through our pension funds and unitised investments we own a large proportion of outstanding share capital and recognising this is a first step. If you feel strongly on an issue, you can bring pressure to bear on those who hold shares on your behalf. Ask whether your pension fund has a voting policy and if so, find out what it is. If it does not represent your views, then bring what pressure you can on it to change that policy. Pension trustees are alive to these issues and should be open to discussion. Equally, if you own an investment fund, do not be shy of asking the managers about their voting policy. If you think them too supine, then find another manager who isn't.
Finally, many individuals hold direct equities on platforms which do not make it easy for them to vote their shares. Clearly there is a cost involved to the platform, but the charges involved appear designed to discourage shareholder activism and actively discourage voting. A change in attitude here along with a little investment in technology would help us engage much more deeply with the companies whose shares we own and who knows, maybe even influence their behaviour. If we own shares and do not try to utilise their influence, we run the risk of surrendering the moral right to complain when behaviours do not conform to our expectations.
Andrew Herberts is Head of Private Investment Management (UK), Thomas Miller Investment
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