Why shareholders’ votes matter

If you manage to vote on your shares held by a platform then you are in an elite club of roughly 6 per cent. While it may not seem a pertinent portfolio management decision, dwindling turnout is causing alarm among investment trust managers and corporate governance experts alike.

“Few subjects are more mundane than this – but few more important,” says Robin Angus, executive director of Personal Assets Trust (PNL) in his latest quarterly report. “However much you think the subject will bore you, please don’t stop reading,” he pleads. 

The challenge facing the FTSE 250 investment trust was quite specific. For over two decades the company has issued new shares regularly under its discount/premium control policy, to prevent the share price diverging from the company’s net asset value (NAV). This reduces price volatility and lowers ongoing charges as the trust grows. 

If the company exhausts the authority to issue up to 10 per cent of new shares under the powers it takes at its annual general meeting (AGM) each year, a general meeting is called and shareholders are requested to pass a further resolution to allow the company to continue to issue new shares. This resolution is a special resolution, meaning more than three-quarters of votes cast must be in favour.

Personal Assets Trust called such a meeting in October 2019 and on the morning of the voting deadline, only 80 per cent of the votes cast were in favour and Mr Angus feared he may not be able to continue to operate the company’s discount/premium control policy appropriately.

As it happens, the resolution passed. But the turnout was a meagre 22 per cent – with only 5 per cent of those who invested via Interactive Investor voting. Personal Assets Trust confirmed that no users of Hargreaves Lansdown or AJ Bell voted and it only received 10 votes from The Share Centre. 

Voting rates have been steadily dropping for investment trusts and listed companies across the UK, with participation rates particularly low among private investors. The UK Share Association conducted a survey recently among its 500 members and discovered that on average only 6 per cent of platform investors were exercising their votes. 

Structural issues

Shareholder inertia has been exacerbated in recent years by the shift of investors on to platforms. This has presented two hurdles: investors are now held in nominee accounts, which means you are not the registered share owner – and platforms are not incentivised to encourage people to vote.

Historically investors held paper certificates and were sent annual reports and voting forms from companies directly. Paper certificates are due to be phased out by 2023. Some investors have personal Crest membership, which means they are the registered share owners and will receive information directly from companies, but this is a more expensive service and is only supported by four brokers.  

The vast majority of DIY investors use platforms and are held in nominee accounts, meaning companies are not able to notify investors directly. Simon Crinage, head of investment trusts at JP Morgan Asset Management, says this “means the ‘ultimate’ owner may be at risk of becoming disenfranchised, which is of grave concern to us. Communications and proxy voting instructions are sent to the registered holder, ie typically the nominee. This means, in many cases, the information doesn’t always find its way to the ultimate owner.”  

Cliff Weight, director at campaign group ShareSoc, highlights that this is currently a frustration for Sirius Minerals (SXX), which is unable to directly contact investors held in nominee accounts regarding the takeover bid from Anglo American (AAL).  

The other problem is the lack of incentive for platforms to volunteer AGM or voting information to investors, as they have been pressured to provide the service at no additional cost, and bear the administrative burden themselves. 

James de Sausmarez, director and head of investment trusts at Janus Henderson, says: “Sharedealing services do facilitate voting, but they are not obliged to and it is expensive to do so, so they do not draw attention to the service or encourage it.”

One private investor, who uses three platforms – and asked not to be named – says the platforms he uses are “hopeless” at providing information and fail to notify users of upcoming AGMs. He also says systems that invite email instruction – such as Hargreaves Lansdown and AJ Bell – are “tedious” as you have to type out all of the resolutions. “Unless it’s really simple you’re not going to vote,” he says. 

Holly Mackay, founder of the financial website Boring Money, says she uses platforms and never hears of AGMs or feels as though she has a say. She suspects a growing desire to invest sustainably will lead to renewed investor appetite to engage.

Baillie Gifford is working to address the communication barriers for platform users and is putting together a series of initiatives to re-enfranchise investors and make it easier for them to vote, attend AGMs and receive annual reports and accounts. James Budden, marketing director at Baillie Gifford, says changes will be made by the end of the year.

Why does voting matter?

You might disregard voting under the proviso your vote doesn’t count. But one quarter of FTSE 100 shares are held by UK-based private investors, rising to 35 per cent for stocks listed on Aim, according to research firm Hardman & Co.  

“Individual shareholders can greatly assist in corporate governance, effective company engagement and holding directors to account,” says Mr Weight. Recent governance crises at companies such as Carillion, Thomas Cook, Royal Mail (RMG) and Persimmon (PSN) all illustrate a need for greater accountability and shareholder engagement. 

Mr de Sausmarez says that it is “vitally important” more private investors are encouraged to vote, on the basis of shareholder democracy. You have the right to influence the appointment of directors who represent you and influence the outcome of resolutions. 

“If this does not happen an institutional or professional investor shareholder with a relatively small investment can have a disproportionately large impact on resolutions if the majority of shareholders are private investors holding their shares through dealing services,” he says. 

Mr Weight says that private investors also tend to be “better than so-called professionals” at shareholder participation as they tend to buy and hold stocks over a long period, unlike professionals who are assessed on their performance over one to three years. 

Mr Angus also points out that institutional investors can be influenced by voting advisory services such as the Institutional Shareholder Services Group (ISS). These agencies have come under scrutiny for issuing poor advice, in some instances. ISS advised voters to reject Personal Assets Trust’s special resolution. Hamish Buchan, chairman of Personal Assets Trust, says the company needs more shareholders to vote in order to protect itself. “People may think their individual vote doesn’t count, but if enough [private investors] vote that will make a difference,” he says. With turnout as low as 22 per cent and a 75 per cent threshold required, Mr Buchan says the company faced a “real risk” of ceasing to be able to prevent the share price diverging from the NAV, which would put the trust in breach of its Articles of Association.

How can I vote?

All of the major platforms facilitate voting free of charge, but with varying degrees of ease. While some platforms such as The Share Centre and Interactive Investor have online systems through which you can vote, others, including Hargreaves Lansdown and AJ Bell, ask you to email them your instruction. 

Typing or writing out voting instructions can be a painful experience. Helpfully, Roger Lawson, former director at ShareSoc, has put together a generic voting form investors can use if they are held in a nominee account. Once complete, you can email or post the form to your platform provider.

You can access more voting guidance on the above platforms as well as Barclays Smart Investor, BestInvest, Charles Stanley Direct, Fidelity Personal Investing and HSBC on the Alternative Investment Company website at theaic.co.uk/aic/shareholder-voting-consumer-platforms.