It's time for you to take control in the board room – 26/6/2011
By Lisa Buckingham and Simon Watkins
Most of us are business owners – even if we don't know it. Eight out of ten of us have shares in Britain's biggest companies, mostly through the pension savings built up privately or through work.
Millions have shareholdings in other ways as well – through stocks-andshares Isas and stakes in funds such as unit or investment trusts. And about 12 million individual investors own company shares directly.
As business owners, shareholders should have a say in a company's running. But in Britain's global stock market, which boasts many huge companies – such as HSBC, worth £110 billion, or Vodafone, worth £80 billion – it is impossible for a private shareholder's voice to be heard.
But a new movement is gaining strength under the broad banner of Investment Stewardship, with shareholders coming together to increase their influence. Part of the aim is to apply pressure to the companies but, more important, it is to force the 'middlemen' in the investment process – the professional fund managers who invest our money – to do a better job on our behalf.
What is investment stewardship
In a nutshell, it is about making a company's directors more accountable to its owners. It aims to ensure businesses are transparent, properly structured and run with integrity.
It sounds noble and sceptics would say that any big business claims to meet these standards. But according to those who want to see higher standards, not all businesses make the grade.
Catherine Howarth runs lobby group FairPensions, which aims to educate and empower pension savers so they can wield influence in the commercial world with their immense, collective shareholdings.
'If the banking crisis taught us anything, it was that neglecting to keep a vigilant eye on companies can lead to huge, costly disasters,' she says.
The broad idea is that the principles of good stewardship are essential for financial success. If big businesses fail to act responsibly, all our money is at risk.
The shareholder vote
Shareholders have a number of ways of influencing companies. One is by voting at annual general meetings on issues such as the election of directors and their pay.
Individual shareholders can vote, but the real clout lies with fund managers who cast millions of votes on behalf of their customers – often the small investors putting a few thousand pounds into pensions, unit trusts or endowment policies.
A Stewardship Code was implemented last year by independent regulator the Financial Reporting Council to raise standards among fund managers.
Every big manager has signed up. The Code demands they have a policy on how they cast their votes, but it stops short of demanding they reveal how they voted. This is a crucial difference.
The Investment Management Association, the trade body for fund managers, stresses that voting is not the only way in which fund managers influence companies. The IMA's Liz Murrall says: 'It's easy to focus on voting, but if a fund manager gets to the point of voting against a company's board, it often means the fund manager has not been able to persuade the board to improve its standards.'
This persuasion process is known as 'engagement' and many fund managers claim to be effective at it.
But Howarth is sceptical. 'Fund managers say little publicly about the dialogue they have with corporate management on your behalf,' she says.
'They say ''engagement'' is best done in secret. The danger is "in secret" becomes a cover for doing nothing whatever.'
Work pensions
Workers' pension contributions, plus any money employers pay in, are pooled into often vast pension funds worth trillions of pounds together. Trustees are appointed by members, and the employer, to safeguard the money.
The trustees then appoint fund managers to invest it.
Many works pension funds are signed up to the Stewardship Code.
Some trustees give their fund managers instructions about where they may not invest, and occasionally trustees even demand that fund managers exercise votes in a certain way. Big schemes are likely to have their own websites providing stewardship information. Where schemes are small, members who are interested should find out the name of the fund manager.
FairPensions.org.uk provides information to help scheme members, as well as details of specific campaigns. Information is also available from the National Association of Pension Funds, napf.co.uk.
Unit trusts and other funds
How does the fund manager you chose to look after your Isa shape up in the stewardship stakes? The first thing to do, says Murrall, is check with the Financial Reporting Council's website, frc.org.uk, to see whether the fund manager is signed up to the Stewardship Code. Then you should look on the website of the fund manager for more information.
Some fund managers, such as M&G, Foreign & Colonial and Co-operative Financial Services, routinely publish their voting record. Others, such as Invesco Perpetual, are secretive.
The Tomorrow's Company think tank, in a stewardship manifesto it launched last week, called for more independent assessment of fund managers roles as stewards.
Some independent assessments do exist. In its December 2010 Stewardship In The Spotlight survey, Fair- Pensions ranked F&C, Baillie Gifford, Hermes, Newton and Aegon the top five fund managers. Invesco Perpetual, one of the most popular unit trust managers, scored zero in FairPensions' research and was ranked worst for transparency and disclosure.
This finding tally’s with Financial Mail's own experience where Invesco has previously refused to say how it has deployed clients' votes or disclose fully where it has invested clients' money.
Directly owned shares
Until 20 years ago, private investors usually held share certificates.
Their names appeared on the register of shareholders and the company's registrar would send them all shareholder communications.
A minority of private investors still hold certificates. But computerisation and the increase in lowcost, frequent trading in the late Nineties led to the introduction of nominee accounts, where the investor's stockbroker, or 'nominee', is on the shareholder register.
While this has reduced paperwork and cost, shareholders do not automatically receive details about AGMs or voting. In the case of important shareholder votes, such as for new share issues or restructuring, nominees should send information to their client shareholders.
Some nominee stockbrokers go the extra mile. Brewin Dolphin allows its 130,000 clients to register votes online as AGMs approach. Brewin director Charlotte Black says: 'It is not widely used, but clients do register votes if there is a public controversy over their company.'
One recent example involved investment company Alliance Trust, where a resolution was put forward to alter strategy. It was defeated, but Black noticed a high shareholder turnout.
Self-employed technology specialist Simon Tizard bears out Black's observation about investors voting only when there is a controversy. Simon, 56, from Walton-on- Thames, Surrey, has a nominee account with broker Hargreaves Lansdown, where he invests in a wide range of investment trusts and other shares.
'I keep an eye on what's going on with my holdings, buying and selling as appropriate,' he says. 'Where there have been contentious issues to vote on, I have done so.'
He prefers investment trusts to unit trusts because there is a board to monitor the fund manager. 'It has the ability to change management and that's a good thing,' he says.
AGMs and annual reports
Annual general meetings offer shareholders the chance to quiz their board. While many are poorly attended and tedious, some are fascinating.
The AGMs of controversial giants such as BP, Barclays or Tesco will last hours and attract a turnout of hundreds, including shareholder delegates from other countries.
A recent Shell AGM heard songs from Canadian shareholders, protesting at the company’s oil operations there. Tesco’s AGM is regularly attended by shareholders from South Africa objecting to the alleged poor pay of fruit-pickers.
Most people own shares in these companies via their pension or fund investments, but that will not entitle them to attend the AGM.
You must be a direct shareholder to attend. If you are a ‘certificated’ shareholder, you can turn up as your name will be in the register.
But the majority of shareholders, with nominee accounts, will have to ask their stockbroker in advance for a ‘letter of proxy’.
This, in effect, is the nominee’s confirmation to the company that you are, indeed, a shareholder. Most stockbrokers will provide this letter free.
The ‘investor relations’ pages of companies’ websites provide details of AGM dates and venues.
They also show the latest annual reports. You can usually opt for an email alert notifying you of the report’s publication.
Barrie Stead, a retired lawyer in his 70s, has become far more interested in his investments. He owns shares directly in companies and also has entitlement to a works pension managed by insurer Aviva.
‘I have become more determined to ensure that my investments are not causing harm,’ he says.
‘One reads that large companies are employing workers in far off parts of the world without paying them a living wage.
‘Do I want to receive a dividend from such companies?’
Barrie says companies have a duty to employees and customers as well as to shareholders. He says he is not comfortable if a firm’s ‘simple objective is to maximise financial returns’.
He has recently been to the AGMs of HSBC, Legal & General and GlaxoSmithKline. At all three he has tabled questions about their treatment of staff.
‘I wanted to know not only that all their staff were earning a living wage, but that the staff of all their contractors were too,’ he says.
And how did they reply? ‘They answered carefully and courteously,’ says Barrie, from Hammersmith, west London.
‘I’m not naive,’ he says. ‘Some answers are easy to give, but I can play a part simply by asking the questions.
‘Surely if we all exert our rights and become more probing, that would be healthy?
‘If ethical issues had been higher up the agenda, it might have been possible to avoid disasters like the banking crisis
‘People at the top of businesses are always arguing their wages affect their performance, so I hope they apply the same policy to the people lower down.
To read this article in its original context on the Financial Mail on Sunday website click here.
Lisa Buckingham, Mail on Sunday Financial Editor - 26/6/2011
Financial Mail readers have been angry – rightly so – about the failures of the banking system.
But the correspondence we have received has, by and large, been reasoned and considered about the banks' historical failings, with intelligent and reasoned suggestions for improving governance in the future.
And though Nick Clegg's support for the idea of giving shares in Royal Bank of Scotland and Lloyds to taxpayers may owe more to what he thinks is popular than what is practical, there is great appeal in trying to create a wider share-owning democracy.
We think the input of ordinary people to the debate about how our companies are run would be of great value. And clearly, the easiest and simplest way for that voice to be heard in the boardroom is through the direct ownership of shares.
It would not be impossible for UKFI, the Government body that controls the taxpayer-owned stakes in the banks, to canvass popular opinion on issues such as executive pay, the election of directors, etc and to reflect this in the way it votes its shares on crucial issues at the annual meetings of these banks.
Millions of us own shares indirectly and though it is more difficult to make our voices heard, it is not an insurmountable problem.
Pressure from investor s and savers could do much to encourage lazy or inept fund managers to step up the quality of their governance to match best practice, such as the stewardship exercised by the likes of Aviva, Hermes or Standard Life.
Sir Paul Myners last week threw his weight behind proposals that shareholders should have direct representation on nominations committees to give them top-level input into the appointment of directors.
And with the launch of the Government-backed National Employment Savings Trust (Nest) millions of employees who have not so far been able to save into a work pension scheme will, from the very start, be empowered to have a say in the way in which the fund managers looking after their money exercise their stewardship role.
Greater interest, involvement and intelligent stewardship is what is needed from money managers. Thinking individuals are well equipped to bring about that result and why, as our new campaign urges, you should make your voice heard.
To read this article in its original context on the Financial Mail on Sunday website click here.
It’s time to take control in the boardroom - 26/6/11
By Lisa Buckingham
We think the input of ordinary people to the debate about how our companies are run would be of great value. And clearly, the easiest and simplest way for that voice to be heard in the boardroom is through the direct ownership of shares.
It would not be impossible for UKFI, the Government body that controls the taxpayer-owned stakes in the banks, to canvass popular opinion on issues such as executive pay, the election of directors, etc and to reflect this in the way it votes its shares on crucial issues at the annual meetings of these banks.
Millions of us own shares indirectly and though it is more difficult to make our voices heard, it is not an insurmountable problem.
Pressure from investor s and savers could do much to encourage lazy or inept fund managers to step up the quality of their governance to match best practice, such as the stewardship exercised by the likes of Aviva, Hermes or Standard Life.
Sir Paul Myners last week threw his weight behind proposals that shareholders should have direct representation on nominations committees to give them top-level input into the appointment of directors.
And with the launch of the Government-backed National Employment Savings Trust (Nest) millions of employees who have not so far been able to save into a work pension scheme will, from the very start, be empowered to have a say in the way in which the fund managers looking after their money exercise their stewardship role.
Greater interest, involvement and intelligent stewardship is what is needed from money managers. Thinking individuals are well equipped to bring about that result and why, as our new campaign urges, you should make your voice heard.
This article can be found in the Financial Mail on Sunday section of the Mail on Sunday dated 26th June 2011.