The My Share, My Vote campaign seeks to end poor practices among some investment platforms and providers regarding shareholders’ voting rights on the stock they hold.
What’s the issue with shareholders’ votes?
Shareholder voting rights give shareholders the power to elect directors at annual or special meetings, and make their views known to company management and directors on significant issues that may affect the value of the shares.
Many investors use a range of online platforms and service providers to invest and hold shares. This means that rather than being a name on the company’s share register, a typical investor now holds shares through a nominee account controlled by the platform or service provider they use.
The relationship between the company and its beneficial owner – the retail investor – is intermediated by the platform or provider. Where the investor is using a tax wrapper such as an ISA or SIPP, this has to be the case.
Part 9 of the Companies Act 2006 enfranchised those ultimate beneficial owners by making provisions that allow nominees to pass on information and voting rights. However, this is where the flaw exists – it is a ‘may’, not a ‘must’.
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Some platforms failing to pass on voting rights
Some, but not all, platforms offer shareholder rights. In most cases, the investor has to opt in rather than having their rights given to them as a default. Voting is possible through many platforms, but this is far from universal and, in some cases, investors are charged to exercise this right.
However, some investment platforms are failing to pass on voting rights and information, with others charging customers to vote, or declining to vote shares even when requested to do so.
The AIC said these practices have come to light following the activist Saba Capital’s proposals to force radical change at seven investment trusts.
Herald Investment Trust’s shareholders heavily defeated Saba’s proposals last week, but the other six votes are still to come. While major platforms have acted quickly to keep their customers informed and to help them vote, other platforms and providers have not, and in some cases, customers have found themselves unable to vote or have been charged to do so.
The AIC has written to Jonathan Reynolds MP, the Secretary of State for Business and Trade, to call for a change in company law so that nominees, including retail investor platforms, must offer information and voting rights to the beneficial holders of shares.
Richard Stone, the AIC’s chief executive, said: “It’s simply unacceptable that investors find themselves left in the dark about their right to vote, prevented from voting or charged for the privilege. If we are serious about shareholder democracy, investors must be able to have their say.
“The large platforms have improved shareholder engagement significantly in recent years, and they have acted quickly in response to the Saba proposals. But we have to move beyond just relying on firms to do the right thing. We cannot have a situation where investors and their advisers are actively prevented from exercising their voting rights because the law allows their platform or service provider to choose not to pass on those rights.
“We are calling on the Government to change the Companies Act so that nominees, including platforms, cannot avoid passing on voting rights and information to their customers. Now that investing takes place in a largely digital world, changing the law is essential for the health of our markets and to get more people engaged with their investments.”
Calls for change
The AIC believes that Part 9 of the Companies Act 2006 should be amended to make it mandatory for the nominee (for example, an investment platform) to pass on company information and voting rights unless the customer opts out.
It said that where a customer does opt out, the nominee has a periodic requirement to confirm whether this remains the customer’s preference and that any opted-out customers should be able to opt in on demand.
In the letter to Reynolds, the AIC said: “Seven UK investment trusts are currently being challenged by an activist investor attempting to make fundamental changes to how they operate. Saba Capital Management LP (Saba) has requisitioned general meetings to secure these changes.
“The first of these was held last week, with the rest in early February. Activists play an important role in the governance of publicly traded companies. Their interventions can help secure better outcomes for all shareholders. Delivering these benefits relies on shareholders being able to express their preferences about the future of their company. Saba’s campaign has raised doubts over whether the current legal framework for retail investors gives them this voice.
“It has highlighted the need for a simple change to company law to ensure that retail investors or their advisers receive the information they need on matters affecting their investments, and to ensure they are able to vote if they wish to do so.”
