Voting Your Shares – It’s Important!

The main Annual General Meeting season is now upon us and those investors who hold their shares on the register will have been receiving Annual Reports on paper or electronically. If you hold your shares in a nominee account, some brokers will send you an Annual Report or notify you of when an AGM is coming up. Otherwise you’ll need to monitor company announcements. But the key thing is to VOTE YOUR SHARES.

You are after all a part owner of the company and the votes at an AGM enable you to determine who should be the directors, what they get paid, whether they can issue more shares and many other important aspects. The voting by institutional investors used to be sloppy, but now it is often over 70% while they frequently meet the same difficulties as private investors in actually submitting votes. But private investors are now laggards and need to up their game.

Yes it would help if the shareholding system was reformed (see our Shareholder Rights campaign here for more information on that: http://www.sharesoc.org/shareholder-rights.html ) . But in the meantime here are some tips to assist you:

If you hold a paper share certificate or are a Personal Crest Member then it is easy. You will be sent a paper voting form or can opt in for electronic notification. You can then vote by post or electronically. Incidentally even if most of your shares are held in a nominee account it’s worth holding at least one share on the register because that ensures you will be notified of AGMs and can attend the meeting without question.

If your shares are held in a nominee account, as most are nowadays, then it gets a bit more complicated. In essence you will have to get your nominee operator (stockbroker) to submit your votes on your behalf because they technically own the shares not you (i.e. their name is on the share register). You just have a “beneficial interest” in them. But the voting rights are still yours.

If your shares are held in an ISA account then the ISA rules require that the nominee operator will vote your shares when requested, i.e. they have a legal obligation to do so. The best brokers provide easy electronic systems to enable you to do that. But others will do so upon request. For non-ISA nominee accounts, the legal position is not as clear cut but in general all good brokers will vote your shares when requested.

If you wish to attend the AGM in person then you will also need to ask for a “Letter of Representation” if your shares are in a nominee account.

Now you may find the “Notice of the Annual General Meeting” which lists the resolutions to be voted upon a complex and daunting document at first glance. But in reality most of the resolutions are standard ones that appear every year. However that does not mean that you should vote “Yes” to all of them or blindly follow the directors recommendations. There is a lot of guidance on how to vote at General Meetings on this page of the ShareSoc web site: http://www.sharesoc.org/voting%20at%20general%20meetings.html

We also provide guidance on attending General Meetings on this web page: http://www.sharesoc.org/general_meetings.html with a comprehensive document on “How to Run a General Meeting” which you can give to company directors or the Company Secretary if you think the meeting was badly run (and lots are).

These areas may appear complex to new investors but they are worth learning about. Some General Meetings are particularly crucial as regards who is running a company and its future direction; and we all want to control outrageous pay levels that have been appearing in many companies. The votes enable you to do that. One of the key benefits of Full Membership of ShareSoc is that you can phone us up and ask for advice on how to vote and how to attend an AGM. The latter is always worth doing if you can spare the time. But if you cannot attend in person, just make sure YOU GET YOUR VOTE IN.

ShareSoc does sometimes issue general voting recommendations via Press Releases in particularly extreme cases – for example on Persimmon and Alliance Trust recently.

REMEMBER VOTING AT COMPANY GENERAL MEETINGS IS LIKE VOTING AT GENERAL ELECTIONS. IF YOU DON’T VOTE THEN YOU ARE LIKELY TO GET LEADERS WHO YOU DON’T LIKE AND WHO PAY THEMSELVES TOO MUCH. SO SHAREHOLDER DEMOCRACY IS AS IMPORTANT AS POLITICAL DEMOCRACY AND THOSE WHO DON’T VOTE BECAUSE THEY CAN’T BE BOTHERED WILL LIKELY SUFFER THE CONSEQUENCES. SO PLEASE DO VOTE.

Roger Lawson

Government Action on Dormant Accounts

The Government has today reported that as much as £2 billion is sitting idle in dormant accounts such as share trading accounts, ISAs, pensions and insurance products. That includes £715 million alone in investment and wealth management accounts.

This is noted by the Independent Dormant Assets Commission set up by the Government which has looked at whether the existing scheme for dormant bank and building society accounts should be extended. Minister for Civil Society, Rob Wilson, suggests that this money could help change millions of lives if it was donated to charities.

Readers may not think they will ever lose track of accounts but as folks get older, move house or emigrate, accounts are often forgotten. Regrettably the use of nominee accounts to trade shares hardly encourages stockbrokers and platform operators to follow up on inactive accounts. Any dividends on shares simply accumulate within the client account but presently the account operator gets interest on that which they retain. This can continue for ever (even after the client has died) unless inactive accounts are chased up. The lack of even regular postal communications to the last recorded address now that everything has moved on-line makes it easy to lose track of clients and the longer it is left, the more difficult it is to trace account holders. With digital communication being the norm, and people changing email addresses regularly, so that messages to them just disappear into the ether you can see why this is a growing problem and why the sums involved have become so large.

When investors are on the share register, dormant accounts and the associated dividends return to the company who issued the shares eventually so they revert to the benefit of other shareholders. Whereas with nominee accounts the nominee operator gets the benefit.

So this is yet another dubious aspect of the nominee system and why stockbrokers are so keen on nominee accounts perhaps. ShareSoc has of course been complaining about the iniquities of the nominee system for some time.

The Commission has suggested that the introduction of a scheme to ensure these dormant accounts are donated to good causes should be voluntary, but it would surely be better that it was compulsory. Note though that no client can lose money as a result if they reappear. They can always reclaim the lost assets in any case.

Roger Lawson

Shareholder Rights Directive Agreed – But It’s Still Defective

There has been agreement within the EU on the final form of the Shareholder Rights Directive. What follows is the press release issued by Better Finance (a body that represents individual investors across the EU and of which ShareSoc is a Member).

PRESS RELEASE

PRESIDENCY AND PARLIAMENT AGREE ON REVIEW OF SHAREHOLDERS RIGHTS DIRECTIVE: LIMITED IMPROVEMENTS FOR SHAREHOLDERS

14 December 2016 – On 9 December 2016 the EU presidency and the EU Parliament agreed on the final version of the new Shareholders Rights Directive (SRD). Better Finance welcomes the completion of the new SRD which took years to finalise.

This final version provides limited improvements in shareholders rights, in particular in the critical areas of shareholder identification and of the exercise of cross-border voting rights.

Companies will be able to identify their shareholders and to obtain information on shareholder identity from any intermediary in the chain that holds the information. But Member States will decide that companies within their borders are only allowed to request identification with respect to shareholders holding more than a certain percentage of shares or voting rights which will not exceed 0.5%. If such a high threshold of 0.5% is set by Member States, only a very small minority of shareholders of EU companies will be identified. In addition this right is reserved to issuing companies and not to their co-owners (its shareholders). Better Finance asks that Member States set a threshold that is as low as possible and that the shareholders of the listed companies have access to the same information as easily as those companies do.

An important barrier to cross-border shareholder engagement within the EU will virtually remain in place despite Better Finance’s efforts, since intermediaries will still be able to charge higher fees to shareholders wanting to exercise their cross-border voting rights, but admittedly subject to certain conditions: “any differences in the charges levied between domestic and cross-border exercise of rights shall only be permitted where duly justified and shall reflect the variation in actual costs incurred for delivering the services”. Better Finance asks that the EU Commission and the Member States effectively enforce this provision.

Furthermore, no action is really taken against nominee and omnibus accounts where the economic /beneficial owner of shares still does not get the voting rights, except perhaps for very big shareholders: those who own more than 0.5% of the company or over the threshold to be set by Member States. More generally, it remains doubtful that financial intermediaries will reveal the identity of the EU shareholders who are not resident of the same Member State as that of the issuer.

Finally, the new SRD does not recognize shareholder associations and their right to represent small shareholders in listed companies: this is a significant barrier to the engagement of small shareholders.

“It is doubtful that these new rules will encourage European individual shareholders – who are long term investors – to engage more with listed companies: a pity as this was precisely the stated aim of this review”, said Guillaume Prache, managing director of Better Finance.

<END>

Comment: A lot will depend on how individual states implement the Directive and it will be some time before it is needed to be introduced into UK law, by which time we may have left the EU. Indeed many of the provisions of this Directive, for example on remuneration votes, are already present in UK law although it would require some changes to comply with it. However, as the above press release points out, the Directive is deficient in many respects and would certainly not guarantee that all shareholders (e.g. those in nominee accounts) have the rights they should receive. Neither does it guarantee access to those shareholders by third parties so shareholder democracy is still hopelessly undermined.

In essence, this is a typical example of EU bureaucracy as applied to financial services. A basic lack of understanding of the market environment , particularly in the UK, and the proposals excessively influenced by large financial organisations. The political process and democratic input to EU decision making is also grossly deficient, resulting in a half-baked compromise which satisfies nobody.

The directive may improve matters in some countries in some areas. But so far as the UK is concerned, it is not particularly helpful and does not even catch up with UK thinking and regulations in this area. After years of work on this directive (and more to come), it is a very unsatisfactory outcome.

Roger Lawson

WH Ireland Stop Offering Personal Crest Accounts

I have been advised that stockbroker W.H. Ireland are to stop offering Personal Crest Accounts. Existing clients using such accounts will have to move into a nominee account, or transfer to another broker which I can imagine a number doing. As ShareSoc Members have been told repeatedly, there are great advantages in terms of legal security and in retaining your shareholder rights by using such accounts rather than pooled nominee accounts offered by most brokers. Your name is on the share register of a company when you hold the shares in a Personal Crest Account, the same as with certificated share accounts, but you get the advantages of electronic trading. Being on the share register means the company in which you own shares will recognise you as a shareholder and communicate with you, i.e. you will get all Notices and Annual Reports directly from them and you can guarantee to be admitted, and be able to vote or speak, at any General Meeting.

A list of alternative brokers who offer personal crest accounts is here: http://www.sharesoc.org/brokers.html

But it emphasises the importance of reforming shareholder rights as promoted on our web site as the number of brokers offering Personal Crest Accounts continues to decline.

Incidentally, one person I spoke to about the acquisition of TD Direct by Interactive Investor queried how they could transfer shares he owns in a TD Direct account to someone else without his permission. Well there is of course a simple answer to that – he does not own them as they are in a nominee account, TD Direct do!

Roger Lawson

Monitise and Scancell AGMs, and the Wonders of the Nominee System

Monitise (MONI) was one of those stocks for speculators in the past. One of those technology shooting stars that got to a ridiculous valuation under former CEO and founder Alastair Lukes. But despite numerous fund raisings it never managed to reach profitability. The business model chosen never turned out to be of value and the market needs also changed. So he has departed, a new management team is in place, and substantial restructurings have been implemented. The company has also revised its product and sales offerings with more focus on repeat revenue rather than license sales. But it is really betting on a new product called FINKit to revitalise sales in the future. Revenue had been falling rapidly but has now stabilised according to the Annual Report and it also reported a half-year EBITDA profit for the second half and perhaps more importantly, positive cash flow.

The AGM took place on the 19th October 2016 in the City of London at 10.00 am. I bought a very few shares recently as I have an interest in the financial technology sector. A full report of the meeting is on the ShareSoc Members Network but I will just highlight one issue that arose and give a summary.

The voting was undertaken on a poll (far from my ideal way of doing things), but the proxy counts were displayed. I questioned the votes cast against the share buy-back resolution. These were actually reported as less than the votes I had submitted against that resolution (both directly as a personal crest member, and indirectly via two nominee accounts). It later transpired that there were no votes from the nominee operator – just one more bit of evidence of the wonders of the nominee system!

One simply cannot rely on nominee operators to collect or submit votes and there is no clear audit trail when votes do not appear to arrive. This is one good reason (there are lots of others) why this system needs to be reformed so all shareholders (including “beneficial owners”) are on the register.

The results of the votes were declared later in the day – all resolutions passed by over 99%, but only about 10% of shareholders actually voting which is a very low number in comparison with most companies. Perhaps shareholders have totally lost interest in their investment after the dramatic fall in the share price over the last two years (down from a peak of about 80p to 2.5p recently). Or perhaps a lot are in nominee accounts and either find it difficult to vote or their votes did not arrive.

Summary and comments: A useful AGM in terms of learning more about the business. Clearly though it depends on the future sales of FINKit and progress there seems to be slow. Investing in the shares now would clearly be a bet on the future success of that product and although I do not doubt that there is a need for such technology, selling a new solution is always difficult. Until they get some “satisfied customer” stories under their belt, it is not likely to take off. In the meantime they are reliant on their legacy businesses and revenue from pilots and consultancy work. The market is therefore unlikely to change its view on the business rapidly. However its market cap is only about 1 times revenue at present which is a lowly valuation for such businesses.

There is also a very good report on the Scancell AGM on the ShareSoc Members Network by Tim Grattan.

Roger Lawson

UK Share Ownership Structure – Not Fit for Purpose

The Editor of Investors Chronicle commented on the recently published BIS Paper on the structure of UK share ownership in this week’s edition (see the last article on our blog for more background). He had this to say: “The Department [BIS] finally seems to be coming around to the view that it is, quite simply, not fit for purpose – a view we have held for some time and which I am regularly encouraged by readers to push further. So well done to ShareSoc and UKSA, which have both been working tirelessly to expose the iniquities of the nominee structure – even if markets aren’t getting any easier, they might at least become fairer”. Yes ShareSoc has put in a lot of effort on our campaign in this area and we have a further meeting with the BIS Department lined up.

In the same edition the Investors Chronicle also published a letter from reader Bob Simpson who was affected when his stockbroker went into administration (the problems caused by brokers going bust and how to avoid them was covered at length in the last ShareSoc Newsletter). Mr Simpson had this to say: “The fact that an administrator can demand payment from the asset value of the shares, and has the power to freeze the shares and trade in them can’t be right”. It took him a year and half of hassle to get the final amount of money due to him through and he did not get everything paid back.

As Mr Simpson also pointed out, most people are unaware of the risks they are taking by using nominee accounts. ShareSoc has not asked for nominee accounts to be outlawed altogether but we think they should have very strong “health warnings” attached to them and people should specifically have to opt in to use one. Plus ISA and SIPP accounts should not require the use of a nominee. Those would be partial solutions to this problem, but of course we also need a low cost, electronic replacement for paper share certificates where a holder could buy or sell through any broker and not be reliant on an administrator to do anything at all.

Roger Lawson

BIS Release Paper Showing the Mind-Boggling Complexity of the Intermediated Shareholding Model

The Government BIS Department have released a Research Paper entitled “Exploring the Intermediated Shareholding Model”. It shows in 160 odd pages the existing share registration models in the UK and the underlying systems that support shareholder rights (including voting). In essence it demonstrates perfectly the need for reform.

It shows that private investors often do not know what rights they have in nominee accounts or indeed that there are alternative ways of holding shares. Even if they are aware they should have rights, they often do not know how to exercise them, and few brokers actively encourage them to do so.

Institutional holders are also baffled by the complexity of the intermediary chain and cannot easily determine whether their votes have been cast. As it says in the Paper: “In both communities, investors had become systemically distanced from the companies they invested in over time”.

ShareSoc welcomes the report as a contribution to the debate for the need for reform. It well explains the iniquities of the prevalent nominee system in comparison with the historic position of individual investors with share certificates or those holding Personal Crest Accounts.

The Paper does not of course propose any remedies for all the failings it makes plain – that may come out of the BIS in due course. But it makes it clear why we need a better alternative to nominee accounts that is readily available and a good electronic form of holding shares to replace paper share certificates, for which ShareSoc has been campaigning for some time (see http://www.sharesoc.org/shareholder-rights.html ). Plus of course why ISAs and SIPPs should not require the use of nominee accounts which are currently mandated by almost all brokers although legally that was not the original intention.

The BIS Paper can be found here: https://www.gov.uk/government/publications/shareholding-the-role-of-intermediaries

More analysis and comment on the Paper by ShareSoc can be found here: http://www.sharesoc.org/BIS-Paper-Shareholding-Model.pdf