Doing your bit

By Jonathan Eley, 17 February 2012

Everybody wants better companies. We'd all like to look at our portfolios and know that the banks aren't mis-selling payment protection insurance. We'd like to be sure that our miners aren't suppressing indigenous peoples or trashing the environment, that our supermarkets are treating suppliers fairly and that our drug developers aren't torturing lab rats for fun. Most of all, we want to know that the executives of the companies we own aren't awarding each other huge rewards in return for average performance. The trouble is, most of us think it's someone else's job to actually make it happen.

Some like to play the disenfranchised card. The problem, they say, is nominee accounts, which are commonplace at execution-only brokers and compulsory for individual savings accounts and self-invested personal pensions. Nominee accounts pool holdings in the name of the nominee company rather than the individual, so the shareholder can't vote at the annual meeting.

Others point the finger at fund managers and other institutional stewards of our money. They're all part of the same rewards-for-failure gravy train, they don't care what their investors think and they don't want to rock the boat by voting against boards - so they hardly ever vote against remuneration reports.

But fund management groups say there is massive inertia among investors. We do vote at annual meetings, and we publish records of how we voted, they say, but the conversation is all one way. Although our door is open, small investors don't really engage with us, until something goes wrong - then it's our fault for waving through a bad deal, or rubber-stamping an over-generous incentive plan.

The truth is all of us could do more. If you hold shares in a nominee account, check whether your broker will vote your shares on your behalf - Halifax, TDdirectinvesting, Killik, Brewin Dolphin and The Share Centre all offer this service and it's usually free - but relatively few investors actually avail themselves of it.

Clearly, it would be very difficult for a big fund management group to ask thousands of investors for their views on hundreds of investee companies ahead of annual meetings. But a broad set of principles might help; see www.calpers-governance.org for an example. Managers could also do more to tell fundholders about any notable dissensions. Companies would soon get the message, if Jeremy Tigue or Neil Woodford were to write in an annual report: "I voted against Acme plc's long-term incentive plan because I didn't believe it wasn't in the interests of shareholders."

And while shop-floor employees are unlikely to be represented on company boards any time soon, they are often trustees of a company's pension fund. That's another forum where investors could make a difference - but they have to choose to do so.

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