Friday (11/3/2016) saw the publication of a sound article by Investors Chronicle under the headline “Choose the right way to hold your shares”. It reported on the recently published BIS research paper on shareholding in the UK upon which we have previously commented. It quotes me extensively on the subject including these comments:
“The UK Individual Shareholders Society (ShareSoc) said the report showed “the need for reform”. Roger Lawson, deputy chairman of ShareSoc, says brokers have an incentive to keep investors ignorant of alternatives to the pooled nominee account system as it is in their commercial interest to do so. ‘Stockbrokers are really keen on nominee accounts because if you’re on the share register the dividends go directly to you, but if you’re in the nominee account, they go into the nominee account and typically they stay and the broker gets interest on them,’ he says. ‘People keep a large amount of cash in their stockbroker’s account typically. The other big commercial reason they have is locking the clients in and making it difficult for them to move elsewhere.’
Stockbrokers are reported as saying their clients are not interested in receiving shareholder rights and that nominee accounts are cheaper to run – which incidentally is not true. But it quoted me as responding: “But Mr Lawson believes the low take-up is due to a lack of investor awareness not demand. ‘The problem is that they don’t know what they’re missing because stockbrokers aren’t telling them that they’re losing the rights to vote and have a say in the way the companies they’re investing in are run,’ he says. ‘And they’re also losing the right to receive information or attend an AGM, and they don’t know this.'”
This will no doubt not improve my standing in the eyes of some stockbrokers but the truth must be revealed on why we have got into the current dubious situation where private investors are effectively disenfranchised.
The full article is well worth reading and Investors Chronicle subscribers can read it on-line here: http://www.investorschronicle.co.uk/2016/03/10/your-money/financial-planning/choose-the-right-way-to-hold-your-shares-7D1oPIlJUSD0z6UJHb8PTM/article.html
Roger Lawson
A good article, but there is one thing that didn’t come across in the article. That is, that the present “absentee” and fragmented ownership means that managers in some companies (particularly AIM and smallcaps) feel that they can do whatever they like and are unlikely to encounter any serious opposition. There have been numerous instances of this happening, to the detriment of shareholders. To counter that, it is essential that shareholders can communicate with one another, and this is only possible with some form of “name on register” system. Brokers flowing rights indirectly to beneficial owners doesn’t solve that problem.
For good corporate governance it is vital that when a number of shareholders discover a problem with the management a company, they can communicate with other shareholders to highlight the problem and put pressure on management for improvement. The knowledge that this can happen will also act as a deterrent to misbehaviour and encourage managers to engage positively with shareholders on controversial issues, like executive remuneration.
Yes this was one of the key principles of UK company law established in the Victorian age which has been seriously eroded over the years. It defeats shareholder activism that there is no simple and cost effective way to communicate with other shareholders at present.
Roger Lawson