Derek Pain: Small shareholders are treated disgracefully
No Pain, No Gain
Saturday 06 March 2010
It is widely accepted that small shareholders get a raw deal. They are regarded as third-rate investors, unworthy to clean the shoes of the powerful institutions which dominate proceedings in the City.
I cannot see any improvement occurring until the Government, what ever colour, is prepared to take a more active role in considering the position of buy and hold individuals who are prepared to sink some of their often hard-earned savings into equities.
The UK Shareholders' Association, representing private investors, is, not surprisingly, appalled at the treatment handed out to us little'uns who now account for 10.2 per cent of the stock market. Our direct influence has declined dramatically. When statistics were first compiled in 1963 we accounted for 54 per cent. Even so the 10.2 per cent figure, struck in 2008, represented a not inconsiderable £117.8bn.
The growth of various funds and trusts has reduce the declared holdings of individuals. Yet, paradoxically, many of these powerful institution are merely stewards of other people's cash. The emergence of on-line nominee accounts has also contributed to the decline.
The only time small shareholders enjoy the influence they deserve is when a closely fought battle, usually a takeover, erupts. Even then if they can be discounted they will be.
Its quite possible that some of our blue chip companies – such as confectioner Cadbury – would have survived foreign assaults if private investor votes had not been swamped by hedge funds and other short-term institutions. As Derek Miles and John Hunter, authors of a UKSA booklet called Responsible Investing, say: "Collectively, they have certain qualities not always present in other shareholders. He and she are the ultimate shareholders for the long-term. They think like owners and have an owner loyalty."
And they go on to echo many of my thoughts. "Individual savers and investors have been treated disgracefully... viewed as fodder for the extraction of value by the financial services industry."
Investors have been "disenfranchised and ignored" and the diminishing freedom of small shareholders to manage their interests "is close to scandalous and must be challenged".
One response could be shareholder committees. I suppose such organisations could only be attached to major companies – say the top 350. Shareholders could not impose actions on the company but could make their views known, internally and externally. I suspect such committees would not be viable in the small cap world.
Other UKSA suggestions include the need for regulators to provide more shelter for shareholders from exploitation and mistreatment and the removal of discrimination against individuals stuck in nominee accounts.
The current crop of nominee accounts, supported by government schemes such as ISAs, is totally unsatisfactory. Run mainly by stockbrokers for both buy and hold investors and active traders, they block direct contact between shareholder and company. For example, in many accounts a shareholder is not even entitled to the company report. Often dividends are rolled up, distributed when seen fit.
The UKSA also has a swipe at the exorbitant levels of directors' pay – "an executive director of even a second tier company would consider himself poorly rewarded if he did not get more than the Prime Minister as basic pay, with bonuses and options on top". Indifferent institutions, content to develop their own agendas, must shoulder much of the blame.
I have criticised private share placings on numerous occasions. The UKSA appears to prefer old fashioned rights issues saying that pre-emption rights should be preserved. Placings, which are becoming increasingly prevalent, are, I believe, unfair. Most shareholders are denied participation with just a privileged few, including directors, invited to take part in a share sale at below the then stock market price.
With a general election looming the UKSA broadside is well-timed. But I doubt if much support will be forthcoming from politicians. After all shareholder rights is not an obvious vote winner. But I am disappointed, although not surprised, that an organisation representing individual shareholders does not support the retention of paper share certificates which have existed for 500 years and provide indisputable proof of ownership.
The last estimate I saw was that seven million shareholders remain on the paper trail. They do not want to suffer the vagaries and dangers of the internet; they prefer the obvious comfort of certificates.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Children's bookseller wins The Independent's new author search
Board creates magnetic field to achieve lift
Company reveals $542m investment in start-up building 'a rocket ship for the mind'
- 1 Jack the Ripper: Scientist who claims to have identified notorious killer has 'made serious DNA error'
- 2 Banksy arrest hoax: Internet duped by fake online report claiming artist's identity has been revealed
- 3 Former East 17 frontman Brian Harvey turns up at Downing Street and 'demands to speak to Prime Minister'
- 4 Kentucky gang rape: 15-year-old boy left in critical condition after sexual attack by group at party
- 5 Paralysed man Darek Fidyka walks again after treatment by British doctors on brink of 'cure'
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver 'kicks gay couple off for kissing'
Lord Freud: Tory welfare minister apologises after saying disabled people are 'not worth’ the minimum wage
Lord Freud hangs on as MPs of all parties 'call for his head' over disability comments
iJobs Money & Business
£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...
£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...
£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...
£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village