How you can force companies to behave themselves
Buying even a single share in a firm gives you the right to question its practices
Angry at the size of energy company profits while millions are living in fuel poverty? Feel betrayed by banks paying bumper bonuses to senior staff?
These issues are encouraging more and more normal folk to be come shareholder activists. To get shareholders' rights in a firm, you only need to hold one share, and then you can attend a company's annual general meeting (AGM) and ask questions directly of the senior management.
Last year, the campaigning MP Tom Watson did just that at the AGM of News Corporation, the owner of The Sun newspaper. In a blaze of publicity he flew to Los Angeles to question the firm's chairman, Rupert Murdoch, about the phone-hacking scandal.
His aim was to force the firm to tell shareholders about the scandal.
"You haven't told any of your investors what is to come," he said to Mr Murdoch at the meeting.
Another high-profile figure who has used shareholder activism to publicise what he felt was corporate wrongdoing is celebrity chef Hugh Fearnley-Whittingstall. In 2008 he went to the Tesco AGM in Solihull to put a resolution that would force the supermarket chain to improve its standards on chicken-rearing.
It was also hit by shareholder activism the following year when trade union Unite got enough support from investors to file a resolution calling for an end to the exploitation and discrimination of workers that supplied meat to Tesco.
The union was supported by Pensions Investment Research Consultants (PIRC), which advises institutional investors on corporate governance and social responsibility.
PIRC also helped challenge in 2009 the power of Stuart Rose, when he became executive chair as well as chief executive of Marks & Spencer.
"Ultimately the public are the owners of UK PLC through their pension funds and other savings," said Tom Powdrill of PIRC. "If they are concerned about corporate behaviour, shareholder activism is a good way to encourage companies to toe the line."
It doesn't matter what issues concern you about a company; if you are a shareholder you have the right to ask questions of the bosses. However, if you want to raise a resolution you'll need to own 5 per cent of the issued share capital (which is beyond most of us) or be able to get 100 shareholders together (with a holding of at least £100) to support your resolution.
Andy Parsons, head of investment research at The Share Centre said: "The subject of corporate governance has never been so relevant and prominent, especially around the most vexing of issues, remuneration. Private investors continually hear about vast boardroom remuneration packages; trying to comprehend the vast discrepancies between the numbers mentioned and their own personal financial circumstances.
"In addition, it's always alarming to hear of bonus packages when a business may have clearly failed to deliver shareholder returns. Is it right that individuals can be rewarded for failure?"
While the banks bear the brunt of the current focus on bonuses, there are plenty of other firms facing similar examination. And the fact is if you become a shareholder, you are an owner of that firm and can have a say in how it conducts itself.
Even if you're not a shareholder, you are still likely to have stake in many UK firms through any pension scheme you belong to. Most pension funds invest in blue chips, so your future may depend on how well these firms run their business now.
"Shareholder activism is relevant to anyone with pension savings," said Catherine Howarth, chief executive officer of FairPensions, which campaigns for responsible investment. "As savers we have a clear interest in how companies operate – our incomes in retirement depend on it.
Ms Howarth believes shareholder activism is the smartest way to get an issue of concern on the radar of top corporate executives. Her organisation has just held a training sessions for potential shareholder activists. Attendees at the London session last Saturday, were taught the skills needed to hold company directors to account at their annual meetings.
"Shareholder activists are the ones who keep the pressure on and don't let companies get away with short cuts," said Ms Howarth. "Their persistence is changing companies in the UK and around the world."
She said that the big institutional investors should take a lead from the growing army of individual activists. "Our shareholder activists are setting an example to the investor community," Ms Howarth said.
FairPensions will be holding another training event at the end of March. For information go to www.fairpensions.org.uk/agmtraining.
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