New laws supposed to force companies to improve the way they are run will not stop millions of small investors losing out on basic shareholder rights, experts warn. The Company Law Reform Bill, published by the Department of Trade and Industry on Thursday, will still allow large companies to deny many shareholders a say in their running. Many investors will also continue to miss out on the valuable perks that companies offer most of their shareholders.
Private client stockbrokers that buy and sell shares for small investors have been lobbying the DTI to change the law on "nominee accounts" for more than 10 years. Most brokers use the accounts as the cheapest and simplest way to trade on behalf of individuals, but with nominees, their name, rather than yours, appears on company's shareholder registers.
Under current company law, only shareholders whose names are listed on these registers are entitled to the rights usually granted to shareholders. These include the right to vote at company meetings and to receive reports and accounts, for example. The same rules govern which shareholders receive the perks that many companies offer their investors.
After some intensive lobbying, the new regulations will for the first time allow companies to recognise nominee account shareholders. But there is no requirement for them to do so.
"Companies will now choose whether or not to extend these basic rights to shareholders and it is questionable whether they will do so," says Gavin Oldham, chief executive of The Share Centre, which specialises in dealing on behalf of small investors. "The new law gives the DTI reserve powers to insist that companies recognise all their shareholders, but there has been no guidance on whether these powers will ever be enforced."
Around 24 million nominee accounts now exist in the UK and many companies argue that the cost of servicing these shareholders would be too high. "The DTI is nervous about complaints from companies about red tape," warns Oldham. "If the new bill stays as it is, there is a grave danger nothing will change, even though these are individual shareholders who should have the same rights as everyone else."
Some brokers still allow investors to deal using paper share certificates, which ensures they end up on company registers. The alternative is to become a sponsored member of Crest, the London Stock Exchange's electronic share dealing settlement system. This also allows investors to hold shares in their own name.
However, in both cases, dealing fees will be significantly higher - investors may even have to pay a one-off fee to join Crest. And certificated share dealing is much slower because investors must rely on the postal service to send and receive the paper.
Some investors are angry about losing their voting rights, but missing out on shareholder perks can substantially reduce the attraction of holding a stock. While it never makes sense to invest in a share simply to get a perk, the discounts and freebies offered by many companies can be very valuable.
All sorts of companies offer perks. The housebuilder Persimmon, for example, gives shareholders up to £3,000 off the price of new properties. Bloomsbury Publishing offers a third off the cover price of all its publications, including the Harry Potter series. Retailers offering shareholders discounts on products range from Next to Mothercare, while holiday companies also provide some generous perks. BA, in particular, offers shareholders and up to five companions 10 per cent off the price of domestic flights.
Angela Knight, chief executive of the Association of Private Client Investment Managers and Stockbrokers, says that many investors feel let down by the DTI's failure to act on their behalf. "The CBI has been lobbying against extending rights to nominee shareholders, on the grounds of cost," she says. "But we have suggested that companies could be given the right to send out reports and accounts electronically in return for extending shareholder rights, and that would actually save them money."
Some of the best shareholder perks
Barratt Developments: shareholders get a £500 reduction on each £25,000 of the price of a new or part-exchange house in the UK or the US.
De Vere: shareholders get a discount card to use in its hotels, slashing 35 per cent off the cost of accommodation.
Dobbies Garden Centres: shareholders can claim a 10 per cent discount on most of the company's products.
Eurodisney: shareholders are entitled to 15 per cent off the entry fees to parks, as well as discounts on meals and 10 per cent off the cost of hotel accommodation.
Eurotunnel: shareholders get up to 30 per cent off fares.
Lookers: shareholders get £100 off the cost of a new car.
Mulberry: shareholders get 20 per cent off all products bought in the luxury fashion chain's shops.
The Restaurant Group: shareholders can claim 25 per cent off the cost of a meal for up to 10 people in Garfunkel's, Chiquito, Frankie & Benny's, Caffé Uno and Est Est Est.