Don't forget what being a shareholder really means

I hope that your portfolios have recovered well from the lows of March. You will be wondering what to do next and this week’s issue of the magazine is full of ideas on that front. But amid all the money sloshing around it is increasingly vital not to forget what being a shareholder really means – it means you own a tiny bit of a company (something we’d love Gen Z to get in on) and are part of the UK’s vast and growing shareholder democracy. We hear a lot these days about the importance of everyone getting a say in how things work. What better way for that to happen in the corporate world than for everyone with a pension (auto-enrolled or otherwise) or an Isa to understand that they are a shareholder with rights and, should they choose to use it, a vote on some of the aspects of how the companies in which they invest are run?

The idea that ordinary shareholders can and should use their power to influence corporate behaviour is hardly new. Not many modern investors will have heard of the Gilbert brothers, publishers of the Annual Report of Stockholder Activities at Corporation Meetings, and relentless campaigners for shareholder protection from the 1940s to the 1970s. But they were the shareholder heroes of their day, arguing against share options for executives that were not related to “profits from day-to-day corporate activities” (I swear nothing ever changes!); insisting that ordinary shareholders have their pre-emptive rights respected (ie, that they got first refusal on any new shares issued); that AGMs be held in convenient locations; that annual reports were actually informative; and that shareholders were able to question management. They were good. Very good. At one point they owned shares in 1,500 companies and attended 150 meetings a year. Thanks to their encouragement, an incredible 20,000 people turned up at AT&T’s AGM in 1962.

You might think that in our more enlightened age Gilberts aren’t necessary – that shareholder democracy is a given. Don’t be too sure – it is actually as in need of constant protection as all democracy. There have been a huge number of equity raises since this crisis kicked off. By 8 June (on Peel Hunt’s numbers) 67 companies had raised a total of £9.7bn for various Covid-related reasons, on an average discount to the prevailing share price of around 8% (and rising).

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The problem? Many have been “placings” (where new shares are sold to institutions), rather than rights issues (which allow all shareholders to buy in – see here for more). Some shareholders got to buy shares at a discount. Others (the small ones) did not. That’s not a good development. Nor is the rise of the fully virtual AGM. Legislation is under way that (temporarily at least) removes the right of shareholders to physically attend AGMs in person to vote and challenge directors during lockdown. This makes sense in the short term. But the worry is that it might be so easy for directors and executives that it turns into a long-term trend (Aberdeen Standard Life has already produced a proposal for having virtual AGMs in future). Keep a close eye on this kind of thing. Right now individual shareholders do have power, should they choose to use it. And the last thing we need in a world where everyone needs to know that their voice can be heard is a Covid-19-covered repeal of shareholder democracy.