Public companies work a bit like democracies. Most shareholders have the right to vote on important issues – whether that’s electing a new board of directors, approving mergers and acquisitions, or agreeing to an executive’s pay package.
Those with the biggest stake in the company have more votes and wield the greatest influence. However, minority shareholders in investments like stocks and investment trusts can club together to bring about positive outcomes too.
This means it is important to exercise your voting rights, even if you only own a small number of shares. We share some case studies and run through how it all works.
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What are shareholder voting rights?
When you buy common stock in a company, it usually comes with voting rights – typically one vote per share. This gives you the power to influence key decisions that the company makes.
Not all shares come with voting rights, but most do. For example, some investors choose to buy preferred stock instead of common stock. Preferred shares have a superior claim on the company’s assets and earnings in the event it goes bust or can’t afford to pay out a dividend. However, they do not come with voting rights.
Some companies also offer dual-class shares, which give some investors superior voting rights. For example, one share class might offer one vote per share, while another might offer ten or a hundred votes per share.
How much power do shareholders really have?
You have probably heard stories of shareholder revolts in the news. For example, shareholders famously tried to fire Mark Zuckerberg as Facebook (now Meta) chairman in 2018 and 2019.
In the first vote, 51% of shareholders supported the proposal. This increased to 68% a year later. However, Zuckerberg managed to cling onto power because the company’s share class structure means that he controls the vast majority of the voting power. He gets ten votes for every share, while most regular shareholders only get one.
That said, there are plenty of examples where shareholders have used their voting rights to block management decisions. A past case study looking at Qantas airlines can help bring this to life.
Case study: Qantas shareholders block executive pay plan
One of the resolutions that shareholders vote on at annual general meetings (AGMs) is whether to approve the company’s executive pay package. Chief executives’ salaries are subject to close scrutiny – particularly if company performance hasn’t been up to scratch.
In November 2023, shareholders in Qantas airlines voted overwhelmingly against the proposed executive pay package at the company’s AGM (83% of votes). The chairman of the board, Richard Goyder, was heckled by shareholders who shouted “shame on you”.
Shareholders took the opportunity to express their frustration after the company suffered a string of challenges in the lead-up to the AGM. This included a number of high profile legal battles.
In September 2023, the Australian high court ruled that Qantas had illegally outsourced 1,700 jobs during the pandemic. The company was also being investigated for mis-selling tickets to cancelled flights.
Votes like this are a good opportunity for shareholders to hold senior management to account. Australia has a “two strikes” rule, which means that a vote can be held to dismiss a company’s board from office if the executive pay package is rejected two years in a row.
Bear in mind, though, that shareholders don’t always have the final say on executive pay. In December 2024, a US judge blocked a $56 billion pay package for Elon Musk that Tesla shareholders had approved six months before, arguing that Tesla’s board was too heavily influenced by its CEO.
Can I vote if I hold shares through an investment platform?
Most investment platforms allow you to exercise voting rights on shares held in your account. This is true for the likes of Hargreaves Lansdown, Interactive Investor and AJ Bell. The process will vary slightly from provider to provider – and some make it easier than others. But the good news is that many platforms are now taking steps to simplify things.
“It’s all about removing barriers and making it easier and more intuitive”, explains Interactive Investor's chief executive Richard Wilson. Interactive Investor is the UK’s second largest platform for private investors.
Proxy voting through investment platforms played a major role in Herald Investment Trust’s defeat of Saba Capital’s proposed takeover attempt in January this year.
The vote was something of a milestone in the history of shareholder rights and proxy voting. According to Hargreaves Lansdown, the Herald vote saw a record percentage of shareholders in the investment trust vote on the proposals.
“We have seen a significantly higher proportion of clients voting than normal as a result of our campaign to proactively inform clients,” said Emma Wall, head of platform investments at Hargreaves Lansdown. The campaign included contacting every investor who held Herald shares and explaining how to vote via the Hargreaves Lansdown platform ahead of the general meeting.
Institutional investors have a long history of exercising their voting rights and putting pressure on company management teams. But it is becoming increasingly important to private investors too, as these developments show.
Do I have voting rights if my shares are held in a fund?
Lots of people entrust their money to a professional fund manager, choosing to invest in a pooled fund rather than picking individual stocks. If you go down this route, the fund manager will research companies on your behalf, investing your money in line with an agreed objective, strategy and risk profile.
You will still have voting rights, but your fund manager will need to exercise them on your behalf through a process called proxy voting.
Some investment funds are very large, and can wield significant power. To help bring this to life, let’s look at three of the world’s most valuable companies: Microsoft, Apple and Nvidia. The top institutional shareholders in these companies include large investment managers like Vanguard, BlackRock, State Street, Berkshire Hathaway and Fidelity.
As some of the largest shareholders, when these managers speak up, investee companies have to listen. However, it is important to look into if and how your fund manager is using your voting powers. Don’t blindly trust that they are acting in your best interests – particularly if you have strong views on how certain environmental, social and governance issues should be handled.
Different fund managers have different ways of applying proxy votes. Some may simply make a decision on behalf of their shareholders. Vanguard, for example, ignored 400 shareholder proposals for environmental, social and governance-related actions during the 2024 AGM season in the US. This was despite rolling out a proxy voting scheme the previous year that it said would allow investors to direct how their funds voted on ballot items for some of the largest holdings.
The problem with proxy voting
In December 2023, a group of asset owners published an open letter highlighting some of the shortcomings of proxy voting, highlighting the significant influence that fund managers wield at AGMs, and argued that this power isn't always being used in shareholders’ best interests.
“Globally, the data shows that the three largest fund managers currently cast approximately 23% of the votes at companies in the S&P 500, a percentage projected to rise to 40% by the mid-2030s if current trends continue”, the group explained.
“Regrettably, we have continued to evidence a divergence between the voting behaviour of appointed asset managers, when compared with our investment principles and the expectations of our beneficiaries”, it went on to add.
The group highlighted “a divergence between the voting behaviour of appointed asset managers… and the expectations of our beneficiaries”, especially where ESG matters are concerned.
As much as Herald’s victory over Saba, especially given the record levels of proxy voter engagement via investment platforms, indicates a shift in investors’ agency, there is still a gap between the influence of large fund managers and that of individual investors (en masse).
AIC campaign to boost shareholder voting rights
The Association of Investment Companies (AIC) has launched a campaign it hopes will give all investors the ability to exercise their shareholder voting rights.
The ‘My share, my vote’ campaign aims to stamp out poor practices among some investment platforms and providers, including failing to pass on information about upcoming votes and voting rights, charging customers to vote, and not exercising customers’ votes when asked to do so.
“It’s simply unacceptable that investors find themselves left in the dark about their right to vote, prevented from voting or charged for the privilege,” Richard Stone, AIC’s CEO said. “If we are serious about shareholder democracy, investors must be able to have their say.”
The AIC has written to Jonathan Reynolds MP, the secretary of state for business and trade, lobbying for a change in company law in order to improve shareholders’ access to voting rights.
“We are calling on the government to change the Companies Act so that nominees, including platforms, cannot avoid passing on voting rights and information to their customers,” said Stone. He did acknowledge that large investment platforms had made improvements to shareholder engagement in recent years, but added that “we have to move beyond just relying on firms to do the right thing”.
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