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 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.
We also look at what happens to your voting rights if you have entrusted your money to an investment professional. Is your fund manager voting on your behalf, and are they taking this responsibility seriously?
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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 recent 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.
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.
For example, in July last year, Interactive Investor introduced a voting function on its app. If you hold shares through the platform, you will receive a notification each time you are eligible to place a vote. A traffic light system will also show you whether or not you have cast your ballot, and how long you have left until the deadline.
“It’s all about removing barriers and making it easier and more intuitive”, explains chief executive Richard Wilson. Interactive Investor is the UK’s second largest platform for private investors.
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 innovations show.
Earlier today (16 April), trading platform eToro announced that it has extended its voting feature to all stocks listed on its platform, joining the likes of Hargreaves, AJ Bell and Interactive Investor. Previously, this functionality was only available to eToro users invested in US stocks. It has been extended due to popular demand.
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.
The problem with proxy voting
In December last year, a group of asset owners published an open letter highlighting some of the shortcomings of proxy voting.
The group was led by London CIV, which manages London local government pension scheme assets. Co-signatories included Scottish Widows, the Merseyside Pension Fund, the Environment Agency, and others.
The group pointed to 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 also pointed out that this disconnect is “especially noticeable” where ESG matters are concerned.
Fortunately, some asset managers like BlackRock and State Street Global Advisors have introduced solutions that aim to give shareholders more influence over the votes that are being cast – something the letter from asset owners acknowledged.
However, it called for more fund managers to introduce pass-through voting practices, which would allow investors to vote their shares in proportion to the amount of assets they hold in the fund.
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Why undersea cables are under threat – and how to protect themUndersea cables power the internet and are vital to modern economies. They are now vulnerable
