What are the voting rights of shareholders and why are they important?

It's likely that you will have voting rights if you own stock in a company

However, how do you use your voting rights, and is your fund manager paying attention?

Public corporations function somewhat like democracies. The majority of shareholders have the power to vote on significant matters, such as choosing a new board of directors, authorizing mergers and acquisitions, or accepting an executive compensation package.

The people who own the most shares in the company have the most votes and the most sway. On the other hand, minority investors in stocks and investment trusts can band together to produce favorable results as well.

This implies that even if you only own a small number of shares, it is still crucial to use your voting rights.

"The exercise of shareholder rights is a fundamental part of the stewardship of one's assets," stated Chris Kinder, the Investor Forum's CEO.

"Businesses must be able to communicate with all of their investors, both institutional and retail, in the most effective manner.

It's likely that news reports about shareholder revolts have reached you. The well-known attempt by shareholders to remove Mark Zuckerberg from his position as chairman of Facebook (now Meta) occurred in 2018 and 2019.

The proposal was approved by 51% of shareholders in the first vote. One year later, that number rose to 68 percent. Because he has the great majority of the voting power due to the company's share class structure, Zuckerberg has been able to hold onto power. Most common shareholders only receive one vote per share, but he receives ten.

However, there are numerous instances where shareholders have blocked management decisions by exercising their voting rights. During Qantas Airlines' annual general meeting in November 2023, the company's proposed executive compensation package was overwhelmingly rejected by shareholders (83 percent of votes). Shareholders yelled "shame on you" at board chairman Richard Goyder after the company faced a number of difficulties in the run-up to the AGM.

What rights do shareholders have to vote?

Common stock in a company usually entitles you to one vote per share, which is the standard voting rights. As a result, you have the ability to affect important choices the business makes.

Most shares have the ability to vote, but not all do. As an illustration, some investors decide to purchase preferred stock rather than common stock. In the event that the business fails or is unable to pay dividends, preferred shares have a higher claim on its assets and profits. They do not, however, have the ability to vote.

Dual-class shares, which grant certain investors more voting rights, are also offered by certain companies. A different share class might offer ten or one hundred votes per share, whereas another might only offer one vote per share.

However, keep in mind that executive compensation is not always decided by shareholders. Elon Musk's £56 billion compensation package, which Tesla shareholders had approved six months earlier, was blocked by a US judge in December 2024 on the grounds that the CEO had too much influence over the board.

Can I cast a ballot if I own shares via an investment platform?

You can exercise your voting rights over shares held in your account on the majority of investment platforms. This holds true for firms like AJ Bell, Interactive Investor, and Hargreaves Lansdown. From one provider to another, the procedure will differ slightly, and some will make it simpler than others. The good news is that a lot of platforms are currently making efforts to make things easier.

Richard Wilson, CEO of Interactive Investor, says, "It's all about removing barriers and making it easier and more intuitive." The second-largest private investor platform in the UK is called Interactive Investor.

An important factor in the rejection of Saba Capital's takeover attempts by seven investment trusts earlier this year was proxy voting via investment platforms.

The vote was a significant event in the history of proxy voting and shareholder rights. A record number of investment trust shareholders voted in favor of the proposals in the Herald vote, according to Hargreaves Lansdown.

"As a result of our campaign to proactively inform clients, we have seen a significantly higher proportion of clients voting than normal," stated Emma Wall, Hargreaves Lansdown's head of platform investments. Prior to the general meeting, the campaign involved reaching out to each investor who owned Herald shares and outlining the Hargreaves Lansdown platform for voting.

There is a long history of institutional investors using their voting rights to exert pressure on management teams of companies. However, as these developments demonstrate, private investors are also becoming more and more interested in it.

If I own stock in a fund, do I still have the ability to vote?

Instead of investing in individual stocks, many people choose to invest in a pooled fund and entrust their money to a professional fund manager. If you choose this option, the fund manager will investigate businesses on your behalf and allocate your funds in accordance with a predetermined goal, plan, and risk tolerance.

Your fund manager will have to use a procedure known as proxy voting to exercise your voting rights on your behalf, but you will still have them.

Companies that invest must pay attention when fund managers like Vanguard, BlackRock, State Street, Berkshire Hathaway, and Fidelity speak up because they are some of the biggest shareholders. Examining whether and how your fund manager is using your voting rights is crucial, though. If you have strong opinions about how certain environmental, social, and governance (ESG) issues should be handled, don't automatically assume that they are acting in your best interests.

Proxy votes are applied differently by different fund managers. Some might just decide something for their shareholders. For instance, Vanguard disregarded 400 shareholder recommendations for governance, social, and environmental initiatives during the US AGM season of 2024. The previous year, it had introduced a proxy voting system that would let investors control how their money voted on ballot items for some of the biggest holdings.

In December 2023, a group of asset owners wrote an open letter outlining some of the drawbacks of proxy voting. They also pointed out how powerful fund managers are at AGMs and contended that this power isn't always being used in the best interests of shareholders.

It stated that "unfortunately, we have continued to evidence a divergence between the voting behavior of appointed asset managers, when compared with our investment principles and the expectations of our beneficiaries," particularly with regard to ESG issues.

Thus, the influence of individual investors (en masse) and that of big fund managers still differs.

The My Share, My Vote campaign is launched by AIC.

To enable all investors to exercise their shareholder voting rights, the Association of Investment Companies (AIC) has started a campaign.

The goal of the My Share, My Vote campaign is to stop certain investment platforms and providers from engaging in unethical behavior, such as charging customers to cast their ballots, failing to notify them of impending votes and their voting rights, and failing to cast their votes when requested.

AIC CEO Richard Stone stated, "It is just not acceptable that investors are either denied the opportunity to vote, charged for the privilege, or left in the dark about their right to vote." "The ability for investors to voice their opinions is essential if we are serious about shareholder democracy.

The AIC is advocating for a change in company law that would give shareholders more voting rights. You can access its petition to Parliament by clicking this link.

"Voting is a fundamental right for all shareholders," Stone asserts. According to the Companies Act, platforms and other nominees have the authority to transfer voting rights and company information. We don't think that's good enough. The legislation needs to be amended to reflect these rights.