Shareholders are flexing their muscles. From investors steering clear of Deliveroo’s IPO amid concerns about its working practices to online chat groups teaming up to take on the hedge funds, we are seeing the rise of democratic capitalism. These stories are reminders that in the end, it is individual shareholders who own companies – and that they have a right to hold those companies to account as they see fit.
This is an idea that resonates strongly with the investment company sector. The fact that closed-ended funds are stock market-listed companies, with all the fiduciary responsibilities to shareholders that entails, can sometimes seem like a nuance that does not have much practical impact. In fact, it is a vital point. Simply put, shareholders in investment companies have rights that largely elude investors in other types of fund. There is an independent board with a legal responsibility to act in their best interests, and shareholders get regular opportunities to vote on that board’s performance, as well as on a broad range of other company issues.
The consequences of operating this way are tangible. More than 30 boards managed to persuade the fund managers with which they work to reduce charges last year, resulting in higher returns for investors. Several boards took the decision to replace their fund manager in search of better performance. Others offered investors the opportunity to wind up the company and get their cash back.
This is their job, of course. There is nothing remarkable about investment company boards behaving proactively in this way – it is only what shareholders have a right to expect.
Still, in the broader context of shareholder democracy, it would be good to see more investors playing their part. Turn-out at investment company annual general meetings and voting on corporate actions remains relatively limited. With the exception of a handful of high-profile controversies, most investors do not choose to exercise their rights.
Intermediaries have an important role to play in this regard. For this reason, it is encouraging to see Interactive Investor, the online funds platform, campaigning to raise awareness; it has just published a guide explaining how investment company shareholders have a right to participate in the decisions that affect them. Financial advisers can also do more, ensuring clients understand their entitlements and how to take part.
Indeed, where an intermediary stands between a retail investor and the investment company, it has a responsibility to ensure the democratic process is still able to flow smoothly. The investor needs to know that their stake comes with certain power; and their needs to be a system in place for them to execute that power. Indeed, it would be great to see platforms, advisers and other intermediaries actively promoting the case for investors exercising their rights.
Without participation, there is always a danger that democracy will begin to wither. Investment company boards will no doubt continue to do their jobs, even if not a single vote is cast when it comes round to the time when they seek re-election or backing for the business’s remuneration policies. But increased shareholder voting will certainly concentrate their minds on the task at hand.