Whether it’s payday lenders or rising energy bills we’ve never been more interested in corporate behaviour. But despite the fact that through our pensions we own billions of pounds of holdings in British businesses, pension savers are shut out of the investment system and denied the opportunity to have their voices heard.
Legal & General’s decision to set up a pension fund AGM (PAGM) represents an important first step in spreading ‘shareholder democracy’ to the millions whose savings are managed through a pension fund.
Shareholder democracy means giving shareholders the rights and means to hold companies to account – making sure the company in question is answerable to its owners and doesn’t stray too far from what the shareholder considers to be appropriate behaviour. Binding votes on executive pay at AGMs is an example of this democratic power at work. The news today that a new investor forum will be established by some of Britain’s biggest shareholders (including pension funds) to unite investors to rein in excessive pay and mismanagement is another example of how shareholders can be powerful players in how companies are run.
Up till now, pension fund savers have been left out of the shareholder democracy story. But millions of savers put money into their pension funds, which is then invested by the fund into major companies. This means ordinary savers have a stake in the biggest corporations in the UK and around the world.
For the democratic potential of pension fund investments to be fulfilled, pension funds should act on our behalf and with our long-term best interests at heart. Yet review after review has found this isn’t the case; institutional investors are subject to intense systemic pressures to behave in a short-termist way, and many actually believe they are legally obliged to encourage companies to act irresponsibly if this boosts short-term profits.
ShareAction’s report Our Money, Our Business: Building a more accountable investment system, launched at Liberal Democrat Autumn conference, makes the case for opening up this system to the ordinary people at the end of the chain, whose money is at stake and whose lives are affected by the behaviour of major corporations. Real shareholder democracy, for every saver, could make shareholders a powerful force for good in major companies.
Legal & General’s decision to hold a pension fund AGM is a welcome step allowing ordinary savers a voice in what happens to their money. However there’s a long way to go. Many institutions remain opaque and unaccountable with the saver’s voice simply not considered. Fundamentally, savers need the right to see where their money is going and how shareholder rights are exercised on their behalf – only then will we see what true shareholder democracy looks like for savers.
ShareAction is the movement for Responsible Investment. ShareAction works to change companies behaviour for the better and campaigns on The Living Wage, Climate, Tax Justice and executive pay.
‘The Independent View‘ is a slot on Lib Dem Voice which allows those from beyond the party to contribute to debates we believe are of interest to LDV’s readers. Please email [email protected] if you are interested in contributing.
* Will is part of the campaigns and policy team at ShareAction. He previously worked for WaterAid and holds a masters in International Development from the University of Bristol.
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3 Comments
The evidence from investment trusts and REITs, where individual shareholders often hold a significant proportion of the total shares issued, suggests that individual shareholders are often as much short-term in their attitudes as institutional shareholders. Moreover, individual holders of shares are much more likely to take a real interest in the activities of the companies in which they hold shares, compared to someone who merely saves for a pension through an insurance company.
Glad to see this matter highlighted. Shareholder democracy as it once existed is now almost dead. Director remuneration got out of hand because individually registered shareholders have become a quirky and discouraged minority. You now invest through your pension scheme, or collectives such as investment trusts and unit trusts, or place you shares in your stockbrokers or trading platform nominee company to facilitate trading and the distribution of dividends with their associated tax paperwork. The institutions who vote for you tend to be led by people who are over-remunerated. Had individuals been directly voting for the remuneration of bank dirctors we would have had more interesting outcomes.
Where you hold shares through a broker nominee company or one of the trading platforms, facilities may now be available on line to register your vote in respect of the shares of which you are the beneficial owner. The problem is that you have to be proactive to find out about what is coming up at a company AGM as you will not receive company communications. Few shareholders avail themselves of this facility. Contrast this with AGM notices of building societies urging you to vote at their AGM (especially when positions on the board are uncontested!).
In this electronic age, there is a case for devising systems which allow individuals to cast their votes at the AGMs in respect of the holdings which can be attributed to them. Obviously there are limits to this, so having the right to vote off the directors of the institutions which manage your savings may be an alternative. Note to Vince Cable: how about forming an advisory committee, nay, a Royal Commission to look at this whole subject?
Democracy means one man one vote. Shareholoder control means on (voting) share one vote, one millionaire’s shares means one entity controls millions of votes.
So shareholder democracy is a contradiction inn terms, it means only the troiumph of money-power furthering rentier interests against those of the people.