Thursday, 12 July 2012

Why Don't Retail Shareholders Vote at AGM's?

In my last post on corporate governance I covered the fact that retail shareholders generally don't vote at AGM's which puts significant power in the hands of institutions (who often hand this over to proxy advisers) and large controlling shareholders (who operate purely in their own interest).  This post will look at why retail shareholders don't vote.

Retail shareholders do not vote at AGM's and shareholder meetings for several reasons:

  1. Lack of time to really consider the issues
  2. Believe that because they have such a small shareholding their vote isn't going to count anyway (i.e. the institutions and large shareholders will control the vote)
  3. The process is clumsy
Lack of time to consider and understand the issues

As any of you who have shares would know, voting is the least of your concerns.  If you are doing something other than investing full time, investing is just part of your life.  Your 'investment time' is taken up with
  • Evaluation of new opportunities
  • Monitoring current investments
  • Weighing your sector allocations 
It is little wonder therefore that so little time gets devoted to.

Also there are limited resources available for retail shareholders to make an informed decisions.  Proxy companies do not provide reports to retail shareholders which outline the major issues and retail shareholders are unlikely to want to pay for them even if they could (because they don't believe they can make a difference the vote). 

Further although the decision to elect a director is likely to impact value it is a lot of effort to research directors, find out which ones are good and bad when the benefit of doing so is so uncertain.  Things like remuneration reports and special meetings regarding takeovers etc have much more tangible outcomes and are easier to research and assess but still quite difficult.

Lack of influence

I think this is one of the main reasons shareholders do not vote.  They believe that as the institutions and controlling shareholders have such a large part of the company their vote isn't going to make a difference.  I thought about this in terms of a political election - almost the same premise holds - your vote is so insignificant in the scheme of things as to be unlikely to make a difference but people still turn out and vote anyway (the difference being in a political election my vote carries the same weight as yours and this is not the case in a shareholder vote).

What retail shareholders often don't appreciate is that retail shareholders typically control 20 - 40% of a company which is a massive voting block.  Individually they may not have much influence but collectively they could be the most influential block. 

This is where shareholder associations are very useful.  The Australian Shareholders Association promotes retail shareholder interests.  You can nominate them as your proxy without even being a member (being a member costs $115 per year) but the problem is that unless you are a member you don't know how they are going to vote AND you have to send this annoying forms in for every single meeting for every single stock!

Archaic and clumsy process

Voting for most companies is done via actual paper votes and the appointment of proxies cannot be done in an efficient process.  You need to fill in and post each form.  In Australia these forms need to be received by the companies 2 days before the vote.

I don't understand why the process cannot be online and electronic.  This would have increased accuracy, increased participation (I for one wouldn't mind popping on my computer and voting all my stocks in the one hit) and much reduced time for the shareholder.  Verification is easy as the voting could potentially be done by the registrar.  However these things move slowly and the laws and governance arrangements would need to change for this to come in.  Also I'm not 100% sure that companies want high retail participation because it is much harder to court retail votes for your proposals.

Next time...
If there are other reasons you don't vote post them below - I'd love to hear them as it is a topic I've become very interested in.  Next time I'm going to post on why exercising your rights is so important.  I covered it briefly in my last post on who votes at AGMs and other shareholder meetings but I'm going to take a more in depth look at it.

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