The importance of shareholder voting – how to have your say

When you buy a share, you become a part owner of that company. This often comes with the ability to vote on decisions like how much is paid in dividends and who will sit on the board of directors. Sometimes new proposals are also put to shareholders by a group of investors who want to drive change at that company.

When pooled together into large chunks, these shareholder rights can be a powerful tool to help steer management in a particular direction.

We’ve made it easier than ever to have a say on how a company you hold is run.

We’re giving shareholders more opportunity to have their say by streamlining the voting process with a simple-to-use online service. It’s available for all EU and UK shares.

Explore our new voting service

Lots of investors think their vote is a mere drop in the bucket – but around 15% of the UK stock market is owned by individual investors. That can be enough to tip the scales.

Back in 2018, an investor holding just 12 shares of Tesla brought a proposal forward to have Elon Musk removed as chairman of the board. His resolution gained momentum, with heavy hitters like BlackRock backing it. Ultimately it was defeated, but Musk stepped down from the role four months later after being charged with fraud by the US Securities and Exchange Commission.

Voting to protect your interests

There are lots of ways that shareholder voting can play out. In some cases, shareholders might vote to decide whether a proposed action is in their best interest.

That’s what’s happening at Melrose, a supplier to aerospace and automotive companies.

Melrose tends to buy struggling businesses, turn them around and sell them at a profit. In this case, the group’s looking to offload its Automotive and Powder Metallurgy businesses, which it bought back in 2018. The two will become their own publicly listed company, specialising in automotive manufacturing.

Melrose will be left with an aerospace and defence-focused business. Shareholders will be left with shares in both Melrose and NewCo – the newly formed automotive company.

Before it can cut the cord on these two arms of the business, management must get shareholder approval in a vote scheduled for March. Shareholders have to decide whether NewCo is more valuable on its own, where it can drill down and specialise in a particular industry, or as part of the Melrose portfolio.

Management is recommending the split – but it will come with execution risks on top of difficult economic conditions. It’s up to shareholders to decide whether they want to back this plan or not.

Voting to improve governance

Another important way shareholders can use their votes is to improve how a company is run. The devil’s in the detail, and corporate governance is arguably one of the most important details.

Everything from the way a company sets its performance measures to how its executives are compensated makes a difference. The greatest strategy in the world means nothing unless performance targets are tied to it. These targets drive executive pay – so if progress toward net zero is a strategic focus, the CEO should be rewarded, or not, based on achieving that goal.

Walt Disney saw investors reject then-CEO Bob Iger’s pay packet back in 2018. It was seen as being detached from company performance and beyond that of peers in the industry.

The vote took place with a backdrop of disputes from Disney employees, who claimed their average wage had fallen 15% between 2000 and 2017 when adjusted for inflation. Notably, the no-vote was non-binding, meaning the board will take it under advisement, but ultimately make their own decision.

The board ended up passing the pay packet, despite the outcome of the vote. But shareholder discontent was taken into account the following year, with a 28% trim in 2019.

Voting to improve the board

The Disney example underscores just how much power the board of directors holds. That’s why it’s important that shareholders take an interest in who’s got a seat at the table.

Sometimes shareholders, or a group of shareholders, will challenge a company’s board nominations with their own candidates. Investors are then tasked with voting for or against the proposed replacements.

This happened at American oil and gas major Exxon Mobil in 2021. An activist investment fund, Engine No. 1, proposed shaking up Exxon’s board with independent directors from a wider range of backgrounds, with a particular focus on navigating the energy transition and renewable energy. Three of Engine No. 1’s picks were nominated, and retained their seats in 2022.

Board appointments are an important step in changing the way a company is run. Too little diversity in background can be a risk for investors because there’s a greater risk they’ll overlook important issues.

Too little experience within the industry is another hazard – one exemplified by the infamous Theranos failure.

The health technology company, which falsely claimed to have invented a blood testing device, had a board with very little relevant healthcare or technology experience. This could explain why it was able to get away with defrauding investors for so long.

Voting for better corporate citizenship

The shareholder voting system is in place to protect investors’ interests. In the past that loosely translated to ‘make investors money’. That definition has expanded somewhat to include the benefits of being a good corporate citizen. While this can be tied to financial returns in some cases, in others it’s investors’ desire to do good with their money.

This is cropping up more and more in shareholder votes as environmental and social issues weigh on investors’ investment decisions.

US insurer The Travelers Companies saw more than half its shareholders back a resolution to improve its climate related disclosures and set out a plan to trim emissions in line with the Paris Agreement. The proposal was put forward by activist fund As You Sow, and the overwhelming support means Travelers will have to work toward more transparency in its path to net zero.

e-Commerce giant Amazon narrowly avoided a majority vote demanding an independent review of working conditions thanks to ex-CEO Jeff Bezos’ no-vote, which accounted for 10% of the vote. Given over half of independent voters backed the measure, the group will likely come under fire from more activist investors if it doesn’t respond.

Have your say on your shares – our new online voting service

Want the chance to vote on dividends, the overall company strategy, or perhaps even how much executives get paid?

We’ve launched a new online service to allow you to do just that.

You’ll be able to vote or confirm you’re attending a shareholder meeting for any UK and EU shares you hold in any of your accounts with us.

Use our new voting service