As small shareholders, most of us hold our investments in what is known as a ‘nominee’ account whether it is through a platform or through a broking firm.

Having a nominee account safeguards our investments while at the same time it reduces costs and increases efficiencies for the broker or platform.

However, a persistent criticism of nominee accounts is the lack of opportunity for small shareholders to have direct contact with the companies they are invested in who in turn typically don’t know who their shareholders are.

WHY ARE NOMINEE ACCOUNTS POPULAR?

Years ago, if you had an account at a stockbroking firm and owned shares in say a dozen companies, your name would have been on each company’s list of shareholders, and you would have had a physical share certificate showing the number of shares  you owned.

As individual share accounts took off with the privatisation of former state-owned firms like BT Group (BT.A) in the late 1980s, it became obvious that the old system of buying and selling shares and re-registering the new owner by physically moving pieces of paper around was costly and cumbersome.

By setting up a digital registry of shareholdings, costs could be greatly reduced, while using nominee accounts would greatly simplify the record-keeping process and at the same time safeguard customers’ investments by ‘ring-fencing’ their accounts.

For the system to work, your shares are held in the name of your broker or platform, so although you are still the ‘beneficial owner’, the companies you invest in have no idea who you are.

You can still vote at AGMs (annual general meetings) and on issues which come up outside of regular meetings – such as whether to take your dividends in cash or in the form of ‘scrip’ (subscription) shares – but if a company wants to speak directly with you, they can’t.

That may about to change though, if a petition being put before parliament by one of the UK’s biggest high street retailers gains traction.

GIVING SMALL SHAREHOLDERS A VOICE

In a campaign titled ‘Share Your Voice’, none other than Marks & Spencer (MKS) is calling for far-reaching changes to UK company law which, while it was updated in 2006, the firm says is still largely ‘stuck in a 40-year-old time warp’.

‘Outdated legislation means that ordinary people who have invested in the UK’s listed businesses struggle to hear from and communicate with them.

‘Almost half of individual shareholders cannot directly engage with the company they invest in as they invest via nominee platforms, and the rest are constrained by an outdated, paper-based system that would in any other facet of life be obsolete.’

The firm claims this ‘wholly unsatisfactory’ situation can be fixed through a handful of straightforward amendments to the UK Companies Act 2006 to ‘reconnect shareholders to the companies they invest in’.

In its own case, Marks & Spencer believes that at its current rate of annual decline, ‘within 30 years the company will not be able to speak to a single shareholder without a change to legislation as we are losing visibility of over 1% of our register annually’.

The firm goes on to say: ‘The convenience of investing via nominee platforms has come at the expense of the important link between companies and their retail shareholders.

‘Companies don’t know who their investors are and investors are powerless and completely detached from the companies they are funding.

‘This eats away at the bond of trust and sense of mutual accountability between ordinary investors and markets and, in the end, it will eat away at the legitimacy of our capital markets.’

NOT A ONE-WAY STREET

On the one hand, anything that brings small investors closer to the companies they invest in can only be a good thing, but it doesn’t have to be a one-way affair.

Investors are quite used to chasing companies for information these days, and to describe small shareholders as ‘powerless and completely detached’ from companies seems to be over-egging the pudding somewhat.

Like most large and mid-sized firms, Marks & Spencer has a well-laid-out corporate website and offers small investors the option to sign up for all manner of updates including press releases, reports and presentations and regulatory news with an easy-to-use link.

Most investment platforms allow digital voting on motions put forward at AGMs and give shareholders the option to allocate up to and including their full shareholding for or against when it comes to major decisions like directors’ compensation and the ability to issue or buy back shares.

As far as the roll-out of digital AGMs is concerned, again shareholders – and even non-shareholders – are usually able to sign up online and watch proceedings from the comfort of their own home simply by clicking a link on the company’s website and verifying their identity.

For those interested in reading more about the campaign and/or signing the petition, it can be found here.

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