Shareholders Have a Voice. They Must Use It More.

NEW YORK - MARCH 24: Bear Stearns headquarters building (R) is seen March 24, 2008 in New York City. A new agreement will give Bear Stearns shareholders ten dollars per sare, five times the payout outlined in a JPMorgan Chase & Co. buyout deal last week. (Photo by Chris Hondros/Getty Images)

Written by
Merryn Somerset Webb
Written by

Merryn Somerset Webb

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(Bloomberg Opinion) --

This was pretty uncomfortable stuff, but it was also fantastic to see. The votes cast on the day made little difference (over 400,000,000 votes were already in so a hundred more was clearly neither here nor there). But one of the joys of investment trusts is these meetings — where managers and directors have to directly answer the questions of the end holders of their product. Not the wealth managers but the actual peopletrying save for retirements — the ones the entire investment machine is set up to serve.

Does it make a difference to manager behavior or investing style? That's hard to say with certainty. But it's true that investment trusts have a long history of outperforming open-ended funds. That might be due to the permanent nature of their capital, it might be because they can borrow to invest, it might be that charges have historically been a bit lower, or it might have something to do with the existence of the board of directors tasked with supporting shareholders — and with the AGMs those shareholders go to. Scottish Mortgage won't be contributing to that record of outperformance this year. But there is no way Tuesday's face-to-face AGM experience won't have focused some fund manager minds.

Perhaps then we need more of this. Much more of it. More AGM attendees. More uncomfortable – and public – questions. Right now it could be going better. Globally AGM attendance jumped last year, but in the UK it's in freefall. Individual investors can help fix that: Most of us hold our shares on platforms and nearly all have simple systems in place to hand over voting and AGM rights to investors - often with opt-in systems that keep all admin to a minimum. Marks & Spencer Group Plc is going a little further in a new tie-up with II - the idea being to reach shareholders directly to encourage them to vote and attend. Archie Norman, chair of M&S, is mad for this. People own their shares, he says: “they have a right to their say and to hold their board to account.” Indeed they do. He's also keen on hybrid AGMs — where those who can't don't want to travel can turn up online: This works for M&S: 561 shareholders attended the company's physical meeting in 2019; 1700 participated online in 2022. More companies should follow the M&S lead.

But this kind of thing should also be just the beginning. More investors should at more AGMs and asking more questions (if only more retired accountants turned up at water company AGMs). One way to make that happen is more pass-through voting – allowing investors in funds to vote, or at least express how they would like to vote, on issues involving the companies held inside those funds. Those investors might also gain the right to ask questions at AGMs. This is likely in the end to make little difference to the actual votes in the short term: There is the 100 vs 400,000,000 problem and at the same time no investor will ever vote on everything. Hold shares in an index fund and pass through voting would give you the right to vote on thousands of issues every year. No one wants to do that. What most people do want, however, is to go to an AGM, ask where their money has gone and get an honest answer. Most managers (be they of investment trusts or of ordinary companies) should want the same: It's easy in the corporate and financial worlds to forget who the end owner of most assets is and to lose focus on what those owners need (mostly not to lose their hard-earned money). A well-attended AGM, comfortable or uncomfortable, is a nice reminder.