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Royal Dutch Shell Plc .com: Shareholders want ‘democratic’ rights

From The Daily Telegraph

Monday view: Man the barricades! Shareholders want ‘democratic’ rights
By Christopher Hope (Filed: 03/07/2006)

There is a long and ignoble history of private shareholders being well and truly let down by the boards of the British companies that they have supported for so long.

In recent months, private shareholders in Hilton have been saddled with a major capital- gains-tax hit after the company decided to turn itself into a chain of bookies by selling its hotels.

Meanwhile, Shell’s multi-billion-pound restructuring has landed British shareholders in its Dutch holding company with a £80m capital- gains-tax bill (Shell was really sorry – shareholders in its British arm were later given Shell-branded mugs at the annual meeting).

The Government has hardly helped, famously leaving nearly 50,000 private-share-holding “grannies” in the sidings and out of pocket after tipping Railtrack into administration.

Then there are the bosses of some companies in the outer reaches of the FTSE All-Share index who seem to treat the companies like their – and not their shareholders’ – property.

Yet there are plenty of avenues open to private shareholders who are tired of watching the chairman listen patiently to their gripes at the AGM and then doing nothing about it.

The Association of Private Client Investment Managers and Stockbrokers provides a comprehensive list of the rights available to any shareholder, regardless of the size of their stake.

Even if an investor (let’s call him Sid) has fewer than 5pc of the shares, he can still ask the company to call an extraordinary general meeting (EGM) or restrain an unlawful act. Sid can also receive dividends, vote at annual meetings, inspect directors’ contracts and board minutes, and see in which companies the directors hold stock.

This is all very well. But Sid’s influence increases dramatically with the size of his holding. So when Sid owns 10pc of the shares he can call his own EGM, block an AGM resolution (over 25pc), pass a resolution at the AGM (over 50pc), pass a special resolution (over 75pc), hold an EGM at short notice (over 95pc) and ultimately, well, do what ever he likes (100pc).

The problem for private investors with small holdings is that they cannot compete with the big shareholders. So the answer is to take them on at their own game.

Just like disgruntled political activists who form parties to boost their own voice, so investors can create action groups to win stronger representation in our “shareholder democracy”.

One determined campaigner, Nigel Smith, has devoted the last three years to shareholders’ rights, turning his home in Berkhamstead into the headquarters for a number of groups campaigning for rights at listed companies like Room Service and Langbar.

It can be a grim struggle with no guarantee of success. The average action group might have up to 500 members, he says. “But trying to raise the £20,000 to £40,000 to start a legal action, let alone the £100,000 to £250,000 likely cost needed to take it to the High Court, is even more difficult.”

Yet times are changing and, using the internet, shareholders are now passing on tips about how to set up these groups. Companies are also waking up to the potential threat of this new and powerful investor force and are concerned about bad publicity.

Smith grumbles that although the Financial Services Authority has the ability to offer compensation for financial crime, it does not always do so, while suing privately can be costly and put the investor even more out of pocket.

So he is taking it a step forward, by setting up the UK’s first charity aimed at protecting the rights of the Britain’s 12m private shareholders.

The Investors’ Support Fund (he has applied to register it as a charity) will, he says, “provide assistance to those who believe they are a victim of a market abuse or fraud”.

The fund will provide information packs on how to start action groups, attract members, raise funding, get free legal aid, deal with the press, build a website and talk to regulators.

Smith is hoping that the new fund will be backed by the sort of City fund managers and lawyers who are normally reticent about seeking compensation and might feel like backing the efforts of smaller shareholders who have less to lose. The hope is to turn private investors into an army of “corporate crusaders”, he says.

Whether or not his venture succeeds, private investors can ensure that their voice is not lost by forming action groups. Every shareholder has rights – more than you might think – the question is how to use them most effectively.

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