As the new chairman of the UK Shareholders’ Association, 39 year old Chris Hulme is considerably younger than a typical private investor. Nevertheless, Hulme – the MD of a mortgage brokerage and insurance company – has ambitious plans to broaden the Association’s membership. In particular he wants build stronger ties between a younger generation of investors and UKSA’s more experienced members. He also intends to introduce a new spirit of co-operation that will see the Association work closer with institutional investors and work harder on educating companies on the value of opening their doors to the retail community.
Since April 2008, Hulme has been on one of UKSA’s satellite committees – the Northern Rock Shareholders’ Action Group. In 2009 he became chairman of that group and was later invited on to the Board of UKSA in April 2010. In the aftermath of recession – in which many shareholders in Britain’s banks suffered considerable losses – the focus at UKSA has very much been about levelling the playing field for private shareholders. To do it, the Association is lobbying hard both with quoted companies and the Government to address some of its key concerns – particularly the issues of communication and regulation.
Chris, tell me about the UK Shareholders’ Association – how does it work?
UKSA been established for about 17 years now. It has always maintained its independence from any commerciality, from any bias and from any outside influence and it has been solely led for the members by the members. Everybody who works in UKSA is a volunteer so it is very much a labour of love.
The family tree comprises the Board of Directors and then four Board Committees. So we have one that I chair, which is the Company Campaigns Development Committee, we have a Policy and Media Committee responsible for setting policy, challenging policy and lobbying Government and we have a Membership and Regions Committee, which looks after each of the regions that we have and membership interests on a local level. We also have the Management and Finance Committee, which is responsible for the operational side of things. Under each of those committees we are setting up work groups of non-directors – people who have particular expertise within those areas. So under the Campaigns Committee we’ll have the Northern Rock Committee, we’ll have the Bradford amp; Bingley Committee, we’ve got Artemis, we’ve got Spark and we’ve got Unicorn. Under the Policy Committee we have a Government policy work group and we are looking at one for accounting standards and one in relation to Euro shareholders. Under the Membership and Regions Committee we have each of the Regional Chairmen for the South West, South East, North East and North West.
It sounds like a sophisticated operation. As chairman, how do you intend to influence the way the Association operates?
One of the problems is that it is very reliant on volunteers and there has been a lot of work on too few shoulders in recent years. I think we really need to be in a position to attract a wider membership, perhaps even a younger membership. I think share investors are generally viewed as older, they’re retired, they’re experienced, they’re trading large portfolios, they might even be day traders on a typical basis. But having spoken to a lot of people, UKSA members and non members, what I have tended to find is that my age group is probably more typical as a shareholder. We don’t have enormous portfolios, we might only trade half a dozen times a year, we’re not spending enormous amounts of time in investing but we are very interested in it. For me, my shares are more about fun and enjoyment and challenging myself and expanding the knowledge and learning. I do think there are a lot of shareholders out there that are of a younger age and who want to learn. I would really like to bring all of that together and have the energy from the younger members and perhaps more time that younger members can bring to it, but also for them to reap some social rewards from it, from learning from more experienced investors.
Do you think retail investors get a fair deal in the current environment?
The short answer is that I don’t think they do. I think for the small investor, the private investor, the guy who’s trading from his PC at home, the proportion of company ownership now is not in their favour. It is institutional investors – they own most traded companies and I think there is a big question about who actually owns companies and why they own companies. Institutional investors have one key aim and that is to derive capital growth and income. I think the emphasis for the smaller shareholder is perhaps longevity in ownership, perhaps more of an understanding and an affinity with the companies. This is largely demonstrated by the company meetings that UKSA regions actually undertake. We arrange for shareholders to go and meet the Boards of directors at companies that have head offices in their region. This includes small companies right up to some of the largest companies in the FTSE100. Frequently, these meetings are written up in our members’ magazine ‘The Private Investor’ and online, in the private area of our website. UKSA members get a level of access to company management they simply could not secure alone.
Where do you see the problems that exist between companies and shareholders and is this a culture that has developed over time?
I think it’s been an evolution rather than it being anything overnight. Share investment has been going on for 100 years, it’s nothing new, people make money, people lose money and shareholders and investors across the board expect that. But we like to do that on a level playing field and I think the playing field has been tipped at an angle of late, in particular with the issue of the nationalised banks. A Government can nationalise a company in the UK but if it then tips the balance towards its own favour and away from a fair resolution, fair compensation for the shareholder then that is tremendously detrimental not just to those shareholders themselves but also to those that invest via institutional investors. Those are really some of the biggest problems that have been highlighted of late. There were weaknesses in the elements that were there to maintain financial stability, and despite all of the stress tests that were done over the last decade, they just weren’t enough. But it is only the shareholder that suffers. They suffer from no compensation from C shares, banning of dividends on banks, further tax levies on the banks which will only eat into shareholder funds at the end of it. But as well as the financial element it also damages confidence because if the playing field is no longer level your confidence to go out there and invest is dramatically reduced. There are also other elements that really need to be understood and challenged – certainly one of them is the way in which financials are reported and the accounting procedures, that is a big issue.
What is the problem there as you see it?
It seems that accounting procedures have allowed some practices to happen that have misled shareholders as to the true financial standing and the true positions of some businesses. If you look at the fines that have been handed out to some of the banks, for example, Royal Bank Of Scotland (LON:RBS) , the criticisms of Northern Rock and Bradford amp; Bingley in their reporting, hiding various elements. I think there will also be issues with JJB Sports (LON:JJB) over recent years where their shareholders were misled about takeovers and the actual funds that were there. So I think the accounting standards and what was allowed to be allocated to one area or another to make the books look good is an issue. One of the work groups that we have under the Policy and Media Committee will investigate this further under the guidance of two very esteemed gentlemen, Tim Bush and Roger Collins. It does need to be dealt with; people need to understand what they are investing in and they need to know the accurate financial position.
Do you think this is a problem that fades as the size of the company increases?
No, I think the problem is with larger companies. In smaller companies there is less to look at and you have got fewer subsidiaries that things can be hidden in. I think the larger the organisation, the more subsidiaries it has, the more confusing it can be. One of the other things that is perhaps more immediate is the Financial Reporting Council’s suggestion that hardcopy annual reports are no longer needed. It is almost a side issue that doesn’t directly affect shareholder value but it affects the shareholders being able to assess the information.
I love the internet, I think it’s great for quick and easy access to information but if you’re attending an AGM, if you’re comparing two companies side by side, you can’t beat having that booklet in front of you that you can switch between Page 38 and 74 and 105 quite easily and quickly and compare the two, or even do that with two different company reports. I suspect that if there is a cost and an environmental issue being considered by the FRC that perhaps one of the things they could do is suggest that companies stop sugar coating their reports because it’s not really a report anymore, it’s more of a marketing tool. So we’d like to see the hardcopy reports retained. It’s not as though the companies are producing a report and sending them to every shareholder, they are really only on request and people will only request them if they actually want the hard copy. From an environmental point of view it’s probably more effective to have those massed produced by the company than each of the shareholders printing them off in their own homes.
I’m afraid it doesn’t stop in the UK either – regulators in the EU are making a few waves and MIFID [Markets in Financial Instruments Directive] is a bit of a concern. As technologies advance we are able to trade for £10, £11, £12 a trade, which is quite good because it means that your unit of trade can be reduced. But if you’re then having to pay five, six, 10 times that per trade you’re probably more reluctant to buy and sell and you’re probably more reluctant to take that little bit of a punt on a company. Share values will reduce if people can’t trade on execution-only and market of private shareholders will reduce as well.
It sounds like the problems are largely down to a combination of companies that are not be up to speed with dealing with shareholders and over-zealous regulators?
Absolutely. We would like to work with much larger companies in the FTSE as well, from the point of setting up shareholder committees. There is an initiative underway at the moment with a Lloyds shareholder committee initiative, which is really a test bed for this for us to work with the boards of the larger organisations but also to help us bring on board institutional investors to work with as well. So that’s one thing from the point of working with companies.
In relation to the compliance and the regulatory side, I think that really needs closer working and lobbying with Government departments and policy makers. It is an immense red tape trail that involves fighting through, initially, perhaps your own MPs, the Treasury select committees, the other select committees that are within Government departments, even trying to gain responses from 11 Downing Street and even from Vince Cable. We have tried to obtain responses from those policy makers but it is very, very difficult.
I think the Government view of shareholders tends to be that they have got a lot of money and if they lose a few quid it doesn’t really matter. I think there is an element of that viewpoint of investors across the board; that if you have got money to invest you can afford to lose it. It is absolutely not the case. If we look at what is deemed to be the typical shareholder: retired with a portfolio that they are relying on to top up what is a pitiful state pension and aiming to do that with dividend income. Now those that invested in the banks now have no dividend income. Those that invested in RBS , Lloyds (LON:LLOY) , HBOS, Bamp;B, Northern Rock have lost their capital.
So I think we do need to have a louder voice. I would rather it be a case of us working with policy makers rather than us working against them. I think what we would like to do is actually work with people, so we’ll work with Government departments, we’ll work with the policy makers, we’ll work with the officials and we’ll work with the boards of companies.
How responsive are companies to what you are saying to them?
They are very responsive because if they are working with the shareholders then there is an understanding among the shareholders as to how the Board is operating. That can alleviate this once-a-year angst of an AGM where all of these issues come out in one go and the companies say: ‘We didn’t know about that, we didn’t know how the shareholder was feeling. Perhaps if we had sat down with them and given them an overview as to what our thoughts are, how we value them, perhaps we may have been able to educate people more, perhaps our share price could have actually improved’. From the shareholder’s point of view it is nice to learn about companies – there is only so much you can learn from looking at graphs.
A lot of it is about what you are comfortable with. Everybody has their own way of deciding and the old mantle ‘do your own research’ is absolutely key. If part of that research is having a chat with the MD, with the Chairman, with the CEO, then that is brilliant. You get far more from five minutes with people like that, face to face, than you would from reading 100 odd pages of a report or a document. We like to facilitate that. The South West region has actually got a meeting coming up with St James’s Place (LON:STJ) at their head office in Cirencester. Now they are a publically traded company but their primary activity is wealth management, they employ dedicated fund managers to invest on clients’ behalf. So there’s an interesting combination there of share investment pertaining to SJP but also bringing about the views from fund managers and how the institutional investors operate. It is things like that we really, really like to do. I really would like us to broaden our horizons and broaden the membership, which by its very nature will capitalise UKSA as an organisation to then bring even greater value to a wider number of members.
Looking to the future, if there was one thing that you could change immediately, what would it be? Over the course of the rest of 2011 how do you want things to change at UKSA?
I think one of the key things that I would like to change is the relationship between institutional investor and private shareholder. I think they are chalk and cheese at the moment because they do have slightly different aims but there are common grounds. I think because the institutional investor has its own shareholders to look after, perhaps the views of the private shareholders might help them understand where their own investors are going and might give them a little bit more of an idea as to what investment strategies are being undertaken by investors. But it would also help from the point of view of representing to companies. If we can work together with institutional investors on shareholder committees, if things do go wrong, as in the case of Northern Rock and Bradford amp; Bingley, we already have that relationship and we can perhaps then formulate a joint action plan to follow it up. With Northern Rock, for example, the private shareholders linked in very neatly with Northern Rock’s two largest shareholders, SRM Global and RAB Capital (LON:RAB) . That has to be one of the biggest successes – being able to club together and work together for a joint aim. That’s one of the biggest things I’d like to change.
Chris, thank you very much for your time.