November 5, 2010 5:57 pm

Collective action pays after long haul

If proof were needed that signing up for a shareholders’ action group is good practice, it came last month, with the news that Equitable Life policyholders will receive a £1.5bn compensation package.

It took more than a decade for policyholders in Britain’s oldest mutual assurer to see redress for the unprofitable with-profits policies they were sold in the 1980s. While the £1.5bn they will divide amongst themselves is well below the £4bn to £5bn hoped for, it represents a sizeable payout. And advisers say that their efforts might have failed had it not been for their action groups’ lobbying efforts.

As Ros Altmann, founder of the Pensions Action Group which campaigned on behalf of members of failed company pensions, puts it: “Only when you get together in a group can you punch above your weight.”

Dozens of UK action groups have fought for shareholders over particular issues with varying amounts of success. Current campaigns include a war over the government’s alleged failure to offer adequate compensation to Northern Rock shareholders following its takeover of the failed bank (see box) and a similiar battle being waged by Bradford & Bingley shareholders who were left holding worthless shares following the nationalisation of the failed building society in 2008.

In a number of cases, the efforts of action groups have proved Sisyphean – at least in the near-term. Northern Rock’s former shareholders, for example, are now taking their claim to the European Court of Human Rights following a defeat in both the High Court and the Appeal Court. And shareholders in Bradford & Bingley are appealing a decision by an independent valuer appointed by the government which ruled that they were not entitled to any compensation.

The UK Shareholders Association, which represents private shareholders, has set up several action groups on behalf of investors. As the people responsible for managing action groups tend to be volunteers, membership fees usually amount to less than £100 per year.

But membership expenses can be higher. Lloyds Action Now, which was set up for shareholders who think they were conned into paying the cost of saving HBOS, charges a £275 joining fee plus 3p per share to cover legal and public relations expenses.

The high membership costs have drawn criticism. In a letter to the Financial Times, Lloyds shareholder Michael Kirwan voiced concerns after he attended a presentation aimed at drumming up support for the group and collecting financial contributions.

“Are the probability and scale of potential compensation sufficient to justify the joining fee?” he asked. “Are the individuals involved suitable people to mount a campaign of this sort and should Lloyds shareholders hand money over to them?” A Lloyds Action Now spokesman could not be reached for comment.

For the most part, however, action groups enjoy a sound reputation and there are advantages to joining them – although justice may take years to achieve. “An action group has to appeal to its audience and it has to be done in the right way. In most cases, they rely on donations, and if supporters think their money has been mispent, they will be upset,” says Chris Hulme, co-chair of the Northern Rock Shareholders Action group.

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