Shareholders have called for greater transparency on dividend policies following a review that found one in five companies are failing to stage an annual vote on dividend payouts, or are simply making interim payments.

The Investment Association (IA), a professional body for asset managers, found that 22% of FTSE-listed companies fail to seek an annual shareholder vote on distributions. IA described this as a “notable issue”.

The IA now recommends that all listed companies, including those that do put their dividend to a shareholder vote, should publish their dividend policies. A policy should set out a company’s “long-term approach” to making decisions on the sums and timing of shareholder dividends.

Chris Cummings, chief executive of the IA, said if companies fail to seek annual approval for dividends payments they risk “depriving shareholders” of a say on an issue that is “pivotal to the organisation’s long-term attractiveness to investors.”

“A distribution policy will provide shareholders with an opportunity to engage on companies’ approaches to paying dividends and structure of returns to shareholders, including how the dividend payments fit within with the wider capital allocation decisions the company takes,” said Cummings.

“We want to ensure that they are being decided in a way that delivers long-term, sustainable returns. It will also allow companies to explain their logic behind not holding annual votes where they have a legitimate business reason.”

Interim dividends

The IA examined dividend payments on behalf of the department for business because of growing concern that companies were switching to paying “interim” dividends that do not require shareholder approval.

In the FTSE 100, 17 companies were found to have ducked a vote on a final or interim dividend, including Shell, HSBC and Unilever.

In the FTSE 250, RIT Capital Partners, GVC Holdings and Jupiter Fund Management were on the same list.

The IA noted that almost three-quarters of the companies that declined to seek shareholder approval were investment companies.

There was a number of reasons put forward for avoiding a shareholder vote. Some companies structure dividends to provide quarterly income streams, meaning approval for a final dividend could delay the fourth quarter payment.

There are also regulatory considerations for financial services companies under which a “final” dividend is considered a debt, which would hit capital requirements.

Other boards want the flexibility to declare a dividend in “short order”, which could be affected by “final” dividends which typically take months to pay after the initial declaration.

In dual-listed companies there are concerns that a “final vote” could prevent shareholders in different jurisdictions from being treated equally.

The IA will now establish a working group to define best practice guidance for writing a dividend policy. The IA’s report reminds companies that a shareholder vote on dividends is an “essential mechanism for accountability to shareholders”.

It concedes that forcing every company to have a yearly vote may not be in the interests of companies or shareholders.

“Nevertheless, investors consider it essential that companies are transparent and accountable to shareholders about their approach to distributions, set in the context of their approach to capital management,” said the report.