If you have followed my columns closely, you will know that I have interests in a few investment trusts. And, if you owned the same investment trusts, would I want you to know my home email or home address? My first instinct is no.
But a register of the names and addresses of individual shareholders is what many organizations representing the “retail shareholder” — that’s you and me, not pension funds and investment banks — have demanded for many years. . Now a petition getting this presented to parliament is a sign that things are getting active.
Created by Archie Norman, chairman of Marks and Spencer, the petition to ‘bring company law into the 21st century’ has the support of two organizations representing retail investors, ShareSoc and the UK Shareholders’ Association.
But there is still a lot more to do. The government will need to see a large number of citizens supporting this change before spending valuable parliamentary time. The petition has collected only a few thousand signatures in its first two months and needs thousands more.
Here’s why I’m going to sign it and I think other retail shareholders should too.
Activists demand that beneficial shareholders “have the right to have direct information” about the listed companies in which they invest and that these listed companies can know who their shareholders are. They also want to make email a requirement for shareholder registration and have digital annual general meetings recognized by law.
It’s hard to disagree with the calls for digital general meetings. This is a brilliant step forward for convenience and participation – and if managed well, with the right technology, company management shouldn’t be able to cut you off, for example by not posting your question.
But I agree with ShareSoc and UKSA that we don’t want to lose physical meetings. The power of a face-to-face encounter is enormous for many reasons. One of the best arguments made is that a good question at a general meeting can have a huge impact on the board of directors of the company, because they see the physical reaction of the general management to the questioner in the room. , while the same question asked online may have no effect at all. .
The part of the petition relating to the visibility of shareholders is more delicate.
Most investors today use a proxy account operated by one of the major investment platforms to purchase their shares. This has advantages in terms of cost and convenience. But this means that you are not recognized as the legal owner of the shares, only as the “beneficial” owner, and the company in which you have invested does not know who you are. “So what?” you can say. “Being a beneficial owner is not something that keeps me up at night.”
But the implications are profound. The government can only estimate the share of the UK stock market held by retail shareholders (around 30%). He can’t get a precise figure because only the names of nominee providers, which aggregate thousands of individual holdings, appear on the ledger. It is suspected that a lack of reliable data has long pushed the development of policies benefiting retail investors down the political agenda.
Although let’s not dismiss the work that has already been done. The UK Listings Review, chaired by Lord Hill in 2020-21, followed by the Austin Review from 2021-22, have already called for sweeping reforms. And we now await the first conclusions of the digitalisation task force to take forward the modernization of the UK’s shareholding framework, which was due to report in spring 2023.
This new petition therefore builds on the existing momentum. At 10,000 signatures, the government will respond to the petition – it currently has 3,600. At 100,000 signatures, it will be considered for debate in Parliament. And I would like to see members debate shareholder registers.
Current law provides that a society’s register and index of members’ names shall be available for inspection free of charge by any member of the society and by any other person upon payment of a fee, provided that they disclose the purpose for which they are using the information.
I suspect you wouldn’t like your friends or family to find out what you own. You also wouldn’t want to be targeted by marketing from other companies who want you to be a shareholder as well. Worse still, you might fear that charlatans will grab the email addresses of shareholders (many of whom are elderly) and rip them off.
ShareSoc says the risks are the same whether the details are held by the share register or by a broker or platform, and the GDPR is also there to protect shareholders. “Share registers are tightly maintained today, probably too tightly, but confidentiality is key. Only a legitimate purpose can be used to request data from a shareholder registrar,” says Amit Vedhara, director of ShareSoc.
Providing a home address can make people less likely to be scammed than email. Maybe there is a halfway house — shareholders might say they are happy to be contacted only in certain circumstances. I’m sure there are workarounds to reassure.
And I’m open to change because of other compelling arguments.
Without your name on the register, if something goes wrong with the candidate, such as technical failure or fraud, you are potentially vulnerable. Also, it prevents candidates from potentially making profits on your shares that you are not aware of, such as stock lending.
There is also the matter of intermediary services taking their piece of the pie to liaise between companies and their retail shareholders during votes and general meetings – we do not want more of that, as costs are inevitably incurred and passed on.
However, leaving potential regulatory reforms aside, the most significant change needed to help small shareholders engage with companies in voting and general meetings is for UK-listed groups to use plain English. Voting resolutions typically use 100 or 200 word sentences, while being riddled with jargon. The term “right of first refusal” often confuses retail investors. These protect a shareholder against losing their voting rights as more shares are issued.
I find it strange that better communication is not mentioned in the petition.
In terms of communication, listed companies have been largely left to their own devices, although some good initiatives have slowed progress.
For example, the Association of Investment Companies has encouraged good communication with shareholders in the investment trust industry for many years through certain annual awards.
Interactive Investor, an investment platform that has been promote shareholder engagement with its clients, also highlights corporate shareholder communication. It launches a ‘best practice’ benchmarking dashboard for FTSE 100 companies and the 20 largest investment funds, created with financial services consultancy, the Lang Cat, and peer-reviewed for its relevance and fairness. I can’t wait to see the first results from the dashboard.
But we need the regulator to join this march. The United States Securities and Exchange Commission provides guidance to listed companies on plain language communications. Surely it is easy for the UK regulator to replicate this?
The preface to the american guide is written by Warren Buffett, who states, “For more than 40 years, I have studied the documents that public companies file. Too often I was unable to decipher exactly what was being said or, even worse, I had to conclude that nothing was being said.
Investors have become accustomed to poor communications. We deserve better. And maybe me and other shareholders would have signed the petition sooner if it had led to this question.