If you’ve been paying close attention to my columns, you’ll know that I own shares in a few mutual funds. And if you had the same mutual funds, would I want you to know my personal 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 “small shareholder” – that’s you and me, not pension funds and investment banks – have been demanding for many years. Now, one petition to get this before parliament is a sign that things are getting active.
The petition, drafted by Archie Norman, chairman of Marks and Spencer, to “bring company law into the 21st century” is supported by two organizations representing private investors, ShareSoc and the UK Shareholders’ Association.
But more needs to be done. The government will need to see large numbers of citizens support this change before it spends valuable parliamentary time. The petition only garnered a few thousand signatures in its first two months and thousands more are needed.
This is why I’m going to sign it and I think other private shareholders should too.
The campaigners are calling for beneficial shareholders to have “the right to send information” about publicly traded companies they invest in and for publicly traded companies to know who their shareholders are. They also want to make email mandatory when registering shareholdings and have digital annual general meetings legally recognised.
It’s hard to disagree with calls for digital AGMs. This is a brilliant step forward for convenience and participation – and if managed well, with the right technology, corporate executives shouldn’t be able to get rid of you, for example by not displaying 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 meeting is enormous for many reasons. One of the best arguments put forward is that a good question during an AGM can have a huge impact on the company’s board as they see senior management’s physical response to the questioner in the room, while the same question asked online may have no effect at all. .
More difficult is the part of the petition that deals with shareholder visibility.
Most investors today use a nominee account from one of the major investment platforms to buy their shares. This has cost and convenience benefits. But it means that you are not recognized as the legal owner of the shares, only as the ‘ultimate’ owner, and the company you invested in does not know who you are. “So?” you may say. “It’s not something that keeps me awake at night as a beneficial owner.”
But the implications run deep. The government can only estimate how much of the UK stock market is held by private shareholders (around 30 per cent). It cannot get an accurate figure because only the names of the nominated providers, which bundle thousands of individual companies, appear on the register. It is suspected that a lack of reliable data has long pushed policymaking that benefits small investors down the political agenda.
Although, let’s not dismiss the work already done. The UK Listings Review, chaired by Lord Hill in 2020-21, followed by the Austin Review from 2021-22, has already called for major reform. And we now await initial findings from the Digitization Task Force to advance the modernization of the UK shareholder framework, which is expected to report in Spring 2023.
This new petition thus builds on the existing momentum. At 10,000 signatures, the government will respond to the petition – currently at 3,600. At 100,000 signatures it is eligible for debate in parliament. And I would like to see MPs discuss shareholder registers.
Current law says that a company’s register and index of members’ names should be available for inspection by any member of the company free of charge and by any other person for a fee, as long as they disclose the purpose for which they are serving. using the information.
I guess you don’t want your friends or family to find out what you own. You also don’t want to be targeted by marketing from other companies who want you to become a shareholder as well. Even worse, you may worry that charlatans will get their hands on shareholder email addresses (many of them are elderly) and scam them.
ShareSoc says the risks are the same whether the data is held by the share registry or a broker or platform, and the GDPR is also there to protect shareholders. “Share registers are kept tight these days, probably too tight, but privacy is essential. Only a legitimate purpose can be used to request data from a registrar about shareholders,” said Amit Vedhara, director of ShareSoc.
If you provide a home address, people are less likely to be scammed than via emails. Perhaps there is a middle ground: shareholders might say that they only want to be contacted in certain circumstances. I’m sure there are solutions to provide reassurance.
And I am open to the change because of other compelling arguments.
Without your name on the register, if something goes wrong with the nominee, for example a technical glitch or fraud, you may be vulnerable. It also prevents nominees from potentially making a profit on your shares that you don’t know about, for example when lending shares.
There’s also the issue of intermediary services taking their share of the pie to liaise between companies and their private shareholders about voting and AGMs – we don’t want more from them as costs are inevitably incurred and passed on.
Aside from possible regulatory reforms, the most important change needed to help smaller shareholders engage with companies about voting and AGMs is for UK listed groups to use plain English. Voting resolutions usually use sentences of 100 or 200 words while being riddled with jargon. The term “pre-emption right” often confuses retail investors. These protect a shareholder against loss of voting rights as more shares are issued.
I find it strange that better communication is not mentioned in the petition.
In terms of communications, listed companies have been largely left to their own devices, albeit with some good initiatives slowly making progress.
For example, the Association of Investment Companies has been promoting good communication with shareholders in the investment fund sector for years by means of a number of annual awards.
Interactive Investor, an investment platform that has fostered shareholder engagement with its clients, also highlights corporate shareholder communication. It is launching a ‘good practice’ benchmarking scorecard for FTSE 100 companies and the top 20 investment funds, created with financial services consultancy de Lang Cat, and peer-reviewed for relevance and fairness. I am curious about the first results of the scorecard.
But we need the regulator to join this march. The US Securities and Exchange Commission provides guidelines for publicly traded companies to communicate in clear English. Surely it is easy for the UK regulator to replicate this?
The foreword to the American guide is written by Warren Buffett, who says: “For more than 40 years I have studied the documents that public companies file. Too often I have been unable to decipher exactly what was being said or, worse still, I have had to conclude that nothing was being said.”
Investors have become accustomed to poor communication. We deserve better. And maybe I and other shareholders would have signed the petition sooner if it had led to this issue.
Moira O’Neill is a freelance writer on money and investments. Twitter: @MoiraONeillInstagram @MoiraOnMoneye-mail: moira.o’neill@ft.com
