Greater transparency of shareholder identity called for

A busy week at the National Investor Relations Institute annual jamboree in sunny Florida. The biggest gathering of IR professionals in the world, and among US companies’ principal concerns is how to identify their shareholders. After all, how can you build 2 way relations for all the positive reasons, with someone you don’t know?

So many at the conference welcomed a new report from the PR Newswire Disclosure Advisory Board calling for greater transparency. The thrust of the paper – which I helped draft – is that US companies have been subjected to a barrage of demands over recent years for more disclosure, more information, more quickly and simultaneously to all investors, however that investors are still operating largely under rules written in the 1930’s.

“We have charged IR professionals to promote corporate transparency, although left untouched the barriers to engagement with certain beneficial owners” says the report. Two other factors are playing a role: the existing rules pre-date the internet and electronic delivery of information. They assume that any filings must be done manually in paper form, and thus ignore the real-time nature of the market. And newer financial instruments such as derivatives are exacerbating the problem, as equity swaps, CFD’s and stock lending processes are often outside the ‘material’ definition anyway.

So what’s the answer? For many, a key paradox is the wide disparity between rules in the US and international best practice. In many countries, issuers have access to rules requiring both reactive disclosure by investors, where investors holding a percentage such as 3 or 5% are obliged to tell the company within 24 hours. The company is then obliged to tell the market.

In addition, companies in countries as widespread as UK, South Africa, Australia and France, can rely on a proactive approach where they can challenge investors they believe to hold their stock, often by approaching the nominee, and demand the identity of the underlying beneficial owner. And these rules have teeth, allowing companies to withhold dividend etc for non-compliance.

When you mention these rules to a typical US IRO, the reaction is often surprise and envy. Why cannot US rules – and after all we are operating in a global financial services marketplace – offer US companies the same tools?

How likely is change? As an illustration of the battle ahead, Bob Greifeld, President and CEO of the NASDAQ gave a stirring keynote address at NIRI. The first question during Q&A asked for opinion on the issue of shareholder identification. His response? “We are highly unlikely to see rule changes”.

So a long road ahead before we see international best practice in the US