If you’ve kept a close eye on my columns you’ll know that I have shareholdings in a few investment trusts. And, if you held the same investment trusts, would I want you to know my personal email or home address? My first instinct is no.
But a register of individual shareholders’ names and addresses is what a lot of organisations representing the “retail shareholder” — that’s you and me, not pension funds and investment banks — have been demanding for many years. Now, a petition to get this put in front of parliament is a sign of things getting active.
Created by Archie Norman, chair of Marks and Spencer, the petition to “bring company law into the 21st century” has support from two organisations representing retail investors, ShareSoc and the UK Shareholders’ Association.
But more needs to be done. The government will need to see large numbers of the public supporting this change before it devotes valuable Parliamentary time. The petition has only gained 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.
The campaigners are calling for beneficial shareholders to “have the right to direct information” on listed companies they invest in and for those listed companies to be able to know who their shareholders are. They also want to make email a requirement to shareholding registration and have digital annual general meetings recognised in law.
It’s hard to disagree with calls for digital AGMs. These are a brilliant step forward for convenience and participation — and if they are managed well, with the right technology, company managements shouldn’t be able to edit you out, 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 encounter is huge for many reasons. One of the best arguments put forward is that a good question at an AGM can be massively impactful on the company’s board, as they see senior management’s physical reaction to the questioner in the room, whereas the same question asked online might have no effect at all.
The part of the petition relating to visibility of shareholders is trickier.
Most investors today use a nominee account run by one of the big investment platforms to buy their shares. This has cost and convenience benefits. But it means you’re not recognised as the legal owner of the shares, only the “beneficial” owner, and the company that you’ve invested in doesn’t know who you are. “So what?” you may say. “Being a beneficial owner is not something that keeps me awake at night.”
But the implications run deep. The government can only estimate how much of the UK equity market is held by retail shareholders (about 30 per cent). It can’t get an accurate figure because only the names of the nominee providers, which pool thousands of individual holdings, appear on the register. There’s a suspicion that a lack of reliable data has long pushed policymaking benefiting retail investors down the political agenda.
Although let’s not dismiss the work that’s already been done. The UK Listings Review, chaired by Lord Hill in 2020-21, followed by the Austin Review of 2021-22, have already called for sweeping reforms. And we’re now awaiting the initial findings of the Digitisation Taskforce to drive forward the modernisation of the UK’s shareholding framework, which was expected to report in spring 2023.
So this new petition is building on existing momentum. At 10,000 signatures, government will respond to the petition — it’s currently at 3,600. At 100,000 signatures, it will be considered for debate in Parliament. And I’d love to see MPs debating shareholder registers.
The current law says a company’s register and the index of members’ names must be open to inspection by any member of the company without charge, and of any other person on payment of a fee, as long as they disclose the purpose for which they are using the information.
I suspect you wouldn’t like your friends or family to be able to find out what you own. Nor would you want to be targeted by marketing from other companies wanting you to be a shareholder too. Worse, you might worry about charlatans getting hold of email addresses of shareholders (many of whom are elderly) and scamming them.
ShareSoc says the risks are the same whether the details are held by the share register or a broker or platform, and GDPR is there to protect shareholders too. “Share Registers are tightly held today, probably too tightly, but privacy is essential. Only a legitimate purpose can be used to request data from a registrar on shareholders,” says Amit Vedhara, director of ShareSoc.
Providing a home address might leave people less likely to be scammed than emails. Perhaps there might be a halfway house — shareholders could say they are happy to be contacted only in certain circumstances. I’m sure there are workarounds to provide reassurance.
And I’m 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 tech failure or fraud, you’re potentially left vulnerable. Also, it stops nominees potentially making profits from your shares that you don’t know about, for example stock lending.
There’s also the issue of intermediary services taking their share of the pie to liaise between companies and their retail shareholders on voting and AGMs — we don’t want more of them, as costs are inevitably incurred and passed on.
However, leaving potential regulatory reforms aside, the most important change needed to help smaller shareholders engage with companies on voting and AGMs is for UK listed groups to use plain English. Voting resolutions commonly use sentences running to 100 or 200 words, while riddled with jargon. The term “pre-emption rights” often confuses retail investors. These protect a shareholder from losing voting power as more shares are issued.
I find it strange that better communication isn’t mentioned in the petition.
On communications, listed companies have largely been left to their own devices, albeit with some good initiatives nudging slow progress.
For example, the Association of Investment Companies has for many years encouraged good shareholder communications in the investment trust sector through some annual awards.
Interactive Investor, one investment platform which has been promoting shareholder engagement among its customers, is also shining a light on companies’ shareholder communications. It is launching a “good practice” benchmarking scorecard for FTSE 100 companies and the 20 largest investment trusts, created with financial services consultancy, the Lang Cat, and peer reviewed for relevance and fairness. I look forward to seeing the initial scorecard findings.
But we need the regulator to join this march. The US Securities and Exchange Commission gives guidance to listed companies on plain English communications. Surely it’s easy for the UK regulator to replicate this?
The preface to the US guide is written by Warren Buffett, who says: “For more than 40 years, I’ve studied the documents that public companies file. Too often, I’ve been unable to decipher just what is being said or, worse yet, had to conclude that nothing was being said.”
Investors have got used to poor communications. We deserve better. And perhaps I and other shareholders would have signed the petition earlier if it had led with this issue.