Meanwhile, Some T-As Agitate To Compete Against Broadridge For Some Of Their Gigantic Proxy Distribution And Tabulation Business; Most, We Think, Have Missed That Boat Entirely:
Long before the Broadridge entry onto T-A-turf – for roughly 20 years in fact – transfer agents have been protesting the “lock” that Broadridge has on the street-side proxy distribution and tabulation business. And it’s a lock that they have been very rapidly increasing over the past few years - with over 1600 of the 6000 or so “investment-worthy companies” having consolidated their registered proxy processing with Broadridge at present, and with an even bigger total likely by year-end.
Some transfer agents are taking this very much in stride. After all, the number of “registered holders” continues to shrink, year after year…And at the vast majority of public companies, the numbers are so small - both in terms of shareholders and of shares held – that it isn’t really worth the trouble to have two providers receiving and distributing proxy materials, tabulating proxies and running added web and telephone voting sites. Also, many T-As have stripped down their staffing to the point where they have few people to spare to go to annual meetings, much less to “inspect.”
But lately – with a much increased focus on “proxy plumbing” issues, and on having much greater “transparency” where voting, tabulation, reconciliation …and shareholder communications in general are concerned – calls for a fresh approach have been gaining a lot of traction – both with issuers and issuer-sponsored initiatives like the Shareholder Communications Coalition…and with the SEC staff – and with some of the Commissioners themselves, we hear.
The Coalition – with support from the Securities Transfer Association, the Society of Corporate Secretaries and Governance Professionals and NIRI – has been calling for a re-bidding, that would allow for the separation of the task of collecting and collating beneficial owner names (which is a ‘natural monopoly’ we’d say) from that of making mailings and tabulating the votes. This would, in theory, at least, allow other vendors, including Transfer Agents, to compete against Broadridge on a “level playing field.”
The Coalition also calls for a re-thinking of the OBO/NOBO designation – as the Business Roundtable and the Society did earlier – which hasn’t has a fresh look since 1986 – and which is totally obsolete – and falls far short of what could and should be done to allow issuers and investors to have more and better communications options, we think.
But for most Transfer Agents, we’re sorry to say, the playing field will never be “level” for them: With a few interesting exceptions, most have totally abandoned the real estate, the highly specialized enclosing and mailing equipment and the expertise that is needed to really compete here – and have no hope whatsoever of acquiring the scale that is required to compete effectively. In fact, the largest U.S. T-A has outsourced all its proxy mailing and enclosing operations…to Broadridge.
Most damaging of all to any aspirations that TAs may have to get back into the game is the fact that public companies – and their big institutional investors – and their regulators too, for that matter – will be extremely reluctant to give up procedures that most would say are working well…given the very personal risks that come with snafus in so sensitive an area. Wannabe competitors will have to produce some mighty big cost-savings to compete effectively here, we say…and most will have to put some serious money where there mouths are too. All of this seems mighty unlikely in what is still, on the whole, a scale-oriented, commodity-priced business…which, for many years we’ve been describing as a “goesinta biz.” But quite aside from the envelope-stuffing aspect, a lot more stuff “goesinta” this business than appears at first blush.
None of this is to say, however, that we should not be looking to make changes here. And opening the field to competition – aside from being the “American Way” – is maybe the best way to start. We do believe, as we’ve written before, that there are many “niches” to this business, where clever TAs – with well-integrated products, services and systems could add big value. We’ll hold our fire until the promised “white papers” hit the streets…but do stay tuned for more.