Companies do not have the ability to communicate directly with OBO’s (except through third-party mail which is costly and does not provide needed results) therefore they are forced to commit a disproportionate amount of expenses to the largest number of NOBO shareholders that, on average, usually hold less than 20% of the outstanding shares.
Companies with large shareholder bases can expect to pay high and unnecessary costs to conduct a full-scale proxy campaign. These costs are borne directly by shareholders and in fact would be greatly reduced if companies had the ability to communicate directly with all their shareholders. For a small company this greatly impacts the bottom line and ultimately the stock price.
Currently, public companies are required to use one third party provider to communicate with OBO shareholders and are restricted to mailing or emailing. The OBO shareholders cannot be called which is the most effective means for gathering a vote. Empirical evidence has documented over and over that mail campaigns after the initial campaign do not produce effective results.
The elimination of the OBO will dramatically improve vote returns on shareholder meetings. Improved vote returns create better democracy and allow for all shareholders to be heard.
When a company has the ability to directly talk with a shareholder, they now have a number of tools that will allow them to solicit a vote quickly and, in a cost-effective manner. More targeted solicitation is a win for both the company and the shareholders.
Public companies today are being asked by the SEC to show how they have engaged with shareholders. Shareholder engagement would be much more relevant if a company were allowed to know who ALL its shareholders are.
North American publicly traded companies are the only companies in the world who are not allowed to know who all their shareholders are. Rules crafted over 50 years ago around privacy concerns are no longer relevant or needed.
US public companies are being constantly asked for more and more disclosure from the SEC, institutions and activists. They must disclose everything from compensation, ESG policies, data security, and to which shareholders they engaged with, yet they are not allowed to know the identities of many of their own shareholders.
Apart from Canada, which closely follows the US, most major stock markets around the world are disclosure markets. This means that institutions and custodians are required to disclose share ownership data to publicly traded companies. Shouldn’t American companies have the same access to their investors as foreign companies do?
In 2021 Congress passed a bipartisan bill called the 2021 Corporate Transparency Act. CTA was enacted to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for U.S. private corporations, LLC’s and S businesses operating in or accessing the US market. Under the new legislation, most businesses must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This report provides details identifying individuals who are associated with the reporting company.
The CTA was established to prevent individuals with malicious intent from hiding or benefitting from the ownership of their U.S. entities to facilitate illegal operations which, according to Congress, is a widely used tactic that affects national security and economic integrity.
So, the result is, banks must know their customers, brokers must know their customers, private companies must file with Fin CEN as to who their beneficial owners are, yet the most important, largest companies in the world are not allowed to know who their actual owners are.
Under the current OBO/NOBO system any shareholder can hide behind an OBO registration.
Eliminating the OBO would:
- Allow companies to “know” their shareholders just like banks and brokers are required to “know” their customers and the federal government knows the beneficial shareholders of private companies,
- Allow companies the ability to spot US Government sanctioned individuals or institutions who own their stock and have the ability to report it to the US Government.
- Allow companies to prepare a defense against hostile foreign entities building a position in a US public company
#knowyourshareholders
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