Cast your mind back to the stock trading era of the mid-1980s. Power suits, noisy trading floors, and busy signals on slow fax machine lines.
Ambitious folk on Wall Street may have been among the first to embrace mobile phones, but email and internet were unheard of, and most investors – retail and institutional – relied on old-fashioned mail and an emerging technology called a fax machine to communicate.
It was around this time that the Securities and Exchange Commission (SEC) introduced the Objecting/Non-Objecting Beneficial Owner (OBO/NOBO) framework. Its objective was to reconcile the interests of issuers, brokers and shareholders regarding investor communications.
- Issuers were keen to obtain contact information for their street-name shareholders.
- Brokers worried about data protection and the risk that analytics could be used to figure out client lists.
- Investors were concerned about privacy and wanted control over who could access their data.
Fast forward to the summer and fall of 2019. The SEC was seeking updated perspectives on the workings of the U.S. proxy system. The OBO/NOBO Working Group had formed in response, and by end of August this year, it reported on the outcomes of its deliberations.
Working group members, which include representatives from Mediant, agreed on a few core principles: the need for shareholder education about the OBO/NOBO system; the importance of voting at shareholder meetings; and investors’ right to decide if their contact information is disclosed to the companies in which they are invested.
There was little agreement beyond this. Instead, each cohort reiterated long-held positions:
- Public companies expressed frustration about difficulties they experience building a dialogue with street-name shareholders.
- Mutual funds and ETFs described an even more acute version of much the same problem as above.
- Brokers believe that to maintain an efficient and resilient proxy system, an evaluation of the current proxy system should adhere to the strong principles of continuing to encourage greater retail engagement and participation in a cost-effective manner.
- Broker intermediaries and transfer agents, not directly affected, highlighted the need to balance privacy concerns with the corporate governance needs of public companies and funds.
Reconciling these divergent interests seems to be as difficult today as when the SEC first considered the OBO/NOBO framework in the early 1980s.
A Moderate Adjustment?
The limited communications options of a phone call or direct mail of the 1980s meant that a simple, opt-in/opt-out option was adequate. Today, most brokers will typically hold clients’ email address and cell phone number, in addition to their mailing address. More ways to communicate means that preference for the mode of communication will affect the decision to opt in or out.
Some shareholders who have opted to be an OBO to avoid physical mail and phone calls might conceivably feel different if offered the choice of receiving an email, SMS message, or push notification directly from the company whose stock they own, in addition to a communication through their brokerage firm.
The working group report showed that the brokerage community, public companies, and fund industry representatives agreed electronic delivery of proxy and other materials should be made the default means of communication with NOBO investors, as long as it was easy to switch to paper delivery at any time.
Could the proxy industry go one step further and include a choice of which mode of communication a shareholder prefers at the same time the OBO/NOBO question is asked? What would this mean for shareholder engagement, meeting attendance, and voting?
Unfortunately, the working group didn’t get this far in its recent discussions.
Mediant has always championed shareholder engagement and actively works on NOBO campaigns with solicitors, who work together with brokers to gather votes, helping issuers meet quorum.
For more information, contact us.