Defeating Shareholder Democracy at Alliance Trust et al

The existing shareholding arrangements in public companies, with many investors in nominee accounts, now effectively frustrate shareholder democracy. Alternatively they make it either very difficult in practice, or enormously expensive. Let’s look at a couple of examples where ShareSoc has some recent experience of requesting share registers – Alliance Trust and Rensburg AIM VCT.

In terms of the size of the company and numbers of shareholders Alliance Trust is one of the larger public companies. It has recently come under attack from Elliott Advisors who have obtained some changes after a hard fought proxy battle costing millions of pounds. ShareSoc has launched a campaign to pursue some of the issues which you can read about here: http://www.sharesoc.org/alliance.html .

Alliance Trust is unusual for a public company in that about 65% of the shares are held by private individuals – as many as 63,000 shareholders. But only 12,500 of them (20% of all shareholders) are on the share register of the company (mainly long standing paper share certificate holders). Some 24% are held within the Alliance Trust Savings platform (ATS) which is effectively a corporate nominee account. Other shareholders holding roughly 21% are in other nominee accounts – mainly those provided by retail stockbrokers.

How can an organisation like ShareSoc, or Elliott, who wish to communicate with all the shareholders on important issues about the affairs of the company, do so? One can request the share register and although it will be supplied in the most inconvenient form possible (as a pdf print image document rather than in columnar format such as spreadsheet) once converted you can post a letter to them. But with current postage and other costs that’s likely to cost £1 per address, i.e. over £10,000 to get through to only 20% of the shareholders. No email addresses of course and no phone numbers (although those running expensive proxy battles are sometimes willing to look people up in the national telephone directory and call shareholders).

The company may have asked for the details of beneficial owners from those in nominee accounts and will have recorded the responses in what is known as a Section 808 register. That can also be requested by anyone. Incidentally it is worth noting that those who think that their personal information is concealed by using a nominee account are wrong – your name and address may be disclosed by the nominee operator at the request of the company as required by law.

But there are a number of problems with requesting a Section 808 register which makes the results patchy at best. The company has no obligation to inquire about the beneficial owners and many do not (they can only be forced to do so by very large holders, such as Elliott who held more than 10%). Even when such inquiries are submitted, the results can be patchy – some nominee operators do not respond, or respond with partial information (names but no addresses). So don’t expect to obtain much data from a Section 808 request. In addition there will be multiple files in different formats which take a lot of effort to sort out. Even if one can deduce the addresses, getting a response from such shareholders and getting them to exercise their voting rights (which has to be done via the nominee operator) is extremely problematic and difficult in practice.

But the last problem with Alliance is that 24% of shareholders are in nominee accounts on the ATS platform which are effectively inaccessible by any means. They claim ATS is a separate company, that no Section 808 register is held for them and that any communications from Alliance Trust to those shareholders is solely done by ATS. The Alliance Trust seem perfectly happy with this arrangement which obstructs communication with their investors.

Rensburg AIM VCT is another company where ShareSoc has been running a campaign and recently requested copies of the share registers. Although almost all the investors in VCTs are private investors because only they get the tax relief, and most would have originally been issued with a share certificate, there are large numbers now in nominee accounts. So only about 26 million of the 38 million shares in issue (68%) are on the main register or easily obtained from the Section 808 register. Many are held in nominee accounts operated by Investec, the fund manager for the company who might have an interest in its future of course.

In summary, these two companies demonstrate the difficulties and expense involved in communicating with individual shareholders, and it’s worth emphasising that these are two of the easier examples. In general the prevalent use of nominee accounts, the current archaic legal provisions (no email addresses, etc.), make life exceedingly difficult and expensive for those trying to raise issues of concern with investors in public companies.

Shareholder democracy is undermined and often defeated by these issues. That is why ShareSoc has been running a campaign on the issue of shareholder rights and the problems of nominee accounts  – see http://www.sharesoc.org/shareholder-rights.html . We would like to see everyone put onto the share register and the use of nominee accounts (particularly corporate nominee ones) discouraged.

Roger Lawson

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