Can You Improve Shareholder Behavior? (Part One)

First, let us define “improve.”   Shareholder Service Solutions® would say the following shareholder activities are desirable ones:

  1. Buy more stock in the company
  2. Not sell stock in the company (unless an “odd-lot” holder – see below)
  3. Understand and support the company’s proxy proposals by voting with management
  4. Opt for electronic delivery (“eDelivery”) of proxy and other company communications to simplify the distribution and response process and lower its cost
  5. Utilize Interactive Voice Response and other electronic media when contacting the transfer agent with a question because, all things being equal, speaking with a live person is more expensive to the company
  6. Have a good attitude when speaking to a customer service representative on the phone, to speed up resolution of the inquiry and be less inclined to complain
  7. Opt for electronic payment of dividends directly into the shareholder’s bank account, to save cost to the company and avoid the possibility of the shareholder losing or never receiving a check
  8. Report address changes promptly
  9. Participate in a program geared to reduce those “odd-lot” holders who have no intention to grow their investment
  10. Become an “investomer;” that is, buy more company products and services because he/she already is an investor, and/or buy more stock in the company because he/she already uses its products and services

In this “Part One,” Shareholder Service Solutions® will address numbers 1 and 2 above.   Treatment of the other listed activities will follow in subsequent “Parts” as regular updates to this web site.

Buy More Stock

Clearly the company itself, its management and its investor relations professionals – and its investment bank — know best how to sell more of a company’s stock to the public.   But there are ways a transfer agent can help as well.   For example, it can…

  • Show the company how effective a Direct Stock Purchase Plan would be for this purpose (or Shareholder Service Solutions® could), and help the company put it fully in place within the transfer agent’s operation.   The plan could facilitate the purchasing of stock in the market, or the issuing of new shares to raise new capital.   The sums so raised could be small and steady, or in fairly large tranches if the plan had a “waiver discount” feature to accommodate institutional investors.   The plan could also be established in such a way that management could opt for “market purchase” or “original issue” shares at its discretion, upon simple quarterly notice.
  • Help the company sign up for the Direct Registration System, so that new stock issuances happen in statement-based book-entry form rather than via a stock certificate.   When shareholders see that directly registered stock ownership does require the “nuisance factor” of a stock certificate, more stock of the company will likely be bought.
  • Help the company design an odd-lot shareholder program that, in addition to inviting less-than-100-share holders to dispose of their shares, also invites them to round up their holdings to an even 100 shares.   Many of these holders are not budging off their small holdings, in either direction, because of the relative cost to do so.   If an inexpensive way to buy more shares is offered to holders, they just might do so.

Not Sell Stock

Again, the company knows best how to keep shareholders from selling its stock; but transfer agents can be source of help in this regard as well…

  • The Direct Stock Purchase Plan cited above can be structured such that purchase fees are modest, and sales fees are more robust.   For example, a voluntary contribution of cash by a DSPP participant could cost $5.00 and $.10 a share, and these fees could be paid by the company to encourage more such purchases.   A sale, on the other hand, could cost $15.00 and $.12 a share, and the fees could be charged to the participant.   This is fair (why wouldn’t a company pay for something in its favor, and not in the reverse?) and is also broadly precedented.   And the sale fee is less than at many brokerages.   Structuring DSPP fees this way encourages holders not to sell their stock.
  • The odd-lot program previously referenced with the “round-up” feature is a natural counter to selling stock, in that staying a holder at higher levels can meet the financial objectives of many people just as well as, or better than, cashing out of ownership altogether – if the round-up price is right, which it can be made to be.
  • The transfer agent can simply make the experience of owning stock on its books versus those of a broker a pleasant-enough one that no inclination to sell comes from that quarter.   Sources of that pleasant experience can include:
    • User-friendly internet tools
    • Helpful and friendly customer service representatives
    • Clear and accurate transaction/share balance statements
    • Book-entry ownership media (no certificate safekeeping nuisance)
    • Shareholder-paid fees that seem reasonable

Shareholder behavior can be improved by a company and its transfer agent if the opportunities are acknowledged and the two parties work together.   A consultant like Shareholder Service Solutions® can help optimize this synergy, and the resultant benefits.   Stay tuned for more updates, right here, in this series of discussions on improving shareholder behavior.