EDITORIAL No need to waste more time

Good communication between companies’ directors and shareholders is a basic tenet of a functioning equities market. A fundamental purpose of regulated equities markets is to protect shareholders, and the first step toward protecting shareholders’ is to facilitate communication between shareholders and their company.

Ethical companies go to great lengths to ensure that its shareholders at least have access to the required corporate information. If the shareholder doesn’t want to make use of that access, well, there’s not much the company can do about it. You can’t force someone to read an annual report.

Canada’s equity watchdogs, however, have decided that existing rules are not good enough. Because of changing technology, many shareholders — particularly shareholders of junior resources companies — no longer register their shares. In what is called the book-based system, their broker or some other intermediary holds the stock in their name. The broker will receive all the pertinent information and, theoretically, will pass it on to the shareholder.

Issuers have benefited from the trend to this system because instead of the expense of servicing each shareholder, all of whom would be registered, the issuer has only to deal with a much lesser number of registered shareholders, one of whom could be an intermediary acting on behalf of many non-registerd shareholders. But, because the book-based system has grown so quickly, regulations couldn’t meet the increased demand of non-registered shareholders to receive vital information.

So Canadian security administrators have decided that, beginning March 1, all exchange-listed companies must abide by some new rules. Included is a rule to set a date of record for shareholders entitled to receive notice of the meeting at least 35 days before the meeting and a rule to send out “search cards” 20 days before the record date. Previously there was no requirement to set a date of record, but if a date of record was set — and many companies did establish one — only 21 days were required. The idea of a “search card,” a form that the intermediary must fill out describing how many non-shareholders it represents, is entirely new in the regulations.

In effect, a company that proposes a takeover, a merger, a stock split or any other action that requires shareholder approval will have to wait a minimum of eight weeks to hold the meeting. The new regulations allow for the 20 days for search cards to be sent out to be shortened for special shareholder meetings, but the 35 days for a date of record would remain.

It is that time constraint that troubles us as much as the added expense involved in the process. Companies have benefited from the book-based system, so the expense can be reasonably justified. The time delay, however, seems excessive.

The purpose of the new regulations is laudable: to ensure that non-registered shareholders have the same access to information as registered shareholders. But the solution does not warrant the obstacles that would be placed in the way of a company carrying out its business.

There are already two perfectly good means for non-registered shareholders to gain the information they want. The simplest is to register their shares, even though that would result in added expense for the companies. But even if a shareholder does not plan to hold the shares for a long time, he can simply advise his broker to forward the information to him.

It is here that further regulation may be required. Any reputable broker provides the information a shareholder desires, but securities overseers would do better to ensure that disreputable ones adhere to that practice rather than creating new impediments to companies that want to get on with the ir jobs. And if junior companies are not providing enough information, further regulation might be considered to ensure that they do.

If a shareholder doesn’t wish to register his shares, there is little the company can do. But, similarly, if a shareholder has his broker hold the shares, surely it is between the shareholder and the broker how the information is passed between them.

It may be necessary to formalize a date-of-record requirement in regulations in recognition of the growing use of the book-based system. That would ensure that there is time for the information to find its way to the shareholder. But there is little reason to drag out that process to eight weeks. That is simply a waste of time that will serve very little purpose.