VideoMost executives in the throes of taking their company public are consumed with meeting the Securities and Exchange Commission's stringent requests for the detailed financial information that, if deemed appropriate and accurate, will wind up in the hands of prospective shareholders. It's only later, in the heady days just after the initial public offering, that many start to wonder just who those shareholders are.
Consider the experience of Fritz von Mering, CFO of Boston Communications Group, a $122 million company that provides billing and customer information services to the wireless telecommunications industry. "Before we went public in June 1996, we knew a lot about three important groups of people: our customers, our employees, and our vendors," von Mering says. "But after the IPO, when we wanted to know more about a fourth group--our investors--we came to a screeching halt."
Von Mering is not alone. Thanks to myriad SEC rules and a well-guarded sense of privacy among investors, financial executives at public companies are denied direct access to individual shareholder identities--information they contend would allow companies to be more proactive in investor relations and aid them in competitive intelligence.
"I want to know why shareholders have invested, how much they have invested, and who the long-term holders are," says von Mering. "I want to know what they are hearing that we haven't heard." In the end, he adds, "we obviously want to get the right message across to investors who will buy and hold."
To do that, von Mering says he would like to have shareholder information in real time. After all, if his investors can have real- time access to his company's stock price, why shouldn't he have real-time access to them? "We don't watch the ticker every hour of the day," he says. "But, it does fluctuate a lot since we have a lot of volatility as a small-cap stock. And when investors are trimming their holdings, I want to be able to pick up the phone and call them."
Frustrated by the lack of shareholder information, von Mering and many of his counterparts are taking matters into their own hands. Some are hiring investor relations firms that specialize in smoking out stockholders; others are using the Internet and intranets to communicate directly with stockholders, particularly employees. Still, the question remains, Should public companies have access to any of this information?
Knowing who your investors are and when they are investing is "a complicated public-policy issue with a lot of trade-offs," says finance professor James Brickley of the University of Rochester's (New York) William E. Simon Graduate School of Business Administration. As for how much senior finance executives themselves should know, Brickley says, "Finance theory would tell you that the CFO's top priority should be to maximize shareholder value by investing money wisely and structuring the firm's financial reporting systems efficiently. It might be less necessary for the CFO to know the intricate preferences of the shareholder base."
A TANGLED WEB
While it's natural to suspect that the SEC wants to keep public companies in the dark about stockholder ownership, the truth is that the policy is more accident than design. "Today's puzzle of ownership is the result of a gerry-built system that has become more complex in the years since the first securities laws were passed in 1934," says John C. Wilcox, chairman of investor relations and proxy solicitation firm Georgeson & Co., in New York.
Back in the 1930s, no one could have predicted the creation of mutual funds or 401(k) benefits plans. At the time, there were no sophisticated money managers or companies like Fidelity and T. Rowe Price. And there were no institutional investors, such as state, municipal, and union pension funds. The result of such innovations, however, "is a new class of shareholder--the intermediary shareholder--that is harder to identify," says Wilcox.
To compound matters, there is no one comprehensive source of shareholder information. Instead, such information must be gleaned from a variety of SEC documents filed at different times of the year, says SEC spokesperson John Heine. And forget about real time, he adds, since many of the SEC filing rules were enacted before advances in technology made real-time information so accessible.
Consider, for example, the 1968 Williams Act amendments to Section 13D of the 1934 Securities Exchange Act. The 1968 revision requires an individual or group investor to reveal itself within 10 days of having acquired 5 percent or more of a company. While in 1968 a 10-day grace period may have seemed reasonable, securities lawyers have been grumbling that 10 days are now too many.
Even worse are the delays involved in issuing 13F SEC documents, a key source of information for those tracking large-scale institutional investments. In many cases, this form, filed by institutional managers managing more than $100 million in equities, does not become publicly available until two months after the end of each quarter. Part of the problem is that money managers are granted 45 days after the end of each quarter to file these documents.
THIN VEIL OF SECRECY
SEC rules notwithstanding, many investors simply prefer anonymity. "Trading isn't and never will be completely transparent," states Ron Schneider, director of shareholder management services for the Financial Relations Board Inc., an investor relations and stock surveillance firm in New York. One reason is that "with more and more people investing, and so many people and institutions relying on professional management, the trend increasingly is for shares to go into street name," says Schneider, adding that such names are used to camouflage actual institutional and retail owners.
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