When asked who owns his company’s stock, CFO David Bronson laughs. “I wish I knew,” he says. Despite an active investor-relations program at the company, medical-supply distributor PSS/World Medical, plenty of shares change hands without Bronson ever knowing who is buying or selling. “I don’t understand why investors get to know what we’re doing but we don’t get to know what they’re doing,” he says. “How does that promote an efficient market?”
Many companies find themselves in the same maddening position. After years of increasing demands for more transparency about corporate results and practices — most of which have been met — there remains a fundamental disconnect in shareholder relations: many investors are simply anonymous. “We have to disclose everything there is to disclose,” says Brooke Wagner, vice president of corporate communications at Indevus Pharmaceuticals. “Yet we’re not allowed to know who owns us.”
While investment managers with more than $100 million in assets must report their holdings after the end of a quarter, that information is stale and frequently irrelevant by the time companies ever see it, thanks to the speed of the markets. There is also little oversight of the process, which means investors often neglect to file in a timely manner, particularly if they don’t want to be identified. Other investors deliberately structure their funds to avoid triggering reporting requirements, maintaining just under the minimum number of assets or establishing multiple small funds to avoid reporting.
This creates a host of problems for finance executives and investor-relations teams, who are eager to communicate with — or at the very least identify — their shareholders. While most of the respondents to a new survey of finance executives and IR officers (IROs) conducted jointly by CFO magazine and the National Investor Relations Institute (NIRI) said they were at least “familiar” with their shareholder base, it’s clear that familiarity is not enough. Instead, CFOs and IROs insist that specific knowledge of their shareholders would allow them to understand investors’ goals, to better explain movements in their stock price, and to determine which of the many investors who contact their companies warrant the CFO’s or CEO’s valuable time. Perhaps most important, that knowledge can help them avoid being blindsided by one of the growing ranks of activist investors.
Cat and Mouse
But actually identifying stockholders is like “grasping for straws in the wind,” says IR consultant Trudy Self. Part of the problem is that the rules to ensure transparency are woefully out of date. The Securities and Exchange Commission first drafted Section 13F, which requires investors with more than $100 million in assets under management to disclose their positions within 45 days of the end of each quarter, in 1975. That was long before the proliferation of hedge funds, electronic markets, and algorithmic trading.
Today, by the time a quarter closes, “an investor can build a position and liquidate it, build it and liquidate it, and you’d never know they were there,” says Robert Weiner, vice president of investor relations at PSS. And that’s particularly true in active segments like biotech. “We review the 13F ownership updates from Nasdaq each quarter as they go through,” says Eileen McIntyre, senior director of corporate communications at Cubist Pharmaceuticals. But by that point, she says, “it’s possible that the holdings of some hedge funds have already been sold.”