Luxury of choice?

Corporate issuers are placing more demands on their stock transfer agents than ever before, and their top requirements are that service be stellar – and fees be as low as possible. Take Praxair, an industrial gases company in the Fortune 500. When it began its agent search in 2001, it considered six companies, examining everything from service levels to the cost of materials, according to Mark Lyon, assistant secretary and manager of the corporate secretary’s department. ‘We got down to price per envelope,’ he says. ‘You want to make sure you get the most bang for your buck when you’re dealing with materials.’ 

Consolidation is one of the overriding issues within the transfer agent industry today, according to Steven Nelson, president and chairman of Continental Stock Transfer & Trust Company. Although there’s been tremendous consolidation in the transfer agent business, corporate secretaries still enjoy a wealth of options, giving them the luxury of being choosy. Thomas Montrone, president and CEO of Registrar and Transfer Company, estimates there are around 15 or 20 transfer agents in the US today that have systems capable of handling 20,000-30,000 stockholders across multiple issuers. Some of the largest transfer agents are EquiServe, The Bank of New York, Computershare and Mellon’s Human Resources & Investor Solutions. 

Almost everyone agrees the well-known transfer agents deserve to have survived as they lavish uniformly high levels of service on clients. Charles Rossi, division president at EquiServe and president of the Securities Transfer Association, says: ‘In the last two years, transfer agents have had the opportunity to look within their operating environments and improve the ways we do business.’ Innovations run from digitizing the forms registered shareholders must fill out to flagging information about insider transactions so corporate secretaries can better meet their new regulatory responsibilities.

The results of these efforts have strengthened the industry considerably. For the third consecutive year, corporate client satisfaction has improved for most of the categories in the 2003 Shareholder Services Benchmarking Survey conducted by Group Five, an independent consultant and research firm based in Princeton, NJ. ‘People are asking for good service and, by and large, they’re getting it,’ says Group Five’s CEO Jack Sunday. 

Service rules

Shareholders are also becoming increasingly demanding. This is a refrain repeated by top transfer agents, and a theme that emerged in a recent survey by Mellon’s Human Resources & Investor Solutions, undertaken in the first quarter of 2004. The study, which was developed by Vincent McCabe and included key executives at approximately 75 Fortune 500 companies, found this business is ‘all about the shareholder and the servicing of the shareholder,’ says Bob Carney, principal at Mellon. 

Standards of excellence are extremely high today. When asked how quickly a transfer agent should resolve a shareholder inquiry, Lyon replies: ‘I want my transfer agent to respond to shareholders immediately, without having to get back to them a second time.’ Alyson Nakamura, corporate secretary and assistant general counsel at Honolulu-based Alexander & Baldwin, is also a perfectionist. ‘No-one calls the Mellon call center and thinks, Oh, that’s the Mellon call center,’ she asserts. ‘They view it as their company.’ 

Rossi emphasizes service has to be superlative because shareholders usually call when they’re facing extraordinary circumstances, like a death in the family. EquiServe therefore trains its customer service reps to be very sensitive to callers. 

Although transfer agents are sometimes criticized for being indistinguishable, they do differentiate themselves when it comes to service. National City Bank, for instance, has no interactive voice response (IVR) at its call center – so all shareholders automatically reach a human rep. Wells Fargo Shareowner Services, meanwhile, is committed to keeping its call centers in the US, rather than outsourcing this function overseas, says Kelly Beenen, national sales manager for the firm. And EquiServe has established e-learning for its reps so they can take classes from their desktops. It also gives them online resources so they’re well up on recent corporate events about which shareholders might inquire. 

International corporate secretaries harbor many of the same concerns as their US counterparts, according to Gary Nazare, managing director and division head of stock transfer and employee investment plans for The Bank of New York. The bank serves as transfer agent for 1,500 non-US companies with ADR programs, so Nazare knows how seriously overseas companies take meeting their shareholders’ needs. ‘Our bigger clients are pretty concerned about how we treat their ADR holders because they want to be attractive to US investors,’ he explains. 

Service to the corporate secretaries themselves matters, too. Lyon says he’s in almost daily contact with his transfer agent. What’s more, he notes contracts with transfer agents are now shorter in duration, allowing corporate secretaries to go elsewhere if they’re not fully satisfied. ‘Ten or 15 years ago, it wasn’t unusual to sign a five-year contract with a transfer agent,’ says Lyon. ‘Now three years is the average. And everyone has an opt-out provision so if it isn’t working, you can get out at any time.’ 

Corporate secretaries concerned about keeping down the cost of shareholder services see technology as the holy grail. ‘They want self-service, the best technology on IVRs and speech recognition, and robust, easy-to-use web sites,’ Carney points out. ‘They want a reduction of out-of-pocket expenses through electronic delivery of materials and they want to be able to deliver statements electronically rather than put them in the mail. They want this industry to focus on paperless documentation and electronic transactions.’
 
EquiServe is also leveraging technology to provide higher quality at a lower cost via straight-through processing. One example is bar-coded forms – and Rossi notes 60 percent to 70 percent of the forms mailed in by shareholders originate with EquiServe. If a shareholder requests that 100 shares of a given stock be transferred to his or her granddaughter’s account, the shareholder’s name, account number and perhaps even the number of shares to be transferred can be embedded in a bar-coded form and later scanned without rekeying. Not only is this far less expensive for EquiServe, but the shareholder has little to do beyond signing the form and providing his or her medallion guarantee. 

Corporate governance

‘The hottest topic out there is corporate governance and related regulatory topics,’ asserts Nazare. ‘We’re taking it very seriously and we’re doing all types of things related to corporate governance and the new regulations – Sarbanes-Oxley, Gramm-Leach-Bliley, CIP (a customer identification program) and others.’ Nazare emphasizes that screening the shareholder base according to the requirements of the US Patriot Act is simply a sound business practice. ‘We know we have the right controls to dissuade people from coming in who shouldn’t be coming in,’ he explains. ‘We’re very cognizant of all this because, from a reputation standpoint, it could be huge for us and for all our clients.’ 

Marlayna Jeanclerc, senior vice president and manager at National City, agrees corporate governance is of the utmost importance. ‘Corporate secretaries are very concerned about Sarbanes-Oxley and what we can do to help them out with the reporting requirements,’ she says. To this end, National City has developed a system for coding insider accounts and immediately notifying the corporate secretary of any trading activity by insiders. ‘It’s a recurring question on requests for proposals (RFPs), Can you help us figure out who our insiders are?’ says Jeanclerc. 

Corporate secretaries are also interested in receiving proxy information in a timely fashion. ‘Our customers are more sensitized to shareholder activism,’ says Rossi. ‘When we’re tabulating proxies, it’s all done in real time. They can go to their desktops and see where the vote stands at any moment.’ 

Public companies and transfer agents alike are examining how proxy votes are tabulated, with an eye to eliminating the problem of over-voting, which has plagued the industry since the practice of securities lending became widespread. When one broker lends another shares, the voting rights are transferred, too. However, it isn’t always clear which broker should vote the proxies and sometimes both vote the same shares. ‘There have been contests where a broker over-voted and the inspector of elections threw out the entire vote,’ explains Rossi. To avoid such disasters in the future, the Securities Transfer Association is working with the brokers to clear up the records and end over-voting. 

What lies ahead

The transfer agent business has undergone massive changes thanks to technology, but the upheaval may have only just begun. ‘Given the SEC’s commitment to dematerialization, we’re gong to see the most wide-sweeping rule reform since the early 1970s,’ predicts Rossi. 

He notes that many experts believe stock certificates stand in the way of shortened settlement cycles and feels new rules will have to be written to accommodate a book-entry system, rather than one based on paper certificates. However, Nelson feels it is equally important that dematerialization should occur in such a way that investors can still demand a stock certificate. 

The SEC is looking at modifying the rules to provide for faster turnaround and facilitate a book-entry environment, Rossi adds. However, some of these changes might prove onerous. Public companies might, for instance, be required to furnish a written confirmation of holdings on an annual basis, and that would increase costs through an additional mailing to all shareholders.
 
Given the thorny regulatory changes on the horizon, Rossi is convinced price shouldn’t be a corporate secretary’s only criterion for selecting a transfer agent. ‘I’d look for someone who meets my needs today and can meet my needs in the future,’ he concludes. ‘I’d look for someone who can play a consultative role and who’s really on top of the issues.’