The Role of Transfer Agents in Corporate Actions

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When it comes to corporate actions, some are routine and some are highly complex, but no two are exactly alike. But they all require a competent and experienced transfer agent.

A corporate action is any undertaking by an organization, public or private, that impacts the stock, the way it is traded or the company’s bondholders or shareholders. An action can be as simple as paying a dividend, or as complex as a Reverse Morris Trust transaction. More complicated events tend to involve the exchange of securities, a new entity or the creation of a new shareholder base. Any corporate action that involves shareholders requires a transfer agent; if two companies are involved, they can select either company’s transfer agent to handle the action.

Common corporate actions include:

  • deSPACs
  • Mergers and acquisitions
  • Initial and secondary public offerings
  • Spin-offs
  • Dutch auctions
  • Tender offers
  • Reorganizations
  • Exchanges
  • Emergence from bankruptcy
  • Corporate rebranding
  • Forward or reverse stock splits
  • Rights offerings

Corporate actions can be stressful for everyone involved. There’s a high level of complexity, involving several different entities, with lots of moving parts. These actions require knowledge, excellent communication and perfect timing. If something goes wrong, there are no do-overs.

An experienced transfer agent can take the pressure off the company’s shoulders and guide everyone through the process. They work with the legal, trading, and settlement teams to make sure everyone fully understands the transaction and the timing. Part of that is knowing and following best practices for each type of corporate action to anticipate and prevent problems.

Five Things to Help See the Bigger Picture
Communication is the most important aspect of a successful corporate action. The involvement of multiple entities means greater coordination — everybody needs to be on the same page. A transfer agent can orchestrate this process and provide the consistency of a single point of contact. Most companies rely heavily on their legal advisors to guide them through a corporate action. While a law firm may fully understand the objectives and the legalities of the transaction — depending on the complexity of the transaction — they may not always be familiar with the trading aspect or the settlement aspect. There may also be inconsistencies with handlings various tasks at a law firm. That’s where a transfer agent comes in.

5 important things to consider:

  1. There is no “one size fits all” process.
  2. Actions may involve a high level of complexity with numerous entities.
  3. It’s critical that everyone is on the same page.
  4. Companies have a choice in who they engage to handle this process.
  5. Firms have only one chance to get it right.

A transfer agent with lots of corporate actions experience is often the best choice to facilitate the process. An agent acts as the conduit from the legal team to the trading team (wherever the stock is traded or not traded), to the settlement team at the Depository Trust Company (DTC). They know who to talk to and when, what’s expected and how it has to work. They will layout a timeline, down to the day, for each step.

The transfer agent is not just a facilitator; they’re a trusted partner acting on behalf of the company that engaged them. In addition to strategic advice, the transfer agent assists with the vital functions of payments, reporting and mailings, including:

  • Shareholder materials
  • Shareholder communication
  • Processing and mailing of proceeds
  • Advice regarding communication with exchanges and settlement facilitators
  • Tax reporting
  • Post-merger services

Engaging a transfer agent can help your next corporate action or transaction go smoothly and keep shareholder engagement strong.

The Proactive Approach to Managing Shareholder Relations

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shareholder-relations-7-13-16.png“You either die the hero or you live long enough to see yourself become the villain.” While it is safe to assume that filmmaker Christopher Nolan did not have a board of directors in mind when he wrote that line about Batman in The Dark Knight, the words are fitting nonetheless. In this day and age, if you sit on a board of directors of a bank long enough, you will eventually be confronted by a shareholder that no longer appreciates how the board is managing the bank. Knowing a confrontation with an activist shareholder will inevitably arise, a board of directors has two options: be proactive or reactive.

Being proactive means taking steps now to engage with all shareholders and prepare to address the concerns of a hard-charging shareholder. Being reactive means ignoring the inevitable in hopes that the board can react quickly under pressure about the board’s stewardship of the bank. Historically, the reactive approach was safe due to the infrequency of shareholder activism in banking. However, in today’s “what have you done for me lately” culture, people believe they are entitled to immediate recognition of their complaints, substantive responsiveness from the board and, ultimately, satisfaction of their demands.

Boards should consider implementing a number of actions to avoid being caught flat-footed. A board can adopt a shareholder engagement policy and/or create a shareholder relations committee. A good shareholder engagement policy will delineate the board’s process regarding shareholder communications and guidance on what is and is not permissible for directors to discuss with shareholders. A shareholder engagement policy typically includes:

  • the purpose of the policy;
  • the responsibilities of the board with regard to shareholder communications;
  • the procedures for interactions between the board and shareholders, including details about how and when such interactions should be conducted, documented and reported to the board;
  • acknowledge the legal and regulatory concerns inherent in engaging with shareholders; and
  • the general topics that are appropriate for the board to address, any limitations on those topics and any topics that the board and management are expressly prevented from discussing.

A detailed shareholder engagement policy also allows the board to set forth a clear shareholder communication strategy prior to confronting an activist shareholder.

A board can also implement a shareholder relations committee. The shareholder relations committee can:

  • review, update and implement a shareholder engagement policy or other procedures governing interactions with shareholders;
  • oversee and document all communications from the board to shareholders;
  • establish avenues or forums for shareholders to communicate with the board and vice versa;
  • appoint a specific individual to supervise and be responsible for speaking directly with shareholders;
  • communicate with management regarding investor relationships; and
  • set the procedures and oversee the purchase of stock by insiders.

The committee would oversee shareholder communications. During difficult stretches, a shareholder relations committee facilitates the board’s understanding of the issues concerning shareholders. This will simplify the process of conveying the bank’s strategy to shareholders. This is particularly important when the board feels it is necessary to calm any shareholder anxieties. During prosperous times, a board can ensure that shareholders fully understand the exemplary results the bank is producing and what it means for the shareholders’ investments.

Should the board have to deal with an activist shareholder, the foundation built and maintained by the committee can prove invaluable. Banking is about relationships. That is just as true for shareholders as it is for customers. If an activist shareholder arrives, the shareholder relations committee can utilize the goodwill generated with the majority of shareholders to gauge where the shareholder base stands on certain issues. Having relationships with all of the shareholders can help the board craft an appropriately measured response and ensure its message is disseminated properly to all shareholders.

A proactive board should not be viewed the same as a board taking defensive measures in the face of a proxy contest or hostile takeover. Some boards may be hesitant to take proactive actions for fear that the board will appear as though they are trying to entrench themselves. Communicating with shareholders is vastly different than implementing defensive measures that can (rightly or wrongly) be painted by activist shareholders as self-serving. By taking these actions the board shows shareholders that it cares about transparency and meaningful communication with the owners of the bank. The proactive approach conveys the message that the board welcomes and will be responsive to constructive interactions with shareholders.