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UK listed companies and shareholders facing red tape stalemate

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Under the current share ownership system in the UK, when retail shareholders buy shares in companies through a broker or a nominee platform, the individual shareholder’s name is not directly registered with the company they are investing in.

This setup not only hampers shareholders from having their voices heard but also prevents businesses from directly connecting with them or inviting them to crucial company meetings like the AGM.

Lumi, a global specialist in delivering in-room, hybrid and virtual AGMs, investor and member meetings, has published new research revealing almost half (46%) of public companies would like to see the digitisation of the share ownership system. This comes as firms are battling red tape holding them back from engaging directly with retail investors.

Lumi is urging a widespread industry collaboration to eliminate the barriers that hinder retail investors and issuers coming together for the better of businesses across the UK.

Businesses and shareholders left in a red tape stalemate

The study reveals 44% of companies are crying out for easier access to nominee shareholder information, and 43% are urging for government support to reduce these unnecessary administrative hurdles.

This has become even more critical in recent years as the number of retail shareholders has swelled. Thanks to DIY investing apps, the percentage of UK shares owned by individual retail investors has surged to 13.5%, marking a 32% increase since 2010.


Consequences of this outdated system

The current system is leading to nearly one-third of companies facing shareholder backlash, with 32% fearing that investors will sell their shares if they can’t attend company meetings. This is because previous research showed that 92% of UK shareholders would be interested in attending an AGM, but nearly half (48%) are unable to do so simply because they purchased shares through a broker and therefore aren’t registered directly as a shareholder.

Shareholders are also kept in the dark about critical issues, as 39% of company secretaries admit they are unable to adequately inform them before voting on resolutions. Additionally, 37% lack information about their shareholders’ demographics, making it difficult to understand their investors. As a result, 75% of retail shareholders openly admit to feeling uncertain about voting on resolutions at AGMs due to the limited information available to them.

Peter Fowler, Chief Operating Officer at Lumi explained further: “The current system’s effects are severe. In a time when shareholder voices are stronger than ever, and DIY investors demand to be heard, businesses are left with their hands tied. If something doesn’t change this could trigger a major backlash before the upcoming March 2024 AGM season.”

Fowler reckons legislation could take months or years, and says issuers, registrars and investment platforms must start working together now to improve information sharing on shareholders.

Tim Sheehy, Director General the Chartered Governance Institute, thinks issuers across the globe have been frustrated for years with the lack of transparency about who are the ultimate owners of their shares.

“Whilst there has been growing interest by governments and regulators to improve transparency, for example through shareholder ID systems or public registers of ultimate beneficial ownership, the fact that over 40% of company secretaries in the UK and likely elsewhere continue to call for easier access to information speaks volumes about the need to address this,” Sheehy said. “Streamlining engagement processes would be seen by issuers as an urgent top priority for legislative change.”

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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