Communications between public companies and their shareholders are an essential component of corporate governance. Unfortunately, companies do not have the ability to communicate directly with the beneficial owners of their shares held in "street name," and instead must communicate with these shareholders through a circuitious, cumbersome, and expensive system.
A resulting complication of street name registration is that public companies do not know the retail investors who are the beneficial owners of their shares. Under rules adopted in the mid-1980’s, brokers and banks are permitted to classify beneficial owners as either Non-Objecting Beneficial Owners (“NOBOs”) or Objecting Beneficial Owners (“OBOs”), based on indications by the beneficial owners, typically at the time of account opening. Public companies are not able to communicate directly with their OBO beneficial owners; and communication with just NOBOs is expensive and not permitted with respect to proxy materials. Thus, the proxy process is oriented more to the efficiency interests of brokers and banks than in encouraging effective and efficient communications between companies and their shareholders.
With increasing shareholder activism and focus on the proxy voting process, public companies need to be able to quickly, efficiently, and cost-effectively communicate with all of their shareholders, including beneficial owners of their securities held in “street” or nominee name.
The SEC should eliminate the NOBO/OBO distinction, thereby giving companies access to contact information for all of their beneficial owners and permit companies to communicate with them directly. Shareholders desiring to remain anonymous should bear the cost of maintaining their privacy, such as through the establishment of nominee accounts.
Brokers, banks, and other intermediaries should not stand in the way of direct communications between companies and the beneficial owners of their securities. Companies should have the ability to determine the distributors of their communications, and should not be forced to pay for the costs of a system in which the fees and the service providers are determined by third parties.