The changing face of proxy
Trend of increased consolidation and transfer agent activity accelerating.
Computershare’s recently proposed acquisition of Bank of New York (BNY)
Mellon’s investor services business is only the latest and most dramatic
deal involving transfer agents in an industry that was already being
transformed by a shifting regulatory landscape, creeping consolidation and a
move by several transfer agents to expand their offerings by teaming up with
other niche market players such as proxy solicitation firms.
The proposed $500 million all-cash Computershare-BNY deal, which would
combine the industry’s two largest players, is likely to ‘precipitate a lot
more action’ at the top of the market and accelerate a trend toward
consolidation, notes Carl Hagberg, editor of the Shareholder Service
Optimizer. ‘Scale is still very important – you need a very big and
sophisticated computer system to do this work,’ he points out. ‘You need a
fair amount of space, and you need a critical mass of clients to do it in a
Robert Carney, chief operating officer of the American Stock Transfer &
Trust Company (AST), suggests the deal may have grown out of recent
regulatory changes that are ‘putting a strain on organizations’ and forcing
many transfer agents to make difficult decisions about capital investments.
‘These changes have taken some companies to a crossroads, and I think people
are making strategic assessments just as they do in any business,’ Carney
observes. ‘Some are deciding it is not their core business and it is not
worth the investment necessary in order to stay current. AST believes it
needs to make the investment for its customers.’
But the BNY-Computershare deal also comes during a period of great
opportunity in the transfer agency business, industry
players contend. Corporate clients are grappling with onerous new
requirements such as say-on-pay votes and an unprecedented wave of investor
scrutiny, and some are bewildered by the changes.
Until now, however, these companies have rarely needed it. Previously
Montrone would refer clients to outside proxy solicitation firms, but in
recent years he’s noticed that the requests for assistance are becoming
increasingly frequent. Some transfer agents are racing to step into the void
by forming alliances with proxy solicitation companies in a bid to cash in
on a trend toward ‘one-stop shopping’. Such alliances are not wholly new –
Computershare itself acquired the proxy solicitor Georgeson Shareholder
Services in 2003. Recently, the Registrar and Transfer Company (R&T) teamed
up with veterans of proxy solicitation firm Altman to form an affiliated
company called Eagle Rock. Thomas Montrone, R&T’s chairman, president and
CEO, notes that his company has long helped midsized and smaller companies
that don’t have in-house expertise with their shareholder challenges.
‘A few years ago there was very little need for proxy solicitors, except in
cases of a hostile merger or adversity,’ Montrone says. ‘Proposals were
easier to pass – they were considered routine.’ As shareholder bases have
expanded, however, the influence of investor advisory services firms has
‘The number of clients we were referring to proxy solicitors kept rising,
and the need for us to be able to get a really responsive firm to help our
clients out was increasing,’ Montrone says. His interest was most urgently
driven by a large number of commercial and regional banking clients, many of
whom received Troubled Asset Relief Program funds and were required to issue
preferred stock to the government. Few had provisions in their bylaws that
would allow them to do so without seeking investor proposals.
Many found themselves facing angry shareholders in the midst of a financial
crisis, at a time when the influence of proxy advisory firms was on the
rise. It was only natural that these companies would turn to their transfer
agents for advice, Montrone says.
‘Often, when an issuer is setting up a shareholder meeting, it’s in
communication with the transfer agent because the transfer agent is the key
to the process,’ he explains. ‘The transfer agent knows who the registered
shareholders are and does the tabulation of the annual shareholder meeting.’
Larger firms, different needs
Transfer agents serving larger companies are also anticipating a deluge of
business, albeit for different reasons. AST recently acquired Phoenix
Advisory Partners, a corporate governance and proxy solicitation firm that
itself was formed only in summer 2010. Phoenix presents itself as a
year-round provider of C-suite advice, helping its clients to facilitate
investor engagement, anticipate voting results and identify the key concerns
of various investor segments.
‘Annual meetings are no longer routine in any sense of the word,’ says Ron
Schneider, a senior vice president at Phoenix. ‘That means many more firms
that previously didn’t feel the need for specialized advice and service, now
Tom Kies, executive vice president of AST’s North American sales and
relationship management, was a key player in the effort to acquire Phoenix.
He says the role of proxy solicitors has changed in recent years – nowadays,
it’s ‘more than just sending out proxy materials and picking up the vote.
You’ve got to build a game plan to have a successful annual meeting.
‘Investors are getting smarter. They read the proxy statements. They see
what managers are making. They know what stock prices are. Simple things
that used to pass, like stock option plans, are now an issue. With the rise
in governance, there has been a rise in the proxy solicitation business as
As head of relationship management, Kies sees clear synergies in terms of
sales opportunities. ‘Our people are trained – they know what to look for,
they know the red flags for any proxy opportunities, they’re able to get the
Phoenix guys in the door to describe what they would do to get these
proposals passed,’ he says. ‘Sometimes it’s a request for proposal process,
and sometimes we win the business straight up.’
Spread too thin?
Despite these trends, Hagburg expects further consolidation. There are, he
says, ‘a lot of players’ in the transfer agent business, and ‘there isn’t
nearly as much paperwork around as there was 10 years ago, when all of these
people started building their infrastructures and putting them in place.’
Meanwhile, due to the anticipated surge in regulation-driven business, there
is now a glut of proxy solicitation firms – more than there have ever been
before, according to Hagburg. ‘A lot of people got carried away by
enthusiasm and went out on their own, and I think it’s fair to say that none
of them is doing as well as he or she hoped,’ he says. ‘Right now there are
an awful lot of people looking for jobs.’
Proxy fights, he adds, have in fact largely fallen off the radar screen. And
while some companies have indeed faced problems with the new say-on-pay
advisory votes, the vast majority of companies so far have seen their plans
coast to victory.
‘Say on pay is largely sailing by very nicely,’ Hagburg says. ‘So far 10
companies have not had their say-on-pay proposal passed out of probably 400
or 500 firms that have held their meetings. Of course, if it happens to you,
you’re going to want to pay a lot of attention; money won’t be an object.’
Cross Border Ltd. 1995–2011.