A Shareholder Concern
By Ann Fulmer, Director of Consulting & Brian McCarthy, Senior Manager
September 4, 2020
September 4, 2020
During these volatile times, concerns around personal well being and corporate security are at an all-time high. While these concerns may not appear to be related to unclaimed property compliance, efforts taken to protect shareholder accounts from being considered escheatable can have consequences for both individual shareholders and the underlying corporations that they entrust their assets with. Efforts taken to protect these assets can generate positive outcomes all around and applies to all publicly traded organizations, including those that employ the assistance of transfer agents.
1. Enhanced efforts to contact shareholders, especially those who own non-dividend issuing shares, can help to establish a connection with those that may be considered lost or forgotten.
- A periodic review of your shareholder database is recommended in order to identify and flag shareholders who have an aged date of last contact or no contact date at all, with no evidence of returned mail. Third party contingent fee auditors are flagging accounts that fit this criterion as a way to shift the burden of proof back to the companies in order to demonstrate contact with their shareholders. Additionally, third party auditors are placing shareholder accounts on their audit findings reports where contact has not been made and are overlooking those states that have a returned mail (RPO) requirement.
2. Pro-actively confirming the life status of shareholders that appear to be inactive on a routine basis can help to ensure that beneficiaries are contacted long before shares are escheated.
- Knowing when a shareholder has died has many benefits associated with it. From a risk management standpoint, the company can ensure that there is no owner-generated activity tied to accounts where the shareholder is believed to be deceased, especially those shareholder accounts that are registered to a single individual. The company can also use the information to pro-actively reach out to a potential beneficiary or heir that may be entitled to the property. Re-assigning ownership in a proactive manner affords the potential beneficiary or heir the benefits of the shareholder equity in your company (growing stock value, dividends, proxy votes etc). Third party contingent fee auditors compare the shareholder population with last known addresses located in the in-scope audit states against the Death Master File (DMF) in an effort to shift the burden of proof back to the company. Once identified, the company has to demonstrate that there was activity after death that should be considered owner-generated activity (OGA).
3. Validation of shareholder addresses can also help to identify those that have relocated so that efforts can be employed to re-establish contact. This is especially important as the occurrence of traditional mail is decreasing.
- The absence of returned mail (RPO) does not necessarily mean that the shareholder address on your system of record is correct, especially in those companies who do not send routine mailings to their shareholders. Third party contingency fee audit firms are taking the in-scope audit populations and running them up against databases to confirm that the addresses on record match the public data source. If different, auditors will take the position that the shareholder may reside at an address that is different than on the company’s books and records. Companies are then required to provide support that demonstrates owner-generated activity from the shareholder. Performing a routine check against your shareholder database to confirm that the shareholder has not moved and/or updated their address, but forgot to contact the company, can greatly reduce the possibility of the shareholder being unaware of their account. Confirming and obtaining the most current address for the shareholder also keeps the date of last contact up to date, which removes accounts from potentially being considered unclaimed property.
4. Protect shares from potential market losses that could occur if a state liquidates shares during market downturn. Volatility in markets = potential market loss when liquidated.
- While many of the above recommendations are not required by law from an unclaimed property standpoint, performing one or all of the above mentioned actions will ensure that your shareholder accounts are in good order and can be protected in the event of third-party audits where the auditor is using nontraditional audit techniques. Performing the above-mentioned tasks also adds benefits from a communication standpoint with your shareholders. Shareholders are more likely to receive annual shareholder communications and proxy votes which allow them to exercise their rights as a shareholder of your company.
5. Transfer Agents can be limited in terms of the efforts that they can employ to conduct enhanced outreach efforts across all clients. Issuer/company participation is needed to help support ongoing relationships with shareholders, especially those that exist with retirees created as a result of Employee Stock Purchase Plans and Profit Participation Plans.
- The true relationship between shareholders and the companies for which they hold stock, lies with the Issuers/companies rather than the transfer agents who hold the accounts. As such, Issuers are in a better position to conduct ongoing outreach efforts as a means to maintain and protect their shareholders. It is also most likely that if a shareholder has a question concerning their positions held with the company, they will contact the company rather than the transfer agent. This is especially true for retirees who received stock incentive plans as part of their employment arrangements.
6. The responsibility for ensuring ongoing compliance with unclaimed property requirements is shared between issuers and transfer agents. To help document and verify the accurate reporting of escheatable accounts to the states, Issuers should take a proactive approach to the oversight of their transfer agents. Together, they can provide the tools needed to help identify lost account owners, conduct search activities, encourage ongoing owner-initiated activities and document communications between all parties in an effort to ensure that the accounts do not become lost or abandoned and eventually escheat.
- Companies are encouraged to institute an unclaimed property oversight committee that would consist of members of the company’s legal compliance, internal audit, accounts payable, accounts receivable, payroll, benefits, and any other teams or areas that have a responsibility for unclaimed property. The oversight committee should review internal processes to ensure the company is fully compliant with state unclaimed property laws. The same committee would ensure that arrangement with third party service providers such as transfer agents, are performing the duties required to ensure that their shareholder accounts are being reported and remitted as unclaimed property where necessary. The company should be asking for copies of the unclaimed property reports filed for each state each reporting period. The company should also determine if there is any enhanced outreach, as discussed in this article, being performed on their shareholder populations that would be considered proactive attempts to ensure that efforts have been exhausted to confirm their shareholder population is protected from potentially being considered unclaimed property prematurely.
Taking proactive measures to maintain contact with shareholders is especially important as many are experiencing increased stress related to the new norm and constant market swings. Having assurance that their investments are being protected, and that the corporations they entrust with their assets are actively maintaining contact, can help provide a sense of relief in knowing that their assets are exactly where they intended for them to be.