Private Banks and the Importance of Proper Investor Recordkeeping

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I've spent a long part of my career helping banks and other financial institutions go public. As a young man, I was convinced that it was the only way for banks to meet their needs for capital raising and strategic growth. Now that I'm a little older (and hopefully a little wiser) I have a better understanding of why some banks and other financial institutions may want to remain private.

Weighing the Pros and Cons

There are pros and cons to both types of structures. Going public means more exposure to SEC reporting requirements and regulatory scrutiny, the threat of activist shareholders, hostile takeovers and the rigid policies of proxy advisory firms that can impact your institutional shareholder voting patterns. On the positive side, by going public you are creating currency that can be used to attract and retain employees, you have the ability to raise capital to invest in your business or increase your acquisition currency as it relates to M&A transactions.

When you decide to stay private, you don’t face the same scrutiny you would if you were publicly held, but you also may be at a disadvantage to publicly held counterparts when it comes to using stock as currency to both raise capital and attract and retain employees.

With all this on the table, being privately held may look appealing to many institutions. But just because privately held banks don’t face the same reporting requirements as their public counterparts doesn’t mean there isn’t very good reason to keep accurate shareholder records. For private banks (including non-exchange listed and non-SEC reporting institutions), it is imperative to continue to invest in the upkeep of shareholder records. Sloppy records can lead to big problems down the road, such as extending voting rights to – or withholding them from - the wrong people. It could also present concerns with your banking regulator.

Ask Yourself the Right Questions

A good forensic examination of your shareholder list is something that you should consider if you have not done so recently. There is significant risk to the enterprise if shareholder records fall into disarray. More often than not, a single person at these smaller institutions maintains the records, typically in little more than a spreadsheet saved on a laptop. Based on my more than 30 years in the industry, these are the most important things to think about when examining your private shareholder records.

Is Your Overall Share Balance Balanced?

The tally of shares held on the share register must match the tally of shares outstanding that your financial reporting officer says is there. I see many companies with a disconnect between the share register and the finance team's records. Changes in shares outstanding (where there is an increase or decrease in this overall figure) don't happen very often. It is critical to keep balance between your financial reporting system and the share registry.

Are Your Share Issuance Records Accurate?

When a share transfer takes place, the transaction must be recorded for both the transferor and transferee. For private banks, shares are often not liquid and transfers rarely happen. Given their rarity, it's important to take special care to properly record transfers on the books of the company. Errors can be hard to find later down the road – especially when the person who had a photographic memory of the list has retired. It’s best not to let discrepancies happen in the first place, but if they do, resolve them NOW and avoid a messy accounting issue much later on.

You are Paying Special Attention to Executive Stock Options, Right?

It's usually not a good idea – or a good career move – to keep improper and inaccurate records of stock option positions for officers and director.

Is Your Shareholder Data Secure?

Keeping accurate shareholder records is important. Safeguarding the information therein is even more important. This means protecting from both outside intrusion and weak internal processes that could threaten your data. Data security and security breach notifications are also legal matters that need to be addressed to comply with state and federal law.

Are Your Investors Happy?

Part of the C-suite's business is to continue to attract investors to the company – both to help boost the demand for the stock but also to try to attract some liquidity as well. Maintaining accurate shareholder records will ensure delivery of financial reports, proxy materials and other shareholder communications in a timely manner, which will keep investors happy.

Are You Compliant?

Companies that file with the SEC obviously need to follow SEC reporting guidelines. But even those that don't report to the SEC will need to comply with state or federal bank regulations applicable to the bank regarding governance and investor relations.

Are Your Company Charter and Bylaws Up to Date?

You should have your counsel review these documents from time to time. This gives you the opportunity to make updates that support your business objectives. For shareholder recordkeeping purposes, you should consider the elimination of stock certificates if they are specifically mentioned in the by-laws. Making this update allows for the use of book-entry statements (much like those one might see if they own a mutual fund or have their own brokerage account) and for more modern communications and proxy voting technology such as the electronic delivery of annual meeting materials and online voting. Your counsel will need to review applicable banking regulations to ensure these options are available.

Are Lost Certificates a Headache?

As mentioned above, the use of book-entry form of ownership in lieu of a stock certificate has one neat benefit: You can't "lose" the shares. Shareholders who need to replace a lost stock certificate must purchase bond of indemnity insurance, which can prove expensive in some cases. Using book-entry ownership and forgoing the use of stock certificates can mitigate this problem, making ownership that much easier for your investors.

There are a great many differences between public and private or non-exchange listed financial institutions, but one thing is true for both: proper shareholder record-keeping will reduce opportunities for mistakes and headaches down the road.

To learn how Computershare can manage your shareholder records and give you peace of mind, visit

Pat Tracey is a senior vice president at Computershare and manages strategic development for our private markets business. He served as president of the New York chapter of NIRI for the 2014-15 seasons and is also a member of the Society of Corporate Secretaries & Corporate Governance Professionals, the Shareholder Services Association, and the Securities Transfer Association.

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