Convenience, affordability, expertise – the reasons for outsourcing to a shareholder registrar are compelling for 99 companies out of the FTSE 100. But, says Isabel Bass, not everyone opts to employ outside assistance:

For the company that once used the word to advertise its most well-known product, Diageo wear the epithet ‘genius’ with considerable ease. By breaking from the corporate norm, the company is applying the same free-thinking unorthodoxy to managing its shareholders as it did to flogging Irish stout.

The world’s largest alcoholic drinks and food company – whose brands include Johnny Walker whisky, Smirnoff Vodka, Baileys, Guinness, Burger King and Pillsbury – is the only FTSE 100 company to manage its share register in-house. That’s according to Capital Analytics, the security services consultancy which also tracks the UK registrar industry.

You might think Diageo does this just for the reasons that companies have in-house IR and corp comms teams. It wants to be the first port of call for shareholders, whether for routine dialogue about dividends and proxy voting or for more complex share plans. As the company puts it: “We believed and continue to believe, we could provide better and more immediate service to our shareholders if the process was managed in-house.”

But that’s just part of its rationale. There’s more. According to John Roundhill, director of shareholder communications consultancy In-Gen Partners, it’s down to Diageo’s corporate philosophy. Formerly director of Capita Registrars, which provides registrar software to Diageo, Roundhill is the man who once advised the company on its in-house shareholder registrar system. “The company has an unusual concept of family when it comes to its shareholders and employees,” he says. “It puts a value on servicing shareholders in a bespoke way, and it sees shareholders and employees as family and truly integral to the company.”

As a result, Diageo has stepped beyond just the managing of its share register in-house. It’s placed corporate matters touching the lives of private and employee stakeholders in one business area. Headed up in Edinburgh by Susan Mellors, Director of Financial Services, the pensions for UK and Ireland, as well as shares, and payroll are now consolidated under her watch. This means Diageo has the capability to communicate swiftly, clearly and directly with its private and employee shareholders, pensioners, share plan employees. The company isn’t subscribing to the belief, shared by nearly all companies, that whatever the company’s situation, there is still no single comprehensive source of shareholder information – and chances are, there never will be.

 "Diageo puts a value on servicing shareholders in a bespoke way. It sees them as family."

The funny thing is that Diageo seems to have stumbled into this. Nobody can say for sure who initiated the decision to bring the register in-house. “It’s a legacy from Guinness, and therefore Diageo has adopted this approach since the merger of Guinness and Grand Metropolitan in 1998,” says a company spokesman.

Of course, other companies may consider that Diageo is wasting time, money and resources in doing what it’s doing. Surely a company has more pressing things to do than wrestle with fiddly, time-consuming number crunching and database tracking. What nightmares is it foisting on staff who have to keep up with changes in addresses, names, marriages, divorces, deaths, shareownerships, share plans?

Surely outsourcing – that twentieth-century marvel, that business school buzzword – is the name of the game. Especially when it comes to handling ritual information. Morover, the UK’s three top Registrar companies – Equiniti (formerly Lloyds TSB Registrars), Computershare Investor Services and Capita Registrars – look moderately priced for basic operational services: the back-of-the-envelope estimate comes to about £5-£6 per registered shareholder for a company with a considerable shareholder base. In fact, it’s more expensive to run the shareholder registrar in-house than to outsource it.

Moreover, registrars, says Equiniti company secretary Peter Swabey, now have a cutting-edge array of products for companies. There are the plain vanilla back office ones: maintaining the factual master register, the payment of dividends, the sending of proxy materials and summary reports. There are shareholder analysis and call centre capabilities. There are products to convert shareholders to electronic communications. All three registrar firms, for example, have departments of webmasters and graphic designers offering online advisory and shareholder communications services.

But Diageo has faith in its approach. Why? “It enables us to maintain a bespoke service for shareholders while ensuring common levels of standards across all communications,” says assistant company secretary John Nichols, who has known the registrar setup since 1998, when it was set up in-house.

Moreover, it should give the company watertight ownership of share plans. “The most sensitive relationships area is between a company and its employees, laden with potential problems when outsourced,” says Roundhill. “Every company wants a bespoke plan for its employees, and these involve payroll and other HR information on a regular basis from many departments in the company. It would be simpler for the company to have more control over the management of its share plans,” he explains.

This must be said, though: trailblazer Diageo may be, but trendsetter it’s not. The UK’s top companies, according to the current Capital Analytics’ annual Benchmark Report, are pretty happy with the services they get from their registrars. One company’s quoted as saying that, though it may pay a premium price for its registrar service, it’s generally excellent. Another appreciates getting “a steer about best practice amongst other (registrar) client companies”, and another accolades delivering even more detailed access to its registrar over the internet.

Maybe things would be different if not for the credit crunch. The banks, according to Roundhill, were the likeliest candidates to follow Diageo – but the landscape has forever altered for them. Even more to the point: it takes a distinct corporate mindset to go down the shareholder communications consolidation road. Communications which now flow through IR, the finance director, the secretariat, pensions, marketing and PR need to be put under one banner, and ownership given to one individual.

Will Diageo go the extra mile? New legislation (the Companies Act 2006 and the Shareholders Rights Directive) encourages more electronic communication between companies and stakeholders. Today, Diageo says: “We’re able to ensure a common but high standard of communication with shareholders. By shareholders talking directly to the company, we aim to make sure we eliminate any issues that are lost in translation, while making sure that we respond quickly and accurately, and with the same style.”

 

Rating the registrars

The views of the top 350 UK companies on registrars:

Thumbs up:

• Dividend Services. (85% satisfaction). All aspects of dividend planning and payment, including DRIPs and SCRIPs management.
• General Meeting Management. (85% satisfaction). All aspects of General Meeting Management.
• Account Management. (79% satisfaction). account managers Accessibility, responsiveness and knowledge of account managers. However, as mentioned below, account manager pro-activity was rated low.

Thumbs down:

• Fees and Expenses. Dissatisfaction with fees (42%, ranging from 36% to 51%), and ability to control out-of-pocket expenses (44%, ranging from 41% to 48%).
• Service to Shareholders. Dissatisfied with call centre knowledge of their business, services provided to shareholders who telephone, quality of written correspondence (58%).
• Account Management Pro-Activity. Area for improvement highlighted since 2005.

Source: Capital Analytics UK Registrars Benchmarking Survey Summary 2008