Potential investors who may want to buy shares and influence the outcome of a contested situation may be left ill-informed because corporations publicly disclose the record date for voting securities after the date has happened.

That’s the view of Boston College Department of Finance professor Vyacheslav Fos, who spoke with The Deal for its Activist Investing Today podcast about a new study he co-authored with Cliff Holderness, another BC finance professor, “The Distribution of Voting Rights to Shareholders.”

The study examined over 100,000 distributions of proxy documents to shareholders between 1996 and 2018 and found that in about 91% of the time companies publicly revealed their record date after it has already happened. Investors must own shares prior to the record date to be permitted to vote shares at annual and special meetings that typically take place 25 to 60 days later.

Fos said record dates for dividends are always clearly disclosed in advance of their occurrence, but that when it comes to voting rights all the decisions about when to disclose the record date is controlled by a variety of insiders — corporate management, brokers, proxy solicitors and the exchanges.

“All these players, management, NYSE, change their behavior suggesting that the information about when the record date happens is valuable and they use it to influence the outcome of events,” he said.

Fos found, for instance, that trading volume for DuPont increased just ahead of the company’s annual meeting in 2015, when Trian Fund Management and Nelson Peltz ran an ultimately unsuccessful director contest at the chemical company. The first public announcement of the record date for the meeting and contest was March 23 for a record date that had passed, on March 17.

“There was a large group of investors that somehow figured out what the record date was whereas main street investors, retail investors, who read information from publicly available sources, remained unaware of the record date,” he said. “Given that event, the record date, is material, we identified asymmetry in the way people become informed of the record date.”

In another situation, a consortium including the CEO launched an effort in 2018 to privatize insurer AmTrust Financial Services Inc. The proposal required the approval of a majority of the minority shareholders, but many outside investors weren’t happy with the price.

Billionaire insurgent Carl Icahn sought to intervene and secretly accumulated a 9.4% stake, and launched a campaign opposing the deal price. However, AmTrust had set its record date for April 5 but didn’t publicly disclose it until May 4. As a result, all of Icahn’s stock purchases occurred after the record date, and couldn’t be voted on the going-private proposal.

“This asymmetry is not just about institutional investors vs. retail investors,” Fos said. “In this example you see one of the most sophisticated activist investors, Carl Icahn, bought a huge stake without voting rights.”

On the podcast, Fos explained why federal and state regulations are at odds on record date obligations, which makes it unlikely that the Securities and Exchange Commission will write a rule improving record date transparency any time soon.

Check out the podcast here:

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