May 4, 2004
Dear Commissioners:
My comments on release # 33-8398 pertain only to IV. Immobilization and Dematerialization of Securities Certificates. I will attempt to address most of the 13 points on which you seek comment.
Securities should be completely dematerialized as opposed to immobilized. We agree with many of the reasons you touched upon in the release: lost and stolen certificates, unnecessary processing costs, unnecessary human procedures that drive those costs, and more. RadioShack and its stockholders will be able to fully realize these benefits as described above and in the next paragraph under complete dematerialization an option which does not exist for us today as a Delaware corporation.
Again, as you mentioned in your release, the benefits of dematerialization include: Security - Shareholders will no longer have to deal with the risk of mailing or losing certificates. Convenience - Transferring shares will require less material to mail and no cumbersome certificates in small denominations. If shareholders wish to transfer their shares to another broker, the broker can simply initiate the transfer directly with the transfer agent. Cost - Shareholders will no longer need to insure valuable mailings or incur replacement costs for lost certificates. This was the same message we directed to all our registered stockholders recently when we embraced DRS.
There were no impediments to running DRS. For issuers it is very easy. We simply notified our transfer agent. Board or shareholder approval is unnecessary. It was received warmly by our in-house benefits group which administers our employee stock purchase program. It has reduced work for them, and has meant less stuff to think about or train on.
There are no advantages to certificates. I personally have been on the issuer side in investor relations for seven years here and at The Home Depot and gone through two shifts to DRS. In my experience the matter of certificates has never come up in the context of a value-adding activity. The only time theyre talked about or dealt with is when theyre lost or when shareholders want them for reasons e.g. gifting, selling which DRS can easily fulfill.
I do not think we need to wait for most companies to embrace this. Public companies should be required. Ive spoken many times with my counterparts at other companies, and in my opinion this is one of those issues that companies want to embrace but theyre too concerned about the two people out of 40,000 that want their cute certificates and will yell at the investor relations people. Having the power of regulation will come as a relief to many of my peers who share my view on cost/benefits but are hesitant because of soft issues only.
I think entities such as the SEC and SIA need to educate the brokerage community more on DRS. There are still some brokers who dont understand that with their clients authorization they can move shares from the transfer agent electronically. These brokers cause delay and confusion and they move paper that need not be done. That is probably the only weak link in a dematerialized environment.
Transfer agents need to market this to their client issuers better. They need to stop relying on impersonal e-mails and newsletters on hot issues. They need to pick up the phone or visit the issuer and show the cold-hard numbers and benefits of how this will benefit both parties. They need to show the win-win scenario in neon lights to companies and share the benefits.
I dont think carrot or stick will be necessary with investors. Education will be the key. After all, we all have confidence in our money market, checking, mutual fund, and CD statements that when we want the proceeds they are there. Why not have the same confidence for stocks? I dont buy the tradition reason that stocks are different. The financial community has evolved over time. This can too.
Finally, I would like to counter a couple of points made by others writing in on this release. 1 I could care less if small, established, independent transfer agents were put out of business as Kevin Kopaunik wrote. Issuers are not here to provide full employment for transfer agents. If transfer agents are unable to provide value in the market place they need to evolve or die. Our costs in a certificate-less system would not go up as he suggests. Transfer agents will never get away with driving costs up for other services such as printing, call centers, or anything else. If they tried, another player would position themselves more competitively and issuers like me would switch in a heartbeat. 2 Users of paper should not bear all the costs as James Angel suggests. There should be no option of paper for those people. Sure, some costs are identifiable like how much it costs to create a certificate and mail a certificate. But how many Brinks deliveries will be necessary? What will the inventory costs be? Does he know how many envelopes we will need? Or where postal rates are headed? How about re-silvering if the CFO changes? Weve spent tens of thousands of dollars since 2000 when we changed our name from Tandy to RadioShack on the pointless expense of dealing with certificates.
Please do the right thing for issuers and stockholders by evolving this industry.
Sincerely,
James M. Grant
Senior Director Investor Relations
RadioShack Corporation