September 25, 2011
Shareholding in Nigeria has grown from a few thousand people in the early 70s to an estimated 10 million. The privatization program has had tremendous impact on share ownership. Between 1989 and 2005, 40 government-owned companies were privatized.
Over 1.3 billion shares were offered for sale to the public and over 800,000 shareholders, many of them first time buyers, purchased the shares. In a bid to shore up public participation in the ownership of business corporations, government facilitated the establishment of a network of shareholder associations.
At its inception, a government parastatal in charge of the privatization and commercialization program, the Bureau of Public Enterprises (BPE), funded the associations from interest earned on deposit of shares pending allotment.
The associations are now funded through a per-capita levy placed on quoted companies. The Securities and Exchange Commission and the Nigerian Stock Exchange determine the levy, based on the number of shareholders in each company. The fund is collected and administered by the Stock Exchange.
Apart from the government established shareholder associations, there are also independent shareholder associations. Independent shareholder groups were a rarity in the capital market until 1985 when the late Otunba Akintunde Asalu formed the Nigerian Shareholders Solidarity Association (NISSA) – one of the seven duly registered with the CAC.
Taking a cue from NISSA, other shareholder associations began to spring up. Some emerged as a function of location, others as a function of focus but, in the main, others emerged to partake in the economic cum commercial benefits that came the way of a ‘group’ with so much leverage and relevance.
The proliferation of these associations and the absence of measures to regulate them became their very undoing. Soon, it emerged that these groups, like all power blocs, became victims of their own success.
The emergence of the private shareholder associations shows that Nigerian investors are no longer solely interested in the economic value of their shares but also in the right that share ownership gives them to influence corporate strategy and management.
In the last 15 years, at least 30 shareholder associations have been established. The increasing number of these associations has led to recent moves by the Securities and Exchange Commission to regulate the associations.
While the evolving shareholder activists are a positive development, the corrupt collaboration of some of the shareholders associations and corporate executives must also be addressed by regulatory agencies and reputable corporate leaders.
This is much needed particularly with the increasing cases of corporate scandals in multinational companies and joint ventures operating in Nigeria. Thus, shareholders may influence the direction a company takes via the use of shareholders resolution.
However, it has been observed that many annual general meetings in Nigeria are fraught with corruption. They are arranged in such a way that once the leaders of the shareholder association are bribed in one way or the other, shareholders only go to the event to sing the praises of management for a robust account, instead of actually asking accountants to look more closely into the accounts and raising pertinent questions.
Even more dangerous and worrisome is the hand-in-glove partnership between some particular individuals who posture as leaders and or representatives of certain shareholder associations and certain vested interests in the market. These individuals are too quick to lend themselves to manipulation by such interests which are known to be inimical to the interests of the generality of investors.
For financial gratification, such so – called shareholder activists champion negative causes inspired by their paymasters to the detriment of the market. They distort the growth and development of the market by attempting to foist the whims of their paymasters as inviolable market norms.
Shareholder associations come in various guises and are driven by different actors and interests, and have different impacts on target firms. Most of these groups’ activities smack of hypocrisy, and greed. These unfortunate characteristics have made them handy and pliable tools in the hands of influential Nigerians whose sole aim is self enrichment and to cover up their tracks.
A corrupt collaboration between activist/bully shareholders and board/managers has subsequently evolved to silence genuine activism.
Shareholder activism has indeed taken a negative turn in the country. For example, executive members of many of the shareholder associations now maintain close and personal relationships with the executives of the firms they are meant to check.
This impedes their activism and further enables them to participate in several executive corrupt behaviors, to the detriment of the shareholders they ought to represent. Indeed, several shareholder associations have sprung up in recent times and have become powerful lobby groups that needed to be appeased by the managements of companies.
It is highly commendable that, driven by the moral and professional fervor to save the markets, the Securities and Exchange Commission is embarking on holistic reform for the capital market. Part of the capital market sanitization agenda will be an audit of purported shareholder associations to generate frameworks, operating guidelines and standards for their activities.
The SEC code for shareholders is an attempt to address observed negative practices of shareholder associations in the capital market.
The reform also include SEC’s new rules for quoted companies, SEC’s code of conduct guidelines for operators and their employees, SEC’s new approach to enforcement and the naming & shaming of violators, SEC’s plans to review the role of approved operators, brokers and dealers in the banking crises that ensued and what role (if any) must and can the SEC play, the resolution of the AMC bill and the impact on the market.
Like in every reform, there will be stumbling blocks. Bogus shareholder associations top the list of detractors. They now go overboard in their activities by trying to regulate the regulator; displaying vile activism instead of trying to shape corporate decision-making.
Information made available by SEC reveals that out of the about 19 shareholder groups in Nigeria, only seven have filed with the Commission their Corporate Affairs Commission (CAC) registration certificates. The essence was for the proper identification of the various leaderships of the associations, their membership and to be able to register them.
The regulatory authority gave the directive, following the call by stakeholders in the market for proper regulation of shareholder associations for effective monitoring of company managers especially at the audit committee level. SEC was also miffed at the various groups’ engagement in unruly behaviours, as some of them turned ‘praise singers’ or ‘trouble makers’ at AGM proceedings.
It is thus obvious that, if properly channeled, shareholders activism can constitute potential force for shaping the direction of corporate decision making in the country. But then, they should be regulated and SEC’s initiative towards regulating them is a step in the right direction.
Source: VANGUARD/ By Ruth Pam