Tucked inside recent newspaper reports was the story of a media briefing by a new shareholder group in the country. Yes, a new shareholder association! With 19 shareholder associations recorded at the last count, you would think that we already had enough of these associations, especially in view of the self-serving role a majority of them play in the governance of public companies. But not for the promoters of this new association, who told journalists that their target was “to ensure that managers of quoted companies sit up and do what they are expected to do”.
Given our experience of the operation of shareholder associations, the objective of this new association (like the operation of most shareholder associations in the country) immediately begs the questions of what the promoters expect of management and the capacity of the association to compel performance.
One cannot presume to know what the new association expects of quoted companies, not minding their explanation that “we want to ensure that Nigerian investors don’t put their money in the companies and record loss anymore”. One cannot assume their expectation because when the seven Zonal Shareholder Associations promoted by the Technical Committee on Privatisation and Commercialisation (TCPC), now Bureau of Public Enterprises (BPE), were founded in the early 1990s, one of the four objectives was the facilitation of shareholders’ participation in corporate governance; yet their operations have since revolved principally around the sharing of board seats in privatized enterprises as an end in itself.
The issue of shareholder expectations of quoted companies could be very complicated, requiring a specialist approach by issuers of securities and investors, as shareholders do not necessarily have common objectives when they invest in a company. According to the CFA Institute, each investor has unique investment objectives that are affected by a variety of conditions. Thus, beyond direct returns to shareholders, a recent study showed that more than 20% of global investment funds – a total of US$13.6 trillion – were directed towards companies considered “socially responsible.”
Is it enough, then, that our shareholder associations demand from managers that shareholders do not record losses anymore? Does this represent the view of all shareholders? And does it address the environmental issues impacting on the ability of managers to deliver on a company’s promise to investors?
Faced with the challenge of continually meeting shareholder expectations, managements have attempted an approximation of these through surveys and other forms of stakeholder engagements that provide an insight into investor expectations of their companies.
However, where a shareholder group perceives that management is not meeting their expectations, what can they do to address the situation? Elsewhere, shareholder actions have led to the exit of managements. But in those places shareholder associations are well organized and equipped to pursue their set objectives. Shareholder groups, including the activist investors, are not merely called by this name; they use their shareholding and other resources to put public pressure on managements. They are represented by major investment banks, law firms, Public Relations Advisors, etc, and operate mainly through attendance and voting at Annual General Meetings (AGMs) and Extra-Ordinary General Meetings (EGMs) of target companies, leveraging on proxy opportunities to drive the attainment of their objectives. In those places people talk of “proxy season”, that time of the year when proxies are used for voting on key corporate issues. Unfortunately, this much cannot be said of the organization and activities of shareholder associations in Nigeria.
It is morning yet on shareholder activism in Nigeria, not minding the large number of shareholder associations and the progressive institutionalization of shareholding through the operation of collective investment schemes. One of the lessons of the battle over the delisting of Nigerian Bottling Company from The Nigerian Stock Exchange is the helplessness of our shareholder associations when matters come to a head on major corporate policy decisions; they cannot walk their talk.
Sadly, whereas existing shareholder groups have not been able to exert the required pressure on public companies, there is nothing to show that this state of affairs will change in the near future. It is still a long way to Shareholder Spring in Nigeria. Our shareholder publics, in their current form, are a throwback to that point in time when it was argued that the mass of shareholders cannot in their dispersed state constitute an effective check on the management of public companies.
Yet, it is a whiff of fresh air that shareholders in our public companies are speaking of a movement to ensure that managements perform to the benefit of investors, however narrowly their interest may have been defined. We may yet have a Nigerian Shareholder Spring, and it will no longer be business as usual for the management of public companies. That will be the day!
The author, Mr. Okafor, works for Alexander-Davids Limited, a boutique Investor Relations advisory firm, in Lagos