Chinwendu Obienyi
Following the quest of the Securities and Exchange Commission (SEC) to outlaw gifts at Annual General Meetings (AGMs), shareholders have faulted the move, adding that it would not impact on companies’ profitability as well as dividends.
The Commission had said that it would create a sub-rule to regulate the conduct of AGMs in its efforts to ensure that investors get more value for their investments and thereby swell their earnings per share.
This, among other initiatives, is contained in a draft Exposure of Sundry Amendments to the Rules and Regulations published by SEC. When these rules are perfected and become operational, erring firms risk a N10 million fine, among other penalties.
The sundry amendments include Proposed amendment to Rule 42 (2)- half-yearly returns, proposed amendment to Rule 67(2)- Individual Sub-broker and Proposed amendment to Part N Rule 602 – Miscellaneous Rules. Proposed amendment to Part N Rule 602 – Miscellaneous Rules seeks to create a Sub-rule 4 and 5 pertaining to organisation and conduct of annual general meetings.
The new sub-rule specifically seeks to reduce the cost of organising shareholder meetings, by outlawing distribution of gifts to shareholders, observers and any other persons at annual and extraordinary general meetings. Should the rule be agreed on, “public companies shall not convene any meeting with select group(s) of shareholders prior to an Annual General Meeting/Extraordinary General Meeting.” Justifying the proposed rules, the regulator noted “that some companies arrange meetings with select groups of shareholders ahead of general meetings to discuss proposed resolutions and agree on strategies which are often detrimental to the interest of other shareholders.”
Companies that violate these provisions, SEC warned, “shall be liable to a penalty of not less than N10million.”
The commission in the draft, also lamented the huge amount spent by such public companies on corporate gifts at AGMs/EGMs, which greatly impact their profitability.
It argued that at a time when few companies are making reasonable profit and even fewer can afford to pay dividends, the latest move would positively impact on earnings per share of many if the amount “budgeted for gifts at AGMs/EGMs can be reserved for other relevant operational or administrative expenses.
“Public companies spend a significant amount of money on corporate gifts at AGMs/EGMs and this has a great impact on their profitability. Few of the companies are making reasonable profits and even fewer can afford to pay dividends. If the amount budgeted for gifts at AGMs/EGMs can be reserved for other relevant operational or administrative expenses, it would positively impact on their earnings per share”, the rule stated.
But shareholders who spoke to Daily Sun in separate telephone interviews argued that the commission had no mandate over listed firms’ yearly meetings while adding that there are several issues the commission should face other than placing a ban on distribution of gifts in order to develop the capital market.
The National Coordinator of Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, lamented that the move is an attempt by SEC to dampen the morale of investors, adding that there are concurrent issues which are of paramount importance.
His words, “For me, SEC should address more business-like matters other than banning gifts and trying to threaten companies as that is a signal that could dampen the morale of investors. In terms of unclaimed dividends, they have not completely done their homework on that.
Moreso, it has been observed that Lagos is working for those who are here as regards next-of-kin of the deceased shareholders who are supposed beneficiaries. But in other states, there are still bottlenecks. So why is the commission bothered about banning gifts at AGMs? Today we have about N2.5 billion in Skye Bank and the commission succeeded in taking away the money to STN Trustees and now the interest accrued would go to whom exactly? For Directors at Skye Bank who were earning over N200 million and so on, shareholders are left with nothing, what has the commission done to help us? SEC is really compromising on some issues and they are not helping the market, hence the situation of the market.
“These companies, most times, bring these gifts(some may be four months to expiration) and share amongst shareholders instead of throwing them away. Getting gifts does not mean shareholders are blinded and should not speak up on how the company should be run on a daily basis. So what the commission should have said was that to avoid rowdiness during AGMs, gifts should be shared at the end of any company’s AGMs”.
National Coordinator of Independent Shareholders’ Association of Nigeria (ISAN), Adebiyi Adebisi, argued that the job of SEC is to observe proceedings in AGMs.
According to him, there are no laws or regulations that public companies should hold pre-AGMs or pre-EGMs and laws or regulations prescribing giving of gifts at AGMs or EGMs.
“Any law or regulation, therefore, that seeks to prohibit these practices are simply toying with issues of fundamental human rights of individuals and corporate entities. SEC does not define what constitutes a gift or a pre-AGM or pre-EGM. This is opening the whole exercise to abuse if the rules become operational. Anything, even a bottle of water given to a shareholder at an AGM can be interpreted as a gift. In like manner, a meeting of two or three persons can be construed as a pre-AGM/EGM. Worst still, there are no judicial processes to ascertain liability. SEC will be the accuser and the judge, a clear breach of justice,” he said. Adebisi pointed out that the equity capital market was currently going through turbulence, noting that SEC has a responsibility to protect the interest of shareholders.
For his part, National President, Constance Shareholders’ Association, Shehu Mikali, described the banning of gifts at AGMs as a nice move by SEC but insisted that the pre-AGMs should not be banned because it had to be on the companies’ discretion.
He said: “SEC rules should depend on how the companies have been doing and the kind of the stakeholders the companies want to brief. But in order to sanitise our AGM system, we are in support of the ban on the distribution of gift items at AGM venues so that serious-minded shareholders can come to the meetings and contribute meaningfully. This will also reduce the tension and rowdiness at AGM venues.”