THE Securities Commission of Zimbabwe says there is urgent need for increased shareholder activism and scrutiny of public listed companies’ activities to make directors accountable and protect shareholders’ value and interests.SECZ has also raised concern over domineering majority shareholders and the trampling of the rights of minority shareholders in blatant disregard of tenets of good corporate governance practices resulting in loss of value for shareholders.
Addressing an Institute for Sustainability Africa conference in Harare recently, SECZ chairperson Mrs Willia Bonyongwe said that investors needed to know and exercise their rights.
Against this background SECZ has embarked on a number of initiatives, notwithstanding the challenges the commission faces, to develop a free and fair environment for investment that protects the interests of all shareholders.
The Securities Commission chairperson also noted the existence of forceful shareholder activists who are quite controversial and sometimes disruptive. Nonetheless, she emphasised the importance of serious shareholder scrutiny.
“It promotes good corporate governance adherence and brings accountability to shareholders. As such, corporates need to pay closer attention to the rights of their shareholders,” she said.
The SECZ boss said it was shareholders’ right to have sufficient information at the same time have information disclosed as soon as it is known, to be treated equally and claim dividends or scrip certificates when declared or falls due.
She added that it is also within shareholders rights to participate and vote in company activities, get sufficient information on voting rules and procedures, question management, consider costs and benefits of their votes and make approvals of major decisions relating to companies.
This becomes all the more important considering some companies go as far as delisting to avoid shareholder scrutiny. In the end lack of investor participation kills market integrity while exposing investors to unethical practices.
In Zimbabwe, for instance, most companies do not declare dividends and yet management continue to be paid hefty packages and bonuses even when the same companies’ performances are poor for consecutive financial periods.
“There has been unending capital raising exercises with no accountability as to how the funds were utilised. There have also been questionable or opaque transactions whose price is discovered outside the market in the form of special deals,” Mrs Bonyongwe told delegates.
But every year, shareholders just go to annual general meetings and pass resolutions for which they know little about and never question the conduct of public listed company directors.
Mrs Bonyongwe said that she has always lamented the passiveness of most institutional investors especially considering the fact that 80 percent of investments go through those institutions.
She called for increased fiduciary role of institutional investors as professional investment advisors or managers meant to represent shareholders’ wishes through active participation, voting and closely monitoring events or corporate actions.
SECZ contends that the problem behind passive shareholders was partly due to the Companies Act, which is now out of touch with reality and a Zimbabwe Stock Exchange that did not protect the rights and interest shareholders.
The commission is also concerned that minority shareholders are often ignored on the basis that they lack the financial muscle to have their voices heard or to block a vote hence suffer in silence.
Mrs Bonyongwe added that there have been Initial Public Offerings, rights issues and other corporate actions which were merely done to enrich a few promoters or majority shareholders. She added that the majority shareholders may afford to forgo dividends in pursuit of narrow strategic goals which do not benefit other minority shareholders who cannot survive this.
“Shareholders generally control the company through the board, through the principle of separation of control and ownership. Thus board selection, diversity and adherence to corporate governance tenets becomes critical safeguard for shareholders, Mrs Bonyongwe said.
Most corporate failures can be traced to board failures, oversight, especially when controlled by non-independent directors. They are ineffective, powerless and often ignorant of their duties.