Institutional Shareholders and indeed individual shareholders are key stakeholders in any organization and play a significant role in corporate governance. The focus here is on Shareholder Associations and how managing them effectively is an important aspect of stakeholder management which is essential to the success of every company.
The emergence of “independent” Shareholder Associations in the wake of the privatization and commercialization program of the Federal Government was an indication that Nigerian investors were no longer solely interested in the economic value of their shares, but also in the influence over corporate strategy and management afforded by ownership. Some of the Shareholder Associations have become powerful lobby groups seeking to be appeased by Board and Management. While some of these Associations provide beneficial input to the Company, others have become notorious for their “rabble rousing” activities at General Meetings, thereby losing the opportunity to make meaningful contributions to Company performance.
The Securities and Exchange Commission (SEC) had attempted to regulate the activities of Shareholder Associations by issuing a Code of Conduct for Shareholder Associations. This initiative was an attempt to address observed negative practices of Shareholder Associations in the capital market, particularly conduct during general meetings and their interaction with Management outside the general meetings. The Code was intended to foster an adherence to the highest standard of ethical conduct by Shareholder Associations.
According to the Code, Shareholder Associations are required to be registered with both SEC and the Corporate Affairs Commission (CAC). Members and officers of Shareholder Associations are barred from attending general meetings of a company in which they are not shareholders and required to conduct themselves with decorum during general meetings. The success of the Code thus far in achieving its avowed objectives remains doubtful.
Managing the relationship with Shareholder Associations should be a priority and if properly channeled, their activities could constitute a positive force in shaping the direction of corporate decision making in companies. The following strategies are suggested towards getting the best out of Shareholder Associations:
– Accreditation – To give effect to the SEC Code of Conduct, it is advised that the Company Secretary should institute an accreditation process through which only those Associations compliant with the Code are recognized.
– Shareholder Education – Members of Shareholder Associations could benefit tremendously from relevant training that would expose them to best practice.
– Adequate Disclosure – Shareholders should be kept informed through annual reports, interim reports and other communication of material information relating to the companies’ business, directors and management. Companies should put in place an Investor Relations Policy to promote regular, effective and fair communication with shareholders.
– Website – The company’s website should be easily accessible, user friendly and updated regularly.
– Investor Forum – Board and Management should meet with Shareholder Associations periodically to afford a platform for keeping them up-to-date with the company’s performance and other matters of interest.
Concerns have been raised as to whether more shareholder involvement would disrupt the very mechanism that makes the running o f public companies practical – i . e . centralizing power in the Board of Directors. It is important to strike a balance between shareholder involvement and the practical considerations of running a company efficiently. By encouraging and creating the a p p r o p r i a t e f o r a f o r c o n s t r u c t i v e engagement with Shareholder Associations, the Board can help to set the tone and expectations for good governance.