Category: Equities

Nigeria’s apex capital market regulator, the Securities and Exchange Commission (SEC), is considering new rules that will disallow companies from distributing gifts at annual or extraordinary general meetings. Besides, there will be no meetings with any caucus of shareholders  prior to any of the general meetings.

SEC, which makes rules for the capital market, has released the draft rules for stakeholders’review.

The draft rules stipulate that “public companies shall not distribute gifts to shareholders, observers and any other persons” at Annual General Meetings (AGMs) or Extra-ordinary General Meetings (EGMs).

Also, “public companies shall not convene any meeting with select group or groups of shareholders prior to an Annual General Meeting or Extra-ordinary General Meeting”. Any company that violates the two rules shall be liable to a penalty of not less than N10 million.

Providing justification for the proposed rules, SEC stated that public companies spend a significant amount of money on corporate gifts at AGMs and EGMs and this has a great impact on their profitability.

SEC noted that few of the companies are making reasonable profits and even fewer can afford to pay dividends, adding that if the amount budgeted for gifts at AGMs or EGMs can be reserved for other relevant operational or administrative expenses, it would positively impact on the companies’ earnings per share.

“Furthermore, it has been observed 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,” SEC stated. Such meeting is known as pre-AGM meeting.

The rules may also not bee unconnected with reported cases of disruptions at such meetings due to corporate gifts. Distribution of gifts has been a major menace at companies’ meetings accompanied with rowdiness, injuries and destruction of properties. At the annual general meeting of a first-generation commercial bank last week in Lagos, the scuffle for gifts led to destruction of a part of the entrance and many shareholders were rough handled trying to force their way through the crowd.

Chairman, Ibadan Zone Shareholders Association (IBZA), Mr Eric Akinduro said the move by SEC was designed to shortchange minority shareholders, warning that it may be counterproductive.

“Regulatory authorities will always look for ways to shortchange retail investors. Tell me how much companies are spending on them (regulators) personally when celebrating or as end-of-the-year as gifts. These are the people that will send invitations to directors of companies to get cash and products from them. Shareholders never complained on this. What is the total value of gifts companies are giving to shareholders? Did the company complain? I never see an AGM where shareholders compelled companies to give gift, it is at the discretion of the company. These gifts particularly companies souvenir can go a long way as marketing strategies to sell the company’s products,” Akinduro said.

According to him, the new rules amount to using sledge hammer to kill an ant.

He said pre-AGM provides companies with opportunities to discuss issues ahead with leaders of shareholders and avoid rancour that such issues may generate if tabled at the general meeting without prior discussion.

“Pre-AGM is not bad in as much discussion there will help to improve companies’ performances. It is a tool to cool the polity. It is a privileged meeting that helps as not all shareholders can be permitted to talk on the floor of general meeting because of time constraint. Most of the Pre-AGM meetings as far as I know are to update leaders of shareholders’ groups who care to attend to keep them abreast of companies’ updates, which are then disseminated to their members at the grassroots,” Akinduro said.

President, Constance Shareholders’ Association, Mr. Shehu Mikail, said the proposed ban on distribution of gifts was a welcome development. Mikail however opposed extending the ban to pre-AGM meeting.

According to him, the proposed new rule on banning of gifts at AGM is needed in order to sanitise AGM organisation and to ensure that only serious-minded shareholders come to the meeting.

“We are in support of banning the distribution of gift items at AGM venue so that serious-minded shareholders will be able to come to the meetings and contribute meaningfully to the discussions. It will also reduce the tension at AGM venues,” Mikail said.

He, however, noted that decision on whether to hold or not to hold pre-AGM meeting should be left to the discretion of every company.

National Coordinator, Pragmatic Shareholders Association, Mrs Bisi Bakare said contemplating such rules shows that SEC has lost focus.

“They are not focused. How much is the whole gift being distributed to shareholders who are the owners of the companies compared with corporate social responsibility (CSR) and donations recorded by companies every year? It is simple, if companies stop distributing gifts, stakeholders too will not support CSR and donations by such companies. If owners of the business cannot benefit from their hard-earned money, who else should do?” Bakare said.

She argued that SEC has no fundamental right to stop pre-AGM meetings, noting that SEC’s planned intervention in such issues amount to being a busybody.

Publicity Secretary, Independent Shareholders Association of Nigeria (ISAN), Mr. Moses Igbrude, noted that while sharing of gifts or company products at AGM is a good concept and something shareholders appreciate, it is becoming a serious problem to management of companies.

He said many purported shareholders have turned AGM to source of survival searching for food and products to support their daily living.

“These groups of shareholders are the ones abusing the privilege. While I appeal to SEC to thread with caution, shareholders must check their behaviours and regulate themselves or external force will come to do that, and that is not always favourable,” Igbrude said.