Nigerian capital market regulators appear set on removing the voting powers of directors, major shareholders and other primary parties to any major corporate decisions from voting on such decisions at any meeting convened for such.
Securities and Exchange Commission (SEC), Nigeria’s apex capital market regulator, is considering rules that will remove the voting powers of primary parties to corporate decisions, in what may give effect to earlier similar draft by the Nigerian Stock Exchange (NSE).
The Nation earlier reported exclusively on a draft rule by the NSE, which may not allow major shareholders, directors and their related persons and institutions to vote at specially-convened meeting for significant public interest transaction that requires approval of shareholders.
A new document on proposed new rules by SEC obtained by The Nation showed similar meanings to the NSE’s draft, although SEC’s wordings were loose.
According to SEC’s new proposed rules on the conduct of an annual general meeting (AGM), extraordinary general meeting (EGM) and court-ordered meeting (COM), “a person-beneficiary or shareholder, in an AGM, EGM or court ordered meeting who stands to gain on a transaction to be voted at the meeting shall not be entitled to vote on the issue in which he stands to benefit,”
SEC describes a “beneficiary” as “a person or group of persons who directly or indirectly, stand to receive benefits, profit or gain advantage in a transaction about to be voted on in an AGM, EGM or court ordered meeting”.
The draft rules also shift the costs of convening an AGM, EGM or COM purposely for such resolutions to the beneficiary.
“The cost and expenses incurred in convening such AGM, EGM or a court ordered meeting shall be borne by the beneficiary to the resolution passed at the meeting,” the draft stated.
The board of directors is also required to at all times ensure that transactions relating to beneficiaries are consummated at arm’s length. Arm’s length transaction is described as a transaction made by parties freely and independently of each other, without any special relationship including members of a family or holding-subsidiary relationship having another transaction on the side or one party has complete control of the other.
This may effectively block a holding company from voting on a major corporate decision involving any of its members while such subsidiaries may not be able to vote on a major decision involving their holding company.
Earlier, a draft rules on “meeting convened to obtain securities holders approval” by the NSE had excluded all related and interested parties, entities, associates and proxies from exercising their voting rights, even where they hold fully-paid shares. NSE’s rules are subject to approval of SEC.
The new draft rules by capital market regulators represent major paradigm shift from the current practice where such excluded persons and entities are allowed to exercise their voting rights and runs contrary to the general principle of one share or unit, one vote.
In normal corporate practice, the majority core investors usually play the determining role in the constitution of board of directors and the overall direction of the company, especially in the areas of such crucial issues such as mergers, acquisitions, consolidation, dissolution and winding up and capital issues among others.
If such majority-shareholder, major-parties barring rule is adopted, it means that foreign and Nigerian majority shareholders such as Alhaji Aliko Dangote, who owns majority equity stakes in Dangote Cement and Dangote Sugar Refinery; and Nestle SA, which owns controlling equity stake in Nestle Nigeria Plc will not be able to vote on some major corporate decisions affecting their companies.
With the exception of GlaxoSmithKline Consumer Nigeria and Julius Berger Nigeria Plc, which hold less than majority shareholdings, all other foreign investors hold more than 50 per cent controlling majority equity stakes. The foreign investors are spread across dominant sectors of the economy with large concentration in the fast moving consumer goods (FMCGs) sector. These major multinationals include Unilever Plc, GlaxoSmithKline, United Kingdom (GSK UK) Plc, PZ Cussons, Nestle SA, Lafarge SA, Heineken NV, Mondelçz International, Berger Bilfinger, BOC Holdings, Standard Bank Group, Leventis, Total SA, Mobil Oil Corporation, Siat NV, Affelka SA, Greif International Holdings B.V., United States’ Exxon Mobil Oil Corporation and SAB Miller.
Other Nigerian individual and institutional investors that may be affected included UAC of Nigeria, Vitafoam Nigeria, Dr. Oba Otudeko, Dr Mike Adenuga Jnr and Mr. Femi Otedola among others.
According to the NSE’s draft, where a transaction requires the approval of investors, such approval shall be obtained either prior to the company entering into the transaction or, if completion of the transaction is expressed to be conditional on obtaining such approval, prior to the completion of the transaction.
At the meeting, none of each related party, entity or its associate or proxy and each interested person or entity or and its associates or proxy “shall exercise any voting rights in respect of the transaction nor accept appointments as proxies” even though they are holders of fully-paid shares or unit of investment.
Where such persons or entities are representing other unrelated or uninterested persons and entities which are qualified to vote at the meeting, their representations will only be valid if they have specific instructions as to voting, according to the new rules.
“The notice convening the meeting shall state that related parties or interested persons shall abstain from exercising any voting rights at the meeting,” the rules stated.
Meanwhile, all other rules relating to regulatory approval, notification, publication, documentation, venue, time, period, conduct, rights and privileges and procedures amongst others in respect of general meetings will also apply to EGMs.
The exclusion of “each related party, entity or its associate or proxy and each interested person or entity or and its associates or proxy” from voting for their holdings appears to imply that such significant corporate decisions would be determined by the minority or non-management investors.
In other words, only shareholders of public float shares will be allowed to vote and determine such significant corporate decisions.
The revised listing rules of the NSE stipulates that the public shall hold a minimum of 20 per cent of each class of equity securities of a company quoted on the main board, 15 per cent of each class of equity securities of a company quoted on the Alternative Securities Market (ASeM) and 10 per cent of each class of equity securities of a dual-listed company. This rule is known in capital market parlance as public float.
Public float is technically a synonym of public shareholder and it generally refers to the shares of a quoted company held by ordinary shareholders other than those directly or indirectly held by its parent, subsidiary or associate companies or any subsidiaries or associates of its parent company; its directors who are holding office as directors of the entity and their close family members and any single individual or institutional shareholder holding a statutorily significant stake, which is 5.0 per cent and above in Nigeria.
Thus, public shareholders and public float do not include shareholders or shares held directly or indirectly by any executive, director, controlling shareholder or other concentrated, affiliated or family holdings.
Unless where specifically outlined, “close family members” in capital market regulatory parlance globally mean spouse, parents, grandparents, biological and adopted children, step-child, brothers, sisters, spouses of biological and adopted children, step-child, brothers and sisters; grandchildren; and any such person who is financially dependent on such directors or major shareholders, who are excluded for the delineation of public float.
Such idea of exclusion of persons and institutions with significant holdings and directorial and vested interests in a company from voting for their holdings may pitch the securities regulators against several stakeholders in the capital market.
The Nation, in earlier report, had reported opinions of major stakeholders against such exclusion with warning that such rule will have serious unintended consequences on the growth and development of the Nigerian capital market.
