Boardroom mogul and Chair-man, Lafarge Africa Plc, Chief Olusegun Osunkeye, has called for a review of rules by the capital market authorities, which excludes majority core investor in a company from voting its shares in favour of any major corporate decision, warning that such rule will have serious unintended consequences on the growth and development of the capital market.
Osunkeye, who has served on the boards of not less than five quoted companies over three and a half decades and recently retired as chairman of Nestle Nigeria Plc and GlaxoSmithKline Consumer Nigeria (GSK) Plc, spoke at a workshop organised by the Independent Shareholders Association of Nigeria (ISAN) and PR Plus in Lagos.
According to him, the rules on exclusion of core investors from voting would be counterproductive to current efforts at wooing foreign and indigenous entrepreneurs to list their companies on the Nigerian Stock Exchange (NSE) while the growth of existing listed companies may be stifled by minority consideration for immediate profit.
Rules by the NSE and the Securities and Exchange Commission (SEC) exclude the core investor, all related and interested parties, entities, associates and proxies from exercising their voting rights, even where they hold fully-paid shares.
The rules by capital market regulators represent major paradigm shift from the previous 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.
“I think this rule could give rise to unintended consequences, because we should bear in mind the level of our socio-economic development as a country, the sophistication of the market structure and the players in that market,” Osunkeye said.
Citing that the stock market is dominated by foreign portfolio investors whose main investment objective could be short-term gains and the dispersal of minority shareholdings, he noted that foreign minority shareholders with intent on short-term gain could hide under such rules to thwart a long-term corporate development plan with potential for several long-term benefits for the economy but immediate constraint to dividend distribution.
He said such rule that bars majority shareholder from voting its shares would expose entrepreneurs to undue influences of portfolio speculators and fund managers whose interests may not be in tandem with the long-term growth plan of the company.
“I do not believe that it is the intention of the rule-makers to emasculate corporate democracy, facilitate a tyranny of the minority against the majority. The rule could deter listing on the Exchange by businesses, particularly Nigerian entrepreneurs, who have concentrated ownership, for fear of losing the right to participate in the decision making process of the business enterprise they have laboured so hard to nurture with respect to such transactions. I am of the opinion that the unintended consequence of the rules would be to discourage listings by private companies who would otherwise thrive as publicly quoted companies,” Osunkeye said.
According to him, while it is true that the interests of institutional investors may not always coincide, it is also true that the interests of foreign portfolio investors are not often the same as domestic institutional or retail investors.
He added that the retail domestic minority shareholders are widely dispersed, with some 100,000 shareholders holding as little as 6.5 per cent of a company, to have any meaningful restrain on speculative portfolio managers that are against long-term corporate and national interests.
He decried the situation where changes are made in legislation and policies without adequate consultation with the stakeholders, especially the operating companies which may be affected by such changes or punitive exercise of power by a regulatory body.
He urged shareholders’ associations to be advocates against laws and regulations that are inimical to business and investment growth noting that shareholders need to appreciate that operating environment usually affect the performance of the board and management.
According to him, shareholders through their associations should have the goal of improving their companies. Shareholders activism should be channeled towards ensuring the viability and sustainability of the public companies they own, and in the process, seek to influence board and management through collaboration rather than antagonising board members.
“The interest of shareholders is also well served when they show consciousness and understanding for social and corporate responsibility towards other stakeholders, and the society at large. I also plead that regulatory bodies should reflect that rules and regulations may sometimes need to be adapted to suit the needs and stage of socio-economic and business development of our country,” Osunkeye concluded.
With such majority-shareholder barring rule, 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 major corporate decisions affecting their companies.
With the exception of GlaxoSmithKline Consumer Nigeria and Julius Berger Nigeria Plc, which hold less than majority shareholdings, other foreign investors hold more than 50 per cent controlling majority equity stakes. The foreign investors are spread across dominant sectors 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 and Mr. Femi Otedola.
