The second quarter of every year is the period where companies announce their annual performances and plans to pay dividends to their shareholders based on the previous year performance. This is also the time where Annual General Meetings (AGMs) of shareholders are also called, and where key statutory decisions about companies are made. This is the time where active, intelligent and energetic shareholders actively engage the Board and managements about the conduct, strategy and performance of their companies. This is the time where shareholders demand clear and satisfying explanations when the performance results appear to be less than they should be. It is also the time for shareholders to support movements towards improved performance, but also remove unproductive directors and indirectly management from governing or managing companies.
Unfortunately, in often cases shareholders do not understand that such crucial roles are theirs. Instead, when something has gone wrong with a listed company, or where there are sketchy details about what is happening with a company – investors/shareholders tend to think, it is either the role of the capital markets regulator or the stock exchange to right the wrongs. This kind of thinking is largely wrong, even though it also has some truths — I will explain:
One of the core mandates for the regulator and the stock market, as it relates to the above context, is to promote investor education, public awareness and sensitizing interest in the capital markets products from the public. The aim real is to ensure that shareholders gain the necessary skills in and understanding in line with the governance system of the companies they have invested into so as to hold directors and management accountable in the manner in which they execute their mandates, being stewards of shareholders’ and others interests in the company.
Apart from investor education regulators and exchanges also have the role of carrying out an assessment of continuing listing obligations as stipulated in the regulations and rules of the regulator and the stock market. They also carry assessments on the proposed issuance of securities (shares, bonds, etc) to the public prior to raising capital or listing these securities into the stock market. Such assessment seeks to establish the extent to which the envisaged securities offer meets the eligibility requirements for capital raising from the public and for listing into the stock exchange.
As it were, prior to issuance of securities to the public, the issuer is required to prepare the prospectus or information memorandum that provide details of the prospective security and disclosure of the relevant information that will help investors understand the nature of the security on offer, the company behind the security on offer, its strategies, its financial wellbeing, its future outlook, its risks and risk mitigation as well as its governance and control mechanisms.
During the Prospectus approval process the regulator and the exchange gets an opportunity to interrogate the company’s board and management as to the facts stated in the prospectus, challenge their assumptions, ask for details or seek clarification on matters that requires elaborations or detailed disclosures. Once satisfied, the regulator and the exchange approve the prospectus ready for capital raising and listing of securities. Up to this stage, the investing public is not so much engaged. Their involvement and engagement start thereafter.
So, what is the role of a shareholder? I started by indicating that most shareholders tend to think that the regulator or the exchange has a key role as to the performance outcomes or governance of companies. The truth is that shareholders contribute to the success or failure of the company to meet its performance and governance expectations. But what happens is that some shareholders lose touch with the company soon as the Initial Public Offering (IPO) process. Nevertheless, shareholders are required to increase their engagement with the company soon after the IPO process; why and how?
Shareholders elects the board to represent their interest to the company. The board then delegates this mandate to management —however the board retains the responsibility of ensuring that there is a smooth business operations, governance and risk management mechanisms throughout the company.
By attending in AGMs, shareholders get an opportunity to make major decisions impacting their rights, exercising their ultimate control over the company and how it is governed and managed, as well as engaging on other matters of interest to shareholders — this includes selection of the members of directors, appointment of external auditors, approval of audited accounts, etc.
When shareholders’ role is not fulfilled companies face bad results which then disappoints shareholders who end up selling their shares at low prices or not getting returns (including dividends) from their investments. The idea is active shareholders could real help themselves by supporting moves of improving companies by making their presence left at annual meetings