Time for real shareholder activism
The just ended reporting season has seen a flurry of
impressive results for some Zimbabwe Stock Exchange listed companies. Four
years after conversion to the multi currency system, local firms seem to have adapted
very well to the changed environment.
While the high interest rates remains an issue for just about
every company, a majority of the listed entities were able generate revenues
that sufficiently covered for interest charges, taxes and other charges.
What has been rather disappointing is the shortage of
dividend payouts to the most important stakeholders in this equation, the
shareholders. A clear majority of companies did not pay dividends over the last
two years.
According to information
gleaned from the recently launched website of the Zimbabwe Stock Exchange (ZSE)
in 2011 17 companies declared and paid dividends, in 2012 14 companies did and
this year so far only 8 have signaled they will pay.
This is out of a total of about 70 actively trading companies.
Most of these companies pre empt the need to pay dividends by claiming that the
liquidity crunch does not make it feasible for them to pay dividends. Others
claim recapitalisation or new projects which require significant funding make
it impossible to declare dividends.
However what is interesting is the fact that in most listed
companies’ costs like interest payments, administration costs which often
include staff and directors compensation seem to be growing and in some cases
at faster rates than revenues.
While employees or suppliers are getting more revenues or
incomes, the shareholders seem to be ever getting a raw deal-no dividends.
Management always seem to find it easier to sacrifice the
shareholders by not declaring a dividend whenever they feel the need to yet
they are not hesitant to ask shareholders to put more money in case the company
needs urgent capitalisation.
That was the case in the last turbulent decade, shareholders
were repeatedly asked to back rights offers as companies reeled from the
effects of the hyper inflation environment.
The economic environment
has been stable in the last few years yet many companies are still electing not
to pay dividends and this really calls into question moral correctness of such
decisions.
However this sad scenario may also point to one element that
has been lacking in the local corporate world- shareholder activism. Zimbabwean
shareholders can be best described as very docile or apathetic when it comes to
holding their managers to account.
The current scenario where management and company boards
seem too powerful and beyond reproach has been exacerbated by the ignorant and
passive shareholders.
Throughout the last decade we witnessed one spectacular corporate
collapse after another and in most of the cases corporate governance standards were
simply not enforced because the shareholders appeared ignorant of their mandate.
Directors and managers would award themselves hefty perks
and insider loans choking the company in the process ultimately collapsing it
and this was repeated particularly in banks over the last two decades.
Ignorant and passive shareholders also make the job of
regulators even more difficult as they simply do not have the capacity to
effectively monitor each and every company.
Zimbabwean shareholders need to be educated or reminded that
they remain responsible for their investments even as they entrust management
with the job of managing the investment.
Shareholders should be the ones attending Annual General
Meetings (AGM) or Extraordinary General Meetings (EGM) and dictating
proceedings at such meetings. Leaving the job to directors is not always
effective as the long list of corporate failures will attest.
Auditors and media personnel currently dominate such
meetings with most minority shareholders choosing to be absent from such
critical events yet only shareholders can really legitimately take managers to
task.
Shareholders should
know that no one else will do their job for them and that only extra effort on
their part will result in better fortunes for them than is the current case.
Even with what may seem very little shareholding, history
has shown that smaller shareholders can still influence decisions to their
advantage.
A case in point was
the controversy and acrimony that surrounded the demerger of Meikles Africa and
Kingdom Financial holdings between 2009 and 2010. Minority shareholders made a
stand against what they thought was bullying in the demerging process and the
issue took extraordinary turns before it was resolved to the satisfaction of
all concerned.
What happened in that case really showed that minority
shareholders can still hold the bigger shareholders, who often are the managers
to account. In fact that has been the trend elsewhere in the world, minority
shareholders take an active interest their companies and empirical evidence
suggests that such activism actually helps in boosting shareholder value.
In fact even institutional investors who are often not too
concerned about managerial decisions in companies they hold shares, their
approach has changed in the wake of the financial collapse in the United Sates
in 2008.
Fund managers, who suffered severely when their portfolios
collapsed at the height of the financial crisis, are now demanding greater
transparency from company executives.
For instance a
prominent activist investor Carl Icahn has opposed the plan to delist Dell
Corporation in a $24.4 billion buyout led by founder Michael Dell saying is not
in the best interests of Dell shareholders and substantially undervalues the
company.
Icahn became famously
known as a corporate raider in financial circles due to his hard-line stance
against powerful boards and his has had a string of success in his fights.
A similar case which has been brewing here pits the
regulator Securities and Exchange Commission of Zimbabwe (SECZ) and Lifestyle
Holdings formerly TN Holdings. In this case SECZ and not shareholders, is
questioning the move to delist from ZSE and SECZ sites a number of irregularities
in the way the transaction has been done.
The matter has since spilled
into the courts but the case really shows why the lack shareholder activism
weakens the position of the regulator.
Safeguards alone without the vigilance of shareholders
themselves will not protect them from the excesses of corrupt managers.
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