THE recent crisis in the banking sector could spark fireworks at the annual and extraordinary general meetings of most listed companies as shareholders are likely to grill directors and top m
anagement, experts have warned.
The crisis, experts say, creates an impetus for a new breed of activist shareholders that have the potential to quiz directors over various company affairs.
Economist John Robertson says the crisis could see shareholders waking up and demanding more transparency and accountability from top company management and directors.
“I think there is going to be some activity at the annual meetings. But then some shareholders will have nothing to discuss after their companies went into liquidation,” said Robertson.
When the crisis is over shareholders of most listed companies are likely to be a little wiser. The reason: After the unprecedented crash in the financial services sector many shareholders have been left wondering whether they should trust their board of directors and management teams to make important decisions on their behalf.
“They (shareholders) are likely to question the directors’ foresight. They will look back and ask why the management and directors failed to avert the problems. They are likely to demand that the directors be more carefully chosen,” says Robertson.
The fiasco has cast doubt on the adequacy of most boards on the Zimbabwe Stock Exchange (ZSE) most of which are made up of intellectuals.
The events in the sector have also revealed serious management deficiencies.
“Zimbabwean shareholders are a gullible lot. They do not ask questions at all. They take what the management and board say. Ironically they are the chief losers when the company goes into the red,” says a fund manager at Kingdom Stockbrokers (KSB).
This trend applies to almost all listed companies.
Before the crisis there was a worrying shareholder apathy at most annual and extraordinary general meetings.
The few shareholders that attended the meetings did not ask probing questions.
These crucial meetings, which are probably the only platform where shareholders meet their directors, rarely lasted more than a few minutes.
In several cases shareholders do not respond to their proxy forms.
“We have companies with thousands of shareholders receiving a few proxy forms. It seems shareholders only care about their dividends,” says one fund manager.
“Most small shareholders do not know what’s happening in their company. They are only shocked when their shares are suspended from the stock market.”
There are a few and rare incidents where the chairman of a listed firm has been called upon to aggressively defend the company’s decisions.
Last year Barclays chairman Robbie Mupawose had a rare “treat” when shareholders grilled him over the bank’s strategy and stagnant share price.
The directors of the troubled First Mutual Ltd (FML), led by Norman Sachikonye, faced a torrid time at an extraordinary general meeting last year when prominent banker Nigel Chanakira led a group of shareholders who demanded equal representation on the board.
A last minute technicality by the company secretary saved the insurance firm’s board of directors from being overrun by shareholders.
Ironically the company went on to lose $30 billion of the $53 billion funding they received from the same shareholders through an Initial Public Offering (IPO).
Telecoms concern, Econet Wireless Zimbabwe (EWZ) is another company with an outspoken group of shareholders.
Last year the board of directors had a nightmare trying to convince shareholders to agree to the Mascom deal.
Most meetings are however very lukewarm and the story is routine: a motion is raised, and the chairman solicits for a seconder. The matter is thrown to shareholders and they vote enmass in favour of the proposal.
Listed companies are also beginning to take shareholders for granted.
It is common for a listed company to engage in a takeover bid and then seek shareholder approval later.
This, according to market watchers, is based on the board’s understanding that the shareholders will not disapprove.
Over the past two years few management proposals have been turned down by shareholders.
This is despite all indications that some of the shareholders do not know what that particular deal entails. This is however soon poised to change.
The Reserve Bank of Zimbabwe (RBZ) says at the centre of the crisis is management’s oversight and imprudent banking practices – which puts the directors and management’s role in the spotlight.
The problems at Intermarket Holdings Ltd, formerly led by business tycoon Nicholas Vingirai, were the result of poor decision-making.
On the other hand Mthuli Ncube’s Barbican Holdings Ltd sank into financial problems because of unethical banking practices. The company also dealt in the illegal foreign currency market.
At the height of the financial bubble, banks chalked up millions but directors of the institutions did not inform shareholders that such profits were unsustainable.
The directors and chief executives also did not tell the shareholders that the bulk of the profits were from speculative and non-core business deals.
The bulk of the companies made billions from non-income interest.