HomeBusiness DigestShareholder activism on the rise?

Shareholder activism on the rise?

At a shareholders meeting last week, Econet executives and directors woke up to the reality that minority shareholders will not swallow their explanation hook, line and sinker anymore after shareholders demanded clearer answers and dividends.

Taurai Mangudhla

Annual and extraordinary general meetings in corporate Zimbabwe have been reduced to a mere formality, just to meet the Zimbabwe Stock Exchange (ZSE) requirements, with shareholders unanimously approving whatever proposed resolutions without any questions.

Traditionally, the meetings take up to 30 minutes and any questions asked, whether by shareholders or analysts, normally focus on the trading update or business outlook and not the official business conducted at a shareholders meeting.

Whenever there are squabbles, as in the case of Hwange Colliery Company and Rainbow Tourism Group in recent years, it’s usually a fight among the major shareholders and not minorities.

Last week minorities quizzed Econet executives and non executive directors over the continued deferment of dividend payments despite indications the company was profitable.

“I don’t understand why we don’t get dividends and why we should go for a share buyback now. Where is the money coming from?” asked one of the minority shareholders at the Econet AGM.

Econet Wireless Zimbabwe CEO Douglas Mboweni, non-executive director Tracey Mpofu and deputy finance director Roy Chimanikire — took turns to respond to a series of questions from the floor and maintain calm at the AGM through well calculated responses with Mpofu justifying the prolonged non-payment of dividends, saying the company had other pressing financial obligations, including clearing a US$330 million debt for network expansion.

The shareholders meeting was quite interactive, with members present seeking clarification on each point on the AGM, in what could be seen as the dawn of a new era in shareholder activism in the local market.
Analyst Takunda Mugaga said the AGM was unique for the local market as shareholders are normally laid back.

“There is a lot of pessimism and at times that’s what results in shareholders being passive,” Mugaga said.

Mugaga said the lack of shareholder activism is a result of the small size of the market which fails to generate excitement in some instances.

“There is a correlation between the size of the market and activism and I will certainly say we are still underdeveloped as a financial market,” said Mugaga.

He argued there was a lot of information asymmetry in the market hence the lack of active participation among shareholders.

Mugaga said there was also need to educate shareholders on key business issues citing a knowledge gap.

“People tend to confuse the high literacy rate in the country with knowledge of business issues,” Mugaga said. “There is a general low level of corporate governance because these anchor shareholders and owners have this attitude of saying I have put in so much into this company and who are you to ask me anything and in fact most of these meetings are essentially about meeting ZSE requirements and not about the shareholder.”

Another analyst who requested anonymity said culture also comes into play in shareholders meetings as Zimbabweans are generally more reserved.

“If you look at companies that have more white shareholders even locally, you will see there are more tough questions whereas the blacks are more reserved by their nature. The issue of race is controversial but really it comes into play and over the years we have seen more of black Zimbabwean coming to AGMs than before,” added the analysts.

Shareholder awareness has been topical in recent weeks with Securities Exchange Commission of Zimbabwe (SEC) CEO Tafadzwa Chinamo last month saying shareholders needed to be careful on certain resolutions they pass.

Chinamo said shareholders had a tendency of approving resolutions like share buybacks without full knowledge of the motive behind the move, adding this normally resulted in manipulation by management.
Chinamo said managers have a tendency of tricking shareholders into a share buyback for their own benefit.

“What makes the practice worrisome for Zimbabwe, however, is the already illiquid market and chronic cash crunch choking most listed companies. Buybacks make this situation worse by reducing the number of shares in circulation,” Chinamo said in an opinion published by the Zimbabwe Independent.

“How do these companies justify spending cash on buying back their own shares rather than providing that capital to the business? Add this to the prevalence of owner-managers on share registers, share options, and failure to raise much-needed capital, then you start to appreciate an outsider’s raised eyebrows.”

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