The Securities and Exchange Commission (SEC) appears to have woken up from its slumber, as it has decided to modify two rules which pertain to shareholders.
The rules: The commission has proposed sub rules 4 and 5 which are additions to Rule 602 ( miscellaneous rules}
- Public companies shall not distribute gifts to shareholders, observers and any other persons at Annual General Meetings/Extra-ordinary General Meetings.
- Public companies shall not convene any meeting with select group(s) of shareholders prior to an Annual General Meeting/Extra-ordinary General Meeting.
Penalty: Companies that breach the rules (if passed) will also suffer heavy fines.
Any company that violates the provisions of (4) and (5) above shall be liable to a penalty of not less than N10,000,000 (Ten million naira only).
Reasons for the amendment: The commission also gave reasons for the proposed amendment
Public companies spend a significant amount of money on corporate gifts at AGMs/EGMs and this has a great impact on their profitability. Few of the companies are making reasonable profits and even fewer can afford to pay dividends. If the amount budgeted for gifts at AGMs/EGMs can be reserved for other relevant operational or administrative expenses, it would positively impact on their earnings per share.
Furthermore, it has been observed that some companies arrange meetings with select groups of shareholders ahead of general meetings to discuss proposed resolutions and agree on strategies which are often detrimental to the interest of other shareholders.
Expect a pushback: While the commission has given valid reasons for the proposed amendments, retail investors may decide to push back. Many of them see the token gifts as a reward in the absence of companies not paying dividends.
Shareholder associations, may also lash at one of the amendments, which would lead to them losing a key part of their relevance.