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SEC begins enforcement of code of conduct for shareholders

By Michael Eboh
The Security and Exchange Commission (SEC) has begun the enforcement of its Code of Conduct for Shareholders’ associations.

•Arunma Oteh, SEC DG

According to a source close to the commission, the capital market regulatory authority has began dispatching letters to shareholders’ association, asking them to begin filing certain information about their activities and returns to it.

The source noted that the dispatch of the letters by the commission began two weeks ago and that the commission is bent on enforcing the Code, as parts of the drive by the new Director-General of SEC to ensure sanity in the capital market.

Leaders of shareholders’ group confirmed to Vanguard that they have received the letter by SEC, directing them to file certain information and returns to the Commission.

SEC, had a couple of months ago, introduced the Code of Conduct for Shareholders’ associations to guide the conduct of members of the associations during general meetings of public companies and their relationship with public companies outside general meetings and for other purposes.

The Code focuses on the establishment and membership of shareholders’ associations, attendance of annual or extra-ordinary general meetings of public companies and membership of audit committees.

According to SEC, the Code is designed to ensure that association members uphold high ethical standards and make positive contributions in ensuring that the affairs of public companies are run in an ethical and transparent manner and also in compliance with the Code of Corporate Governance for public companies.

Certain sections of the code mandate shareholders’ associations to maintain books of accounts which shall be subject to annual audit by a qualified auditor, file annual returns to the Corporate Affairs Commission and also file an annual report of its activities with the Securities and Exchange Commission.
On the establishment and membership of shareholders’ association, the code states that,

“A body of not less than 50 shareholders of public companies may be established for the purpose of advancing the interest of its members and influencing the standard of corporate governance to optimize shareholders’ value.

“Such a body of shareholders shall be registered with the Corporate Affairs Commission with
not less than five persons as trustees. Membership of a Shareholders Association shall be open to all shareholders on a voluntary basis. The Association shall have a constitution or bye-laws which shall

“The Association shall have an Executive Committee of not more than 10 officers constituted
through an electoral process. The officers of the Association shall be elected for not more than two terms of three years and such a shareholder shall not be eligible for election until the expiration of three years after his six-year term.

“The Association shall maintain books of accounts which shall be subject to annual audit by a qualified auditor.
Attempt was also made by SEC to regulate shareholders’ activities at annual general meetings of public meetings, saying that, “Members and officers of Shareholders’ associations should not attend Annual General Meeting (AGM) or Extra-Ordinary General Meeting (EGM) of a  company in which they are not shareholders.

“Shareholders should conduct themselves with decorum during AGM or EGM of their companies, promote good governance of public companies and strive to influence corporate and government policies that seek to encourage investment and advance the interest of shareholders and optimize shareholders’ value, while not allowing themselves to be manipulated.

Capital market operators and shareholders have expressed divergent views over the attempt by SEC to enforce the code. While some see SEC’s actions as regulatory excesses, others say it is a step in the right direction and will help grow the market.

Tracing the origin and activities of shareholders’ groups over the years, Mr. Olufemi Awoyemi, Managing Director/Chief Executive Officer, Proshare Nigeria said, “Shareholder groups were a rarity in the Nigerian capital market (NCM) until 1985 when the late Otunba Akintunde Asalu formed the Nigerian Shareholders Solidarity Association (NSSA).

“In the contributory work done by Obinna Chima and Meshack Idehen, Friday, April 25, 2008 – ‘Not a few corporate organisations felt he was wasting his time trying to form an association of shareholders that would put managements of companies to task about their operations and bookkeeping. It was virtually unheard of that shareholders would query the management of a quoted company on the use of funds available to it in a particular year. Shareholders’ acceptance of the result of audited accounts of concerned companies was taken for granted, as the ‘ayes’ always had it.’”

“Although some shareholders’ associations had existed earlier in some parts of the country, NSSA became much more vocal. It subjected the annual reports of companies to serious scrutiny; forcing managements to explain how they arrived at the figures they paraded.

“This led to the prominent status, respect and recognition accorded shareholders which ultimately led to the membership of audit committees of listed companies long before the fad of corporate governance made it such an imperative. With NSSA, it became obvious that managements of companies had a lot to answer for if they mismanaged shareholders’ funds.

“Taking a cue from NSSA, other shareholders’ associations began to spring up. Some emerged as a function of location, others as a function of focus but in the main, others emerged to partake in the economic cum commercial benefits that some came the way of a ‘group’ with so much leverage and relevance.
“The proliferation of these associations, in the absence of measures to regulate them, became its very undoing. Soon, it emerged that this group – like all power blocs – soon became a victim of its own success.

“Recall an incident at the Annual General Meeting (AGM) of Unilever, when the late Asalu group was engaged in fisticuffs with another shareholding group over the right to seat on the front row. This was merely a tip of the iceberg.

“There was to be many documented and unconfirmed instances of pre-AGM briefings, questions and answers (Q & A) sessions that mirrored role_plays ahead of the AGM, company-sponsored trips, accommodation and benefits, year end gifts, special gifts at birthdays, shareholder group leaders’ social functions or outright ‘storming of the events’ with products from the FMCG listed companies for use as take_away at such events, among others.
“The lines were simply blurred out and soon a culture of incestuous relationships emerged.

The protection of shareholder interest, driven by the failure of the regulatory authority to rapidly build up capacity to play that role, took a back seat and only a few associations were left committed to the cause.

“The harm had been done and soon all shareholder groupings ended up being tainted by the same brush and the leadership of the few committed ones had to spend enormous time and resources defending their motives, causes and interests – taking a lot away from them.

“The market crash of 2009 and the eventual expose on the activities of certain board directors opened up a ‘Pandora’ box that pitted the shareholders groups as a ‘blackmail’ organisation.

“In all that has happened in the last five years, coupled with the advancement in capital market rule making, the shareholder groupings have difficulty in defining what they are really out for – what they are up to and what they seek to achieve that is not permissible within the law as an individual investor?”
According to Mr. Timothy Olufemi, National Coordinator, Renaissance Shareholders, “SEC must know that shareholders’ associations are voluntary unions, they are not subject to anybody’s regulation and control. Shareholders’ associations are to assist the system to attain growth, development and good corporate governance.

“Any attempt to gag or regulate shareholders’ groups by SEC may be counterproductive. It is only the Corporate Affairs Commission (CAC) that can ask some questions as such. Though, we at Renaissance Shareholders will comply, but SEC should not take it too far. Shareholders are not under SEC. We compliment the job of SEC.”

Also, speaking, Mr. Boniface Okezie, National Coordinator, Progressive Shareholders Association of Nigeria (PSAN) kicked against plans by SEC to regulate shareholders’ activities, noting that it is not within the powers of SEC to decide how shareholders’ groups should conduct their businesses.

According to him, the laws of Nigeria do not give SEC such powers, as the law allows for freedom of association. He said, “It is not within the powers of SEC to regulate shareholders’ association, because this is outside its powers. The law of the Federal Republic of Nigeria allows for freedom of association, and SEC should not been seen to be going contrary to this law.

“On the issue of registration with the CAC, it is a known fact that there are numerous bureaucratic processes in getting an association registered. May associations, for example, have filed for registration for more than two years now, and are yet to be registered.

“This is true for many other frontline shareholders’ groups that are yet to get the registration. However, this does not make us ineffective or incapable of protecting the interests and rights of our members.”

Mr. Taiwo Oderinde, National Coordinator, Proactive Shareholders’ Association of Nigeria (PROSAN) stated that complying with the directives of SEC, with regards to the code, would be an herculean task for majority of the shareholders’ groups.

He, however, commended SEC for the code, saying that it is a welcome development and will help in ensuring sanity in the capital market. He said, “We received SEC’s letter, last week and it is a good development for our market. If there are no rules, abuse is inevitable.

“ We support it, though not easy to comply, especially as before, everyone does what they like. Now there is a direction for all stakeholders, including shareholders’ groups.”

Also speaking, Managing Director, Lambeth Trust and Investment Limited, Mr. David Adonri said that stakeholders in the capital market have since advocated a regulation to guide the activities of shareholders and shareholders’ associations, following the concerns raised by activities over the past years.

He said, “Stakeholders have for long clamoured for a regulation by SEC to regulate activities of shareholders’ Associations so as to curb their excesses.
“Therefore, the Code of Conduct to order their activities is a welcome development and great relief.

“The Code has sufficiently addressed areas of concern to stakeholders and is capable of checking possible abuses that may arise from activities of the Associations, which could bring the Capital Market to disrepute. SEC should enforce strict compliance with the Code.”


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