- This is what the proposed SEC rule on corporate gifts is all about
The proposed sub-rule by the Securities and Exchange Commission (SEC) to reduce the costs of conducting corporate meetings, by outlawing the distribution of gifts at annual general meetings (AGM) or extra-ordinary general meetings (EGM) to shareholders, observers and any other persons is a welcome development. The SEC says the proposed sub-rule, if passed, will ensure a better return on investments for shareholders. Currently, values that ordinarily should be passed on to shareholders could be frittered away through phoney gifts to shareholder-pressure groups and similar other interests.
According to a media report, SEC noted 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.” So, from the report, shareholder groups which were formed to ensure accountability in corporate governance, are now used to commit fraud and to destabilise corporate governance where the management is not willing to appease the select members.
The proposal is to amend Part N rule 602, by creating a new sub-rules 4 and 5 with respect to the conduct of annual general meeting. When passed, the rule will provide that public companies shall not convene any meeting with select group(s) of shareholders prior to an Annual General Meeting/Extraordinary General Meeting. The penalty for a violation of the rule shall be the payment of a fine of not less than N10 million.
The report shows that huge sums that should form part of the declared dividends are surreptitiously transferred to this class of shareholders as gifts. We strongly decry that. In the report, SEC noted: “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.”
It is disheartening that what set out to be a solution to the dubious corporate activities of management members have become an albatross on the neck of the majority of the shareholders. Instead of providing checks, the shareholders’ groups have become cabals seeking personal aggrandizement. As rightly stated by SEC: “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.”
The activities of the shareholder groups should be monitored by relevant agencies of government, to check corrupt practices amongst them. Apart from receiving financial inducements and other forms of gratification, the groups are accused of joining management to plot strategies that are detrimental to other shareholders at AGM/EGM. It is unbelievable that companies will arrange meetings with these select groups of shareholders ahead of general meetings, just to plot strategies to undermine the interest of other shareholders, which was what the groups set out to protect originally.
Part of the cause for untoward acts in the corporate world is the lack of full disclosure by management. To ensure that every shareholder is aware of how the resources of the company are used, any expenses made to the shareholders’ representatives should be in the open, so that others can gauge how it has impacted on them, and whether such representatives are overreaching them and their interests. Regrettably, many representative unions are similarly corrupt, but give the impression that the general group is benefiting.
To end the opacity in the corporate world, we also support the proposal to amend Rule 42, to create sub-rule 190(3), so that: “Public companies shall disclose some minimum corporate governance information on their websites, including governance structure, composition and structure of board, shareholding, and dividend analysis, among others.”