Know Our Rights!

Published on today's Bizweek: Capital market needs worthy directors. The article is written by Abdul Wahab, who is CEO of Minority Shareholder Watchdog Group.

• INVESTORS do not like seeing their money vanish into thin air. But this is likely to happen if and when they are inactive or fail to watch over their investments in listed companies. Through their activism, investors and shareholders are allowed to have dialogues with management over some aspects of the companies' operations.
  
  Under the law, shareholders are not trustees for one another. They hold no fiduciary position, and have no fiduciary duties like directors. They are responsible for their rights as owners of the company. Their focus should be on the protection of their own money.

Fully agree! Minority shareholders should be fully responsible for their own money.

Our money! So for heaven sake, learn to protect our own money!

• In essence, investor activism centres on the companies' performance and shareholder value. As more and more shareholders attend general meetings, the boards of directors face mounting pressure, not only from shareholders and investors, but also other stakeholders.
  
  For most boards, general meetings can be a chore under the best of circumstances. Nevertheless, today’s directors must take great care in all of their areas of responsibility and in all aspects of their stewardship.

Ever been into a meeting where the director is falling asleep? And just what about them empty seats? Buta Gaji is it?

• They are not only accountable to investors and regulators but also to stakeholder groups. If they do not know well the nature and consequences of their decisions taken in their names, the results and the bad publicity can be painful.

I strongly believe that some don't deserve to be a director!

• Regulators can act only when there has been a transgression of a rule, regulations or statute. At the heart of accountability are the board’s integrity, compliance and performance.
  
  When a company finds itself in trouble, it is often clear that the board did not fully discharge its responsibilities. What is obviously done wrong in hindsight, can be avoided through foresight. After all, the board knows the strengths and weaknesses of the business, and thus should be among the first to spot the red flags.
  
  Directors only have to recognise the interests of shareholders as their touchstone. Rising investor sophistication and activism would have elevated the boards' conscience.

• The following cases illustrate what minority shareholders can do:
  
  1. The minority shareholders refused to stay quiet at a listed issuer’s EGM. In particular, they questioned the wisdom of the board over the proposed acquisition of a piece of property. The vendors are the company's major shareholders. Even though they were outvoted at the EGM, the minority shareholders were not reasonably satisfied. Their concerns raised numerous questions about the rationale for the property purchase.
  
  2. A listed issuer called an EGM to seek the shareholders’ ratification of acquisitions and disposal of shares in another listed company. Even though a company can ratify a particular action of the board, the minority shareholders’ rights to seek clarification and inquire into any possible breach of directors’ duty under the regulatory rules must be respected.
  
  3. Minority shareholders were grossly unhappy with the board of a listed company over the absence of the chairman and his spouse (an executive director) in two consecutive AGMs. The shareholders also queried the directors' excessive remuneration and succeeded in adjourning the meeting.
  
  4. Minority shareholders were disappointed with a company’s performance. The accounts carried an auditors’ qualification with regards to fixed deposits placed in a foreign fund by the managing director. The MD did not attend the AGM and as a result, was not elected to the board. A police report was also lodged against him.
  
  5. The incumbent board of directors proposed to de-list a company. However, they faced strong objections from the minority shareholders, who called an EGM and brought an action against them, rejecting the proposed delisting.
  
  It is often assumed that wise and experienced directors will quickly reach consensus on what is best for all concerned. However, this is not always so. Although the Code on Corporate Governance emphasises the role and responsibility of non-executive directors, there are often conflicts in the boardroom when directors are reluctant to conform to the code's principles and best practices.
  
  Factors such as ambition, greed, egotism and plain obstinacy are assumed to play a major part in shareholders’ grievances. Of course, to naïve investors, some directors are highly impressive because of their sheer elegance and suavity.
  
  As directors pursue their private agenda, the companies could start to drift, with important decisions being shelved. In dramatic cases, directors or companies are not even bothered about being placed under public scrutiny and on the regulators’ watchlists.
  
  On irregularities in accounts, an investigator in Britain once commented that “the most statutory restrictions on directors’ conduct were more evident on their breaches of laws and regulations than their observance”. He added that “the amount of profit in question did not affect the principle; a small profit did not render permissible what would otherwise be improper; a large profit did not make improper what was basically proper”.
  
  Faced with tougher regulations and onerous duties, today’s directors know the trickiest decision between the right and the wrong compromises, and they have learned to tell one from the other.
  
  To restore investor confidence, the capital market needs to have principled directors, market players and participants who are fully aware of what is right and wrong, and not surrender to moral confusion and relativism.
  
  Of greater importance is the need for vigilant and professional boards of directors, and competent and efficient management. These two factors should ensure both the major and minority shareholders get fair and equitable deals from the companies' proposals.
  
  Lastly, underpinning nearly all shareholder activism is the drive to increase shareholder value. Directors must not pay lip service to acting in the best interests of shareholders.
  
  They must understand and recognise their true sentiments, and gain the trust and confidence of investors and stakeholders in seeking their support for the companies' decisions.
  
  The directors have to believe that the shareholders could at times be their customers and staff, who happen to partly own the company.
  
  If the would-be directors do not subscribe to the right priorities or if they think they cannot offer adequate commitment to the shareholders, they should seriously rethink their decision to join the board of a listed company. If they are already on the board, they should help to change it or resign.

Just want to add this. Sometimes, it makes no sense to be a shareholder when the company attempts all kinds of methods possible to screw us and our money. And sometimes, the company simply isn't the wonderful business that we want to own. Perhaps it's much better for our money if we just walk away. Vote with our feet!