Minority Investors’ association
On Thursday, a group of investors in Colombo’s stock market, residing in Kurunegala met at the residence of K.C. Vignarajah, good governance advocate and fighter for the rights of small investors in the market.
Their grouse: No one – the authorities (SEC/CSE or stock brokers included) – is listening to their plea for adequate returns from their investments. They seemed to have lost hope in the market and now are determined to take the once-sombre fight to a different level.
These investors from Kurunegala have formed into an association and say they have raised these issues about falling values of their stock, etc and blamed the authorities for ‘attractive’ promotional campaigns that have drawn them into investing but now with no return in sight.
They say they have been knocking on the doors of the SEC – through individual calls, personal appearances at the office, and letters – to complain about these issues but have not got any satisfactory response. They have also written to President Mahinda Rajapaksa but the follow-up from the President’s office has been lukewarm.
Their plea ironically comes at a time when the SEC is initiating the formation of a Minority Investors’ Association. In a newspaper advertisement cum notice posted on the SEC website, the SEC invited views from the public, saying “You are invited to comment on the following aspects of the proposal during which it is expected to obtain all concerned stakeholders views pertaining to the formation of a Minority Shareholders’ Association to represent the concerns of minority investors and to protect their shareholders’ rights and interests. We request you to describe any alternative approaches you think would achieve our initiation,” it said.
The SEC notice also invited former Executive Directors/Chairmen of listed companies who have served more than five years for a discussion to share their ideas on the proposed association “with a view to encourage a constructive dialogue with public listed companies on matters concerning minority shareholders whilst minimising obstacles to operations and management of listed companies.”
The SEC move to encourage the formation of such an association is commendable but raises some questions on processes and whether the association would be allowed to operate as an independent body or not. In fairness to the authorities however these issues would only be addressed once public comments are made from all stakeholders and a final decision taken on the structure and objectives of this association.
There are two points of concern in the SEC notice: (1) the invitation to executive directors/chairmen for a discussion could lead to some bias in the ultimate formation of the association. In fairness to the other stakeholders too, other sections of investors (or their representatives) should also be invited for such a meeting. After all, the interests of management, directors and ordinary shareholders are common: that the company should do well, achieve profits with good governance structures, pay good dividends to shareholders and furthermore raise the profile to increase its share value. These are common objectives and it would unfair for the SEC to call only one section of a company for such a discussion.
(2) Hopefully this notice has been published in Sinhala and Tamil too. The government and the SEC/CSE have been actively promoting the stock markets particularly to small investors and, one of the complaints (raised by the Kurunegala investors) is that the SEC and CSE communications are only in English.
This is a valid issue. How can the SEC/CSE promote the stock market in only one language if the whole objective – like what former Deputy Finance Minister Prof. G.L Peiris and other government politicians have said – is to create a ‘share-owning’ democracy!
While there are few heated arguments or confrontation over accounts or other issues at annual general meetings (AGMs) of listed companies – and in most cases, these are docile meetings – in the instances where there have been confrontation between small investors and board directors, invariably small shareholders don’t get their queries properly responded to and are considered a ‘nuisance’.
There are pros and cons to this argument. On one side, there are shareholders who could be accused of ‘pestering’ the board with ‘unnecessary’ questions. On the other hand, there are minority shareholders who raise valid questions, like good governance activist K.C. Vignarajah, but who are also considered a ‘nuisance’ by board directors who wiggle out of situations with some excuse when unable to respond to crucial questions.
While this may sound improbable to implement and would draw opposition from listed companies, one solution would be for independent observers (maybe SEC officials) to be present at AGMs to ensure the interests of both sides – management/directors and minority shareholders – are looked after at these meetings.
In the meantime, are the listed companies doing their due by shareholders? It is one thing to promote IPOs, debentures or rights issues but another matter when these companies do not provide information to shareholders in a timely manner. In a newspaper notice on Friday, the Registrar of Companies issued a warning to ‘all incorporated companies’ saying that some companies have failed to submit their annual reports and not held their AGMs within 30 working days as per Section 133 (1) of the Companies Act. The notice does not specify the year of accounts.
The penalty for defaulters is a fine of Rs.100,000 (meagre amount) and Rs. 50,000 on company directors. While this applies to all companies (listed and non-listed), there are many listed companies that have failed to furnish reports on time and requires stringent action from the SEC/CSE.
In the meantime, ‘individual’ elements who controlled the stock market some years ago and forced the resignation of at least two heads of the SEC, are still lurking around.
In the formation of the minority investors’ association the SEC should ensure these elements don’t infiltrate and take control and transform it into their own ‘club’ with the real, small investors compelled to watch from the sidelines. That will be a test of the SEC and its current, stated policy of being strict and ensuring clean governance, in the market.
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