In recent years, shareholder activism has been on the rise in Nigeria. However, concerns have been raised about the effectiveness and accountability of shareholder associations.
Some of these associations are suspected of collaborating with corporate executives in corrupt practices, which could undermine the integrity of the capital markets.
To address these issues, the Securities and Exchange Commission (SEC) released a code of conduct for shareholder associations.
It remains to be seen whether this will be sufficient to address the challenges facing shareholder activism in Nigeria.
The Nigerian government’s privatization program in the late 1990s and early 2000s marked the beginning of a new era of shareholder activism in the country.
As more shareholder associations have emerged, questions about their effectiveness and accountability have grown.
Market operators have alleged that some shareholder associations may be collaborating with corporate executives in corrupt practices.
Others are perceived as being more focused on personal gain than on protecting shareholders’ interests.
Reasons for emergence of Shareholder Associations in Nigeria
Before the Nigerian government’s privatization program, most shareholders were passive investors who allowed management to run companies without interference.
However, as privatization progressed and companies came under private ownership, these new shareholders began to demand greater accountability and transparency from management.
One of the leading figures in the rise of shareholder activism in Nigeria was the late Akintunde Asalu, the president of the Nigerian Shareholders Solidarity Association (NSSA).
Asalu founded the NSSA in 1998 to educate shareholders about their rights and empower them to hold management accountable.
Under his leadership, the NSSA became a powerful voice for shareholder rights in Nigeria, helping to usher in an era of shareholder engagement in the capital market.
Following the NSSA’s example, other shareholder associations began to emerge. Some were formed based on geographic location, while others focused on specific industries or sectors.
Still, others were created to capitalize on the economic and commercial benefits associated with being a shareholder association.
Data obtained from the Securities and Exchange Commission (SEC) indicates that there are currently about 111 shareholder groups recognized by the SEC and registered with the Corporate Affairs Commission (CAC). Notable shareholder associations in Nigeria include:
• The Independent Shareholders Association of Nigeria (ISAN)
• The Zonal Shareholders Association of Nigeria (ZSAN), comprising eight zonal shareholder groups: Ibadan, Onitsha, Lagos, Abuja, Kaduna, Port Harcourt, Kano, and Jos Zone Shareholders Association
• The Progressive Shareholder Association of Nigeria (PSAN)
• The Renaissance Shareholders Association of Nigeria (RSAN)
• Proactive Shareholders Association
• The Association for the Advancement of Rights of Nigerian Shareholders (AARNS)
• The New Dimension Shareholders Association, among others
However, the proliferation of these associations and the lack of proper regulation have led to a loss of trust among investors and companies.
Despite the code of conduct for shareholders’ associations established by the SEC in 2016 to uphold ethical standards, shareholder associations are often viewed as ineffective and not respected by stakeholders, including public companies.
These associations are frequently perceived as seeking pecuniary benefits from companies rather than ensuring good governance.
Additionally, they are seen as disruptive rather than disciplined during Annual General Meetings (AGMs). The sheer number of shareholder associations also complicates effective engagement with regulators and other stakeholders.
Why the effectiveness of AGMs is diminishing
Annual General Meetings (AGMs) are essential opportunities for shareholders to hold management accountable and inquire about a company’s performance.
However, observations by NewsNGR indicate that many AGMs are becoming increasingly ineffective, as shareholders often take on the role of “praise singers,” while executives become insulated from scrutiny.
Some executive members of shareholder associations have developed close personal relationships with company executives, whom they are supposed to monitor.
This situation has led to shareholders being more likely to praise management, even in the face of poor performance, rather than raise critical questions.
Shareholders are often discouraged from bringing up issues that management might consider sensitive, making it difficult for them to ensure that the company is being run in the best interests of its stakeholders.
Compounding this issue is the fact that some board chairmen have been “sold on the praise singing drama.”
These chairmen are more inclined to give attention to those who praise them, even if they are not asking meaningful questions.
This dynamic further discourages shareholders from raising critical issues, as they know their concerns are unlikely to be taken seriously.
The decline of AGMs in Nigeria is a significant problem. It undermines the integrity of the capital markets and hinders shareholders’ ability to hold management accountable.
This poses a threat to the interests of all investors and needs urgent attention.
There are also troubling allegations that some shareholder associations may be collaborating with corporate executives in corrupt practices.
This is a serious issue that requires urgent attention from regulatory agencies and reputable corporate leaders.
According to findings, once leaders of shareholder associations are bribed, shareholders are instructed to praise management instead of asking critical questions about the company’s finances.
This practice undermines the integrity of the capital markets and prevents shareholders from holding management accountable.
Even more concerning is the close partnership between some shareholder associations and vested interests in the market.
These associations are often manipulated by these interests, which can be detrimental to the broader interests of investors.
Addressing these issues is crucial to maintaining the credibility of the capital markets and ensuring that shareholder activism serves its intended purpose of promoting transparency and accountability.
Code of Conduct for Shareholders’ Associations
In an effort to promote good governance and establish clear expectations for business conduct and ethics among shareholders, the Securities and Exchange Commission (SEC) released a code of conduct for shareholders’ associations in 2016.
This code aims to guide shareholders during general meetings of public companies and in their relationships with companies outside these meetings.
The code of conduct ensures that association members uphold high ethical standards and contribute positively to the ethical and transparent management of public companies.
Key provisions of the code include:
• Associations must have a constitution or bylaws governing their operations and membership.
• Executive officers must be elected through a formal electoral process.
• Associations are required to maintain books of accounts subject to an annual audit by a qualified auditor.
• Associations must file annual returns with the Corporate Affairs Commission (CAC) and submit an annual report of activities to the SEC.
The code is intended to sanitize the activities of shareholders’ associations and position them to effectively promote good corporate governance in public companies, thereby enhancing shareholder value.
It also seeks to ensure the highest standard of conduct among association members and the companies with which they interact as shareholders.
Despite these efforts, Sir Sunny Nwosu, National Coordinator Emeritus and Founder of the Independent Shareholders Association of Nigeria (ISAN), expressed concerns about the proliferation of shareholder associations.
Nwosu blamed the SEC for this issue, noting that some associations have become “one-man shows” that discredit the system. He highlighted that SEC has not acted on calls to investigate these groups for their lack of genuine membership.
Nwosu explained that during the Al-Faki regime, rules allowed any group with up to 50 members to register as a shareholder association.
However, some of these groups lack significant followership and often cause disruptions at AGMs without understanding that registration alone doesn’t grant access to these meetings unless they are shareholders in the company.
Shareholders’ view
Chairman of the Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie speaking to NewsNGR expressed concern about the negative image created by the proliferation of shareholder associations.
He likened the situation to the high number of political parties registered during Nigeria’s 2023 elections. Okezie criticized some associations for lacking a clear mission and understanding of their responsibilities, focusing instead on personal financial gain.
President of the New Dimension Shareholders Association, Patrick Ajudua, attributed the rise in shareholder associations to the failure of older groups to adhere to their core mandate of protecting minority shareholder interests. He compared this to political parties that splinter when members feel their ideologies are not being upheld.
Ajudua also highlighted that associations often form based on geographic location for convenience.
He noted that the existence of multiple associations makes it difficult for regulators to engage effectively with over 100 shareholder groups, complicating efforts to address issues affecting minority shareholders in Nigeria.
National Coordinator of ISAN, Moses Igbrude pointed out that managing multiple associations pursuing similar goals is challenging due to mutual suspicion.
While forming associations is a right, it comes with the responsibility of adhering to their founding constitutions.
Igbrude emphasized that associations should stay true to their mission statements to avoid undermining each other and the capital market.
Igbrude also noted that some companies exploit the presence of multiple associations to create divisions, thereby undermining minority shareholder interests.
He mentioned that some board chairmen encourage disruptive behavior at AGMs by favoring shareholders who praise them.
Forward looking
Effective shareholder activism plays a crucial role in complementing regulatory efforts in investor protection, promoting good corporate governance, and potentially enhancing shareholder value.
To strengthen Shareholders’ Associations and increase their influence and effectiveness, it is advisable that some associations consider forming stronger alliances through mergers.
Mergers can lead to more robust and efficient associations, empowering them to better serve their members.
Additionally, stronger and more coordinated Shareholders’ Associations can provide greater protection for investors’ interests by enhancing the scrutiny of companies’ activities by their members.
This collective effort can contribute to a healthier corporate governance environment and ultimately benefit all stakeholders involved.