Rights of the small shareholder
THE BENEFITS gained and risks taken by shareholders are often discussed freely. However, their roles and duties come under the microscope less often. Shareholders make a financial investment in a corporation, and this entitles those with voting shares to elect the directors. Ordinarily, they are linked to the management of the company through the board of directors and do not have the right to be involved directly in company management. However, shareholders have the right to remove directors or refuse to re-elect them if they are not satisfied with their performance. While boards may want to know shareholders’ views, directors are not normally required to seek or comply with their wishes.
The editorial in the October 25, 2009 SUNDAY SUN stated that local shareholders in public companies and credit unions must bestir themselves to attend annual general meetings and call the directors and managers to account for their stewardship. “Clearly we are entering a new phase in our economy as locals become more interested in investing in shares, but along with that new interest, they must be empowered with the knowledge that permits them to participate in the affairs of their companies,” the writer said. The regulatory authorities were therefore called upon to promote education about share owning and the role that shareholders can play in companies in which they have invested.
Meanwhile, chartered accountant Andrew Brathwaite said that in most cases small shareholders in a public company do not have very much influence over the company’s operations and activities. “Small shareholders, those holding considerably less than, say, five per cent of a company’s shares, perhaps generally intend to be passive shareholders,” he said in the November 17, 2008 BARBADOS BUSINESS AUTHORITY. He noted that they are content to receive regular dividends from the company and hopefully to enjoy appreciation in the value of their stock.
“It is unlikely that they have invested with any view to influencing the direction of the company,” Brathwaite said. He noted that small shareholders must therefore have confidence in the company’s management and, by extension, the majority or dominant shareholder if there is one. Brathwaite went on to say that small shareholders’ ability to influence a public company depends, to a large extent, on their ability to appoint directors to the board who will represent their interests. “In many of our local public companies, the existence of a majority shareholder makes this unlikely, as this shareholder will have the ability to appoint all of the directors to the board (unless the company’s by-laws provide otherwise),” the article stated.
The chartered accountant said most small shareholders are unaware of their rights as shareholders and therefore are unlikely to assert them. Moreover, a partner with one of the country’s leading accounting firms criticised the lack of information pertinent to the performance and operation of public companies in Barbados, in the October 29, 2007 BARBADOS BUSINESS AUTHORITY. Philip Atkinson, head of assurance services with PricewaterhouseCoopers said: “The tight-lipped approach of past generations of management will no longer work with more educated and demanding investors. “Those days are over. Investors in Barbados want to know how well management is looking after things . . . and they are beginning to understand that they have the right to ask for more information to assess performance,” he added.
Atkinson said chief executives and directors had to accept that agitation in the investor community had been growing steadily over the past ten years and would continue.
“In effect, the balance of power between corporate management and shareholders in Barbados, which traditionally favoured management, is shifting towards shareholders.” Furthermore, Atkinson warned, the shift required a change in management style as shareholders demanded greater transparency and accountability from senior executives and boards of directors. He lamented that few Barbadian companies were holding “regular shareholder sessions or making presentations to the investor community where there can be any real two-way communication”.
Atkinson noted that most publicly-listed companies’ investor communication consisted mainly of one annual report, an annual general meeting, and “little else of substance” for the rest of the year. In the July 21, 2003 BARBADOS BUSINESS AUTHORITY, legal consultant Errol Niles said it was good to see that some shareholders were beginning to speak out about activities in public companies and suggested that activism and transparency in corporate governance were likely to increase. “There are some things minority shareholders could do in terms of getting action on a number of issues. These would of course depend on the by-laws and articles, but they could requisition the directors to convene an extraordinary general meeting.
“Alternatively, shareholders representing less than five per cent of the voting rights of the company could require the company to circulate a resolution for discussion at the annual general meeting,” he said. Niles said every member making the request should follow the procedure in the by-laws and sign the resolution before the meeting. “It should not conflict with the company’s articles of association or attempt to interfere with the management of the company,” he noted, adding that since this could bring unwelcome publicity to a company, a compromise position is often agreed to in return for shareholders dropping the requisition. Niles said minority shareholders may also apply to the court, by petition, for an order on the grounds that the company’s affairs are being conducted in a manner that is unfairly prejudicial to the interests of its members generally or of some part thereof.