THE ISSUE: Legislation may be answer
The issue emerges whenever there is a major corporate merger or acquisition in Barbados. Concerns are raised about the rights of minority shareholders, those whose combined stock in an enterprise is less than 50 per cent. In fact, very often the percentage is in single digits.
It is a topic the Financial Services Commission (FSC), having assumed responsibilities previously held by the Security Exchange Commission, was recently drawn into in light of concerns raised in relation to the Almond Resorts Inc. and the sale of its three properties in Barbados.
In December last year FSC acting chief executive officer (CEO) Warrick Ward said his organisation was looking out for small shareholders, noting there were instances when it acted to ensure these individual rights were not infringed.
“As regulator we also are very interested in understanding the rights and we try to preserve the rights of the minority shareholders. If we have entities being bought over and they are leaving Barbados’ stock exchange we still maintain that they need to be registered with us so that they are under the regulatory ambit of the FSC and that we are able to preserve the rights of those minority shareholders,” he said.
“That’s something that we regulatory do here at the FSC. I obviously don’t want to call any names of companies, but there have been companies very recently that left the stock exchange, [they] either had been bought out or they just removed themselves off the exchange and we made sure that they are still registered here.”
This was after FSC acting deputy CEO Cyralene Benskin-Murray said there had been no complaints from Almond minority shareholders that their rights had been infringed.
Hilford Murrell, an attorney at law, financial consultant and co-founder of the Barbados Association of Corporate Shareholders, is one of those respected commentators on issues related to the stock market and the ownership and trading of shares.
His stated view was that “the composition of the majority of our corporate boards may cause some shareholders to question whether the interests of minority shareholders count for anything”.
“Perhaps the time has come when, either by legislation or moral suasion, minority shareholders are vested with the right to elect a director of their choosing. Alternatively, companies should designate and declare which of their directors will oversee the interests of minority shareholders, whose principal interest resides in obtaining full and fair disclosure of all material investment information,” he suggested.
Another expert, accountant and chartered secretary Nicholas Hughes, who is managing director at Monument Management Services Inc., suggested the establishment of a corporate governance framework in Barbados to resolve such concerns.
“It is worth pointing out that not all shareholders are at a disadvantage and it is certainly the case that not all shareholders are treated equally. A shareholder with a controlling interest can influence the direction of a company through its ability to control the composition of the board of directors,” he said in an analysis on the issue.
“We have seen real . . . examples wherein majority shareholders, enjoying distinct advantages over the smaller more dispersed shareholders, have displayed purely opportunistic behaviour at the expense of the minority shareholders. An appropriate corporate governance framework should ensure equitable treatment of all shareholders including minority shareholders,” he suggested.
Such concerns are not peculiar to Barbados.
One of the major concerns that often arises is shareholder oppression, where the majority of shareholders in an entity make decisions that unfairly disadvantage the minority stockowners.
In a paper examining shareholder rights and the equitable treatment of shareholders, Kittitian solicitor Anthony E. Gonsalves concluded that “the equitable treatment of shareholders is fundamental to the maintenance of public confidence in corporations and in the securities market in general and is achieved by the establishment of a minimum set of industry standards applicable across the board against which all corporate action and behaviour can be tested”.
“The failure to maintain the confidence of investors could result in a decline in share purchases and in a general lethargy in investment due to the uncertainty and unpredictability of corporate behaviour,” he said.
Internationally, specifically in Australia, Mark Easton, special counsel in litigation and dispute resolution at Sydney firm K&L Gates, also said it was prudent for company directors “to be mindful of their duty to act fairly between shareholders and consider carefully the effect their decisions could have on minority shareholders”.
“Majority shareholders may expect or demand that the company’s affairs be conducted in the manner most beneficial to them, even if that is detrimental to the other shareholders,” he said.
“While minority shareholders often have little or no ability to influence the affairs of a company, directors must nonetheless act fairly between shareholders and ensure their decisions promote the interests of the company and shareholders generally, not just the majority.”