Shareholders’ role during AGMs is crucial

Standard Chartered Bank Kenya
Standard Chartered Bank Kenya shareholders during the bank’s Annual General Meeting at the Safari Park Hotel in Nairobi on May 24, 2018. DIANA NGILA | NAIROBI 

It is that time of the year when most listed companies are holding their Annual General Meetings (AGMs).

My past attendance of several AGMs, specifically of companies listed on the Nairobi Securities Exchange has continuously made me wonder if some of the shareholders, understood the function or importance of the meetings.

In one AGM, a shareholder raised their hand to ask a question; he wanted to know why the company did not give them better gift bags, similar to the one he had received during an AGM at another company where he is a shareholder. Another shareholder asked why they were being give cold packed lunch.

While the directors graciously noted his comment, I realised that often times, shareholders divert from the core objective of the event and instead end up failing to exercise their rights effectively. At many AGMs, most questions are centred on gifts or food, nothing on the financial performance, business strategies and growth.

An AGM is a key medium used by companies for information disclosure to shareholders.

Disclosure of material information such as dividend payment, mergers, acquisition and law suits against the company are discussed during such meetings.

This therefore gives shareholders a chance to get more "credible" information so that they can take informed investment decisions.

In the case of listed companies, NSE Listing Rules, give guidance with regard to several aspects including disclosure, accountability and transparency in the company.

Through the shareholders ignorance the directors are do not give out the information. Therefore, the main purpose of an AGM is to comply with legal requirements including the presentation and approval of the audited accounts, election of directors, and appointment of auditors for the new accounting term.

Other items that may be discussed include compensation of officers, confirmation of proposed dividend, informing the members of future activities and issues raised by the shareholders.At the AGM, the chairman of the organization presides over the meeting and may also give an overall status of the organisation.

The company secretary prepares the minutes and may be asked to read important papers.

The chief financial officer or treasurer may present a financial report. Other officers, the board of directors and committees may also present their reports, depending on the nature of the report.

Shareholders with voting rights have to vote on issues such as appointments to the company’s board of directors, executive compensation, dividend payments and selection of auditors. This gives a chance to shareholders to have a say in the company they are investing in and also hold management and the directors accountable.

This means that shareholders must attend AGMs after comprehending the company’s previous and current annual report so that they are in position to discuss the critical emerging issues about the company from an informed perspective.

Shareholders in Kenya and East Africa market are not effective in playing their oversight role.

This lack of oversight by the shareholders could be disastrous to a company since directors have no one to check their decisions, and ensure that they’re making decisions not simply in their interests as individuals, but in the interest of the shareholders.

Once the attention of the shareholder is diverted from the company annual report and audited financial statements to the quality or size of the gift bag, then there is a problem.

If all stakeholders, including directors, regulators, and the shareholders play their roles, then we will be able to build stronger businesses that are sustainable and able to add value to the growth of our economy.