News
COMMON CONCERNS OF MINORITY SHAREHOLDER
26 July 2006
It appears that minority shareholders have become more aware and critical of board proposals. Suspicions of lack of integrity, transparency and accountability on the part of decision makers of such proposals abound.
MSWG believes that employing high standards of governance and stewardship is of utmost importance when deals are made involving the company’s resources. Ensuring investors’ trust and confidence in the company they invest in plays an important role in the healthy functioning of the capital market. It is timely, therefore, to highlight some common concerns for consideration of directors and their advisers in order that minority shareholders’ grievances, disappointments and complaints can be adequately addressed.
Board Tussles
Board tussles between rival factions and companies often impact negatively on the company’s performance in the market when they take too long to be resolved. Minority shareholders caught in the middle regard these delays as an act driven by selfishness and “a couldn’t care less” attitude.
Voluntary General Offer (VGO)
Minority shareholders feel duped when the offer prices made by the offeror fall below their expectations. They feel deprived of the company’s true net worth and that their interests are being set aside for the greater interests of the more powerful major and controlling shareholders.
Proposed Acquisitions
Directors come under heavy scrutiny by minority shareholders whenever they make proposed acquisitions for investments away from the company’s core businesses. Their concerns as minority shareholders get heightened when they see the purchase considerations to be on the high side and the investments risky.
The onus is on directors to convince minority shareholders to keep them informed of the rationale and objectives for the proposed acquisitions. Directors should not be dispassionate nor emotional when questions are raised querying the risk factors involved which might adversely affect the bottom-line and earnings of the company.
Large Deposits, Surplus Cash and Large Bank Balances
Minority shareholders see large deposits and surplus cash as being available for larger dividend distributions. The Board should recognize this and should attempt to be fair in their dividend proposals.
Related Party Transactions
Minority shareholders are often quite confused or even puzzled over the extent of related party transactions that could affect their interests. They are generally unclear over the effect and unsure how to raise their concerns to directors who could be substantially involved in related party transactions with fellow directors and/or connected persons, or family members.
The nature and characteristics of related party transactions are generally complex. The only saving grace is the requirement that they be made on terms that are at arm’s length. Minority shareholders can only hope and assume that fair play and integrity have been duly exercised by those involved in the decision making.
Inter-Company Advances and Debts
Minority shareholders are always concerned about inter-company advances and debts especially when substantial write-offs occur. They wonder whether proper rules and regulations are in place for such substantial write-offs, sometimes benefiting the major and controlling shareholders.
Frequent Restructurings
Minority shareholders do not like to see frequent restructurings of companies which they think could be costly and do not benefit them. Their worries are about erosion of their voting rights and that they could be sidelined by major and controlling shareholders.
These issues mentioned above are complex and not easily understood by most retail investors. Minority shareholders often find it difficult to appreciate the rationale and objectives of proposed restructurings. Independent advisers generally tend to offer their recommendations to vote in favour, expressing their opinion on a fair and reasonable basis only.
As a watchdog group, MSWG tries to alleviate these concerns by various means:
MSWG is of the view that giving due recognition to the true and proper role of minority shareholders will go a long way towards creating a healthy and robust capital market.
OTHER COMMON CONCERNS
Other common issues faced by minority shareholders are:-
Abdul Wahab Jaafar Sidek
Chief Executive Officer
Minority Shareholder Watchdog Group (MSWG)
Dated: 26 July 2006
26 July 2006
It appears that minority shareholders have become more aware and critical of board proposals. Suspicions of lack of integrity, transparency and accountability on the part of decision makers of such proposals abound.
MSWG believes that employing high standards of governance and stewardship is of utmost importance when deals are made involving the company’s resources. Ensuring investors’ trust and confidence in the company they invest in plays an important role in the healthy functioning of the capital market. It is timely, therefore, to highlight some common concerns for consideration of directors and their advisers in order that minority shareholders’ grievances, disappointments and complaints can be adequately addressed.
Board Tussles
Board tussles between rival factions and companies often impact negatively on the company’s performance in the market when they take too long to be resolved. Minority shareholders caught in the middle regard these delays as an act driven by selfishness and “a couldn’t care less” attitude.
Voluntary General Offer (VGO)
Minority shareholders feel duped when the offer prices made by the offeror fall below their expectations. They feel deprived of the company’s true net worth and that their interests are being set aside for the greater interests of the more powerful major and controlling shareholders.
Proposed Acquisitions
Directors come under heavy scrutiny by minority shareholders whenever they make proposed acquisitions for investments away from the company’s core businesses. Their concerns as minority shareholders get heightened when they see the purchase considerations to be on the high side and the investments risky.
The onus is on directors to convince minority shareholders to keep them informed of the rationale and objectives for the proposed acquisitions. Directors should not be dispassionate nor emotional when questions are raised querying the risk factors involved which might adversely affect the bottom-line and earnings of the company.
Large Deposits, Surplus Cash and Large Bank Balances
Minority shareholders see large deposits and surplus cash as being available for larger dividend distributions. The Board should recognize this and should attempt to be fair in their dividend proposals.
Related Party Transactions
Minority shareholders are often quite confused or even puzzled over the extent of related party transactions that could affect their interests. They are generally unclear over the effect and unsure how to raise their concerns to directors who could be substantially involved in related party transactions with fellow directors and/or connected persons, or family members.
The nature and characteristics of related party transactions are generally complex. The only saving grace is the requirement that they be made on terms that are at arm’s length. Minority shareholders can only hope and assume that fair play and integrity have been duly exercised by those involved in the decision making.
Inter-Company Advances and Debts
Minority shareholders are always concerned about inter-company advances and debts especially when substantial write-offs occur. They wonder whether proper rules and regulations are in place for such substantial write-offs, sometimes benefiting the major and controlling shareholders.
Frequent Restructurings
Minority shareholders do not like to see frequent restructurings of companies which they think could be costly and do not benefit them. Their worries are about erosion of their voting rights and that they could be sidelined by major and controlling shareholders.
These issues mentioned above are complex and not easily understood by most retail investors. Minority shareholders often find it difficult to appreciate the rationale and objectives of proposed restructurings. Independent advisers generally tend to offer their recommendations to vote in favour, expressing their opinion on a fair and reasonable basis only.
As a watchdog group, MSWG tries to alleviate these concerns by various means:
- Highlighting issues to respective companies via correspondences and/or attending AGMs and EGMs.
- Produce reports and analysis on companies. Corporate Governance 2004 is now available for sale. Corporate Governance Survey 2006, Corporate Governance Screencard, Dividend Survey, Dividend Analysis and Corporate Governance Analysis would be available by the end of the year.
- Conduct seminars and conferences
- Publish articles for the media
- Conduct media interviews
- Availability of website
MSWG is of the view that giving due recognition to the true and proper role of minority shareholders will go a long way towards creating a healthy and robust capital market.
OTHER COMMON CONCERNS
Other common issues faced by minority shareholders are:-
- The venue and time of the AGM or the EGM, including complimentary parking space
- The absence of Chairman and Directors at the AGM and EGM respectively,
- The inadequate provision of refreshments and food at the AGM/EGM,
- The Chairman and directors not allowing enough time to address issues and ask questions at the AGM or the EGM,
- The appointment and re-election of directors under the resolutions without directors concerned making an introduction of themselves at the AGM before their shareholders approval, and
- The Board and directors often do not make an introduction of the Auditors to the shareholders or the change of auditors at the AGM for their consent to act as auditors.
Abdul Wahab Jaafar Sidek
Chief Executive Officer
Minority Shareholder Watchdog Group (MSWG)
Dated: 26 July 2006
