the rise of the shareholder activist versus capital markets trade


Activism adapted from adweek.com
(Pic adapted from http://www.adweek.com)

I BUMPED into the phrase ‘Shareholder Activist’ last week with some irritation; more accurately, it found its way into my phone via WhatsApp, which, these days, is my main source of intellectual garbage, high-strung emotion, low-level drama and occasional amusements.

After reading the term I headed to Google to confirm that the conversation we were having in that Group made sense, and found that there is an official term with quite a different meaning from the way everyone was talking about this particular ‘Shareholder Activist’.

The recognised term is ‘Activist Shareholders’, defined as “one using an equity stake in a corporation to put public pressure on its management.

The conversation came about because three of our pitifully few listed companies in this country were holding AGMs (‘Annual General Meetings’ to you, if you’re the kind that crammed your way through school) last week.

Company shareholders (of listed companies or private ones) are supposed to be active, especially during this most important meeting when they get to hold the company Board and Management Team to account.

Unlike what happens for about eleven months and twenty nine days of the year, the shareholder gets to attend the AGM one day and in a structured manner address the Board of the organisation.

By that time, the accounts and Annual Report would have been circulated so the shareholders read through them in detail and then raise issues, observations and suggestions while attending the meeting itself.

During the rest of the year, the Shareholder is represented by the Board of Directors which on a monthly or other periodical basis keeps tabs on the Management Team and ensures they are sticking to their approved strategy – approved, that is, by the Board of Directors on behalf of the shareholders.

See, the shareholders entrust the Board with approving and supervising that strategy, and it is this trust that they vote on during AGMs when they select their respective Board Members. The shareholders, normally by voting publicly during the AGM but sometimes following prescribed methodologies built into the company registration documents, get to choose who will be Director of a Company. The Director, “directs” – showing the management team where, in general, they should set their sights or in which direction they should go.

The Management Team or Executive Management, “manages” the company or “executes” the strategies as approved by the Directors.

It is a system that works beautifully if followed carefully and, as the phrase goes, to the letter.

Sometimes, though, there will be incidents such as those occasioned by the Activist Shareholder who, rather than walk within the marked lines, will take up as many other tools as possible and rocks the boat – or tries to.

Sometimes they take legal action – which is respectable and even, in some instances, admirable.

Other times they will rally shareholder troops and attempt a mutiny during the AGM – also admirable for the mobilisation skills on display, if successful.

Then there are the times the ‘Activist Shareholder’ does the despicable and goes after the very entity that, in essence, feeds him or her.

Until they have dug deeper, the ordinary onlooker will be confounded by those times the ‘Activist Shareholder’ attacks the very same company whose share value would ensure him or her (the ‘Activist Shareholder’) a return on the shareholding investment they made when they bought shares.

See, people buy shares in public (and private) companies in the hope that they will perform well, increase in value, make a profit, and pay them (the people who have bought shares) dividends every year until such a time as the initial investment has been paid back and then the shareholder is earning a profit.

Many of us don’t realise quite how this works, and how important it is for the company in which we have shares to perform well so that it pays back our investment in those shares, while also providing the service or product it was principally set up to provide.

A few weeks ago, ahead of last week’s AGMs, someone in a WhatsApp Group identified three people who they claimed would be at the centre of controversy during the meetings. Their shareholding in the companies involved, the WhatsApp Group stated, was so small that the only reason they had invested was to gain notoriety from their controversial actions during the public, much-publicised AGMs.

It didn’t happen the way this person predicted or feared, but this time round we still saw Activism but of a more despicable kind. A very lengthy and elaborate missive did the rounds with well-stated accusations that would obviously be difficult for the ordinary person to authenticate or verify.

On cutting through a few of them, however, by the second page it was pretty obvious where the piece was heading, but one read on (past tense) hoping to be disappointed by finding it to be hard hitting and factual in that way that would turn a shareholder’s fortunes for the better.

Sadly, it didn’t. It could have probably done quite the reverse in a market with few listed companies and a rather jittery, uninformed, impressionable public.

Luckily, instead, I saw WhatsApp Groups erupting in unflattering commentary that somebody quite recently labelled “intellectual garbage, high-strung emotion, low-level drama and occasional amusements”.

In real life, share prices stayed the way they were and shareholders queued up for their dividends then retired home to wait for next year. The Activists are at bay for now, till the next opportunity arises…

Follow the occasional Twitter hashtag #EconomicsUG. 

One thought on “the rise of the shareholder activist versus capital markets trade

  1. Dear Simon,
    A Vision Editor friend brought this to my attention today, saying that you had written about my Shareholder writing about Stanbic Bank Uganda- it had skipped me, but I can make good on response right away.
    First of all thanks for reading the ‘intellectual garbage’ ha ha
    Also I love how you breakdown the ideal corporate governance setup from management and Director roles, fantastic.

    Indeed going legal is perfect, and it is something that I have pursued with other shareholders in unlisted companies as below:

    http://www.theeastafrican.co.ke/business/Baati-minority-shareholders-in-court-to-push-for-fair-deal/2560-3470678-l61nbtz/index.html

    http://www.monitor.co.ug/Business/Uganda-Baati-taken-to-court-over-dubious-transfer-pricing/688322-3521340-tjnmrz/index.html

    And for listed companies we have the Capital Markets Authority (CMA), whose slogan ironically is ‘protecting investors’.

    On the Mutiny bit, it has been done here before and trust me at AGMs with lingering pre-AGM lingering questions there is Police and security is heightened like Besigye would be in attendance; these companies communications departments and PR offices also run shareholder spy rings- they encircled me once; the written Lone ranger approach is the only viable approach.

    This was about THEFT, the majority shareholder using their power to steal and conceal and like I replied (link below) to an article by the Stanbic Bank Uganda Director Professor Sejjaaka along the same lines you present the same applies to some of the issues you raise.

    Link: https://www.facebook.com/notes/muhimbise-andrew/the-real-minority-shareholders-of-stanbic-bank/1442045015841664/

    No we or I for that matter don’t buy shares to gain notoriety, we question so we improve that market fundamentals like better dividend yield and it is a process not some event; others will build on that wherever we live it at- I can reliably inform you the URA interviewed me ti understand what my complaints on transfer pricing were and I pointed them to Nigeria where a sister company to Stanbic Bank was indicted for those same practices; inflated IT costs and managements fees.
    18 months ago Stanbic Bank’s share price was 35/= a share today it is 27/=; I don’t know may be am blind!

    Andrew Muhimbise

    Like

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