By Kenneth Kwama
It is the season of annual general meetings (AGMs) for listed companies and shareholders will be trooping into meeting venues to discuss performance of their companies.
It will be history of sorts in the making on August 19 when shareholders of the country’s largest mobile provider, Safaricom, host its 830,000 stockholders in Nairobi for what is shaping up to be a precedent-setting gathering.
In a break from tradition, the mobile provider has announced it will deny its shareholders usual luxuries like transport to the venue, lunch and other give-aways like T-shirts, caps and umbrellas, which had become hallmarks of such meetings.
Safaricom’s chief investor relations officer Les Baillie was quoted saying AGMs have become social meetings with huge costs where some come to take the giveaways and lunch and do not bother about the annual reports.
The move, which would reportedly save the mobile company a whooping Sh332 million, could have come late, but industry experts and investors say if adopted, it could save companies billions of shillings and help focus shareholders on the core reason for such meetings.
"An AGM is an important undertaking for both investors and management of companies, and allows shareholders to interrogate companies’ operations, unfortunately most investors have not taken the occasion seriously," says Mr Odhiambo Ochola, an investment banker in Nairobi.
Part of Ochola’s work is to advice investors to help them understand and engage with the companies they invest in on issues such as investment, accountability, governance, and long-term strategy.
He says that when you own stock, you are in fact part owner of the company whose shares you’ve bought, and that vests you with certain rights and powers. "When shareholders go to such meetings, they should comb through the minutes and raise any objections or questions they may have as a way of inculcating transparency and accountability on the board of directors and company’s management," says Ochola.
In addition to raising issues directly with the companies they have invested in, owning stock in a company also creates opportunity for shareholders to initiate or file proposals on issues they are concerned about. These are commonly known as proposals or resolutions.
Safaricom announced that it would pay out dividend of 10 cents for each ordinary share held with average payment for the retail investor being Sh491. The company will spend Sh4 billion to pay the dividends.
While every shareholder has a right to receive dividend under the Companies Act, there is no corresponding obligation on the company to declare or pay dividend.
Board of directors
In fact, it is ironical that though shareholders are regarded as the owners of a company, it is the board of directors, which plays the decisive role in payment of dividend, which explains why stockholders ought to engage them more during AGMs.
In Kenya, the focus has been on dividends to the extent of neglecting other important proceedings like interrogation of the annual reports and neglect of important sections that detail financial operations and other important disclosures during AGMs.
What the historical dividend yield means is that investment in stocks, to many people has been like a savings account that pays a respectable rate of ‘interest’ (in the form of dividends).
The question, however, is, are companies legally obligated to pay regular dividends and hold AGMs?
According to the Managing Director of Kenya Planters Co-operative Union Gerald Masila, listed firms are legally obligated to hold regular AGMs as this implies accountability of the management to shareholders.
However, it is not obligatory for the company to pay dividend and it is not an offence for such companies not to pay out dividends.
Masila says there is a lot of misinformation about AGMs, a situation that is being worsened by the fact that several shareholders in the country don’t know their rights and obligations.
"For example, many minority shareholders don’t know that they are protected by law that shields them from unilateral threats from majority stockholders. Most shareholders don’t know they have the power to overturn some decisions initially made by directors, but which are subject to ratification," says Masila.
The situation in the country has been exacerbated by shareholders fixation over dividends. In fact, the common question has become how much is being offered as dividend as opposed to did the company make any profits or loss?
Some shareholders have been investing in stocks for the sole reason of getting dividend payment and when they don’t benefit, they become dissatisfied with the management of the company.
This explains why most investors have been quick to express grievances when companies make profits but do not pay part of it as dividend to shareholders.
"Why should I invest my hard earned money in the stocks of a company if the reason is not to get back profit in terms of dividend?" pauses Ms Irene Ayoma, a small-time investor who bought shares in a listed company, but says she wouldn’t attend the company’s AGM because it would be meaningless.
"There is no reason why I should go there, stay hungry and then go back home empty handed. It simply doesn’t make sense," says the nursery school teacher who works in Nairobi.
Despite Ayoma’s misgivings about AGMs, Ochola says they offer shareholders like her opportunity to interrogate company operations and even scrutinise details like payment to directors and any possible conflict of interest their operations might pose to the company.
Financial details
Ochola says there are several other things like capital expenditure and smaller financial details, which are always tucked away in financial sections or footnotes of the annual reports, which shareholders have the opportunity to question during AGMs.
"Attending AGMs is important because it affords stockholders the opportunity to enquire the rationale of certain expenditure or even question the lifestyle of directors and other things that may not add any value to the bottom line," says Ochola.
Besides the quest for dividends, other reasons like capital gain in the long run or long term investment in a sound company, have also driven people to invest in stocks.
