Independent shareholder rights to board representation​

(03 Mar 2016, Daily News)

 

The proposal in the last budget by Finance Minister Ravi Karunanayake, to the effect that shareholders of companies who hold at least 15 per cent of the voting rights in a company and 10 percent in a bank, should be given board representation.

Good governance activist K.C.Vignarajah had then said the proposal was long overdue,but much welcome. He had wanted shareholders of 10 percent to be entitled for the board seats. However the delay in implementation is worrisome and is one of the main causes of the lack of confidence in the sharemarket.

 

Truly "Independent Directors" are needed to ensure a fair balance of judgment in the management of companies, much to the benefit of the investing public and independent minority shareholders(IMS).

“The essential function of a director should be to protect the interest of the company, shareholders, employees and other stakeholders engaged in creating an enterprise society to benefit the country. Accountability and transparency of an entity where there is direct or indirect public shareholding is vital. It is in this regard that independent minority shareholders' representation on the Boards become important, if not the most important factor” he said.

 

K.C.Vignarajah has been at the forefront of the battle against unfettered corporate control and has been tirelessly pushing for reforms to instill good governance in companies, particularly listed companies and its subsidiaries or associates.

He added that ‘today good governance is followed mostly in name and not in practice. Many of the so-called independent directors do not have significant stakes in the company, but benefit from monthly salaries,fees and perks handed out by the Controlling Interest and Related Party(CI&RP).

 

Public shareholders,however, have their own money invested in the company and have much to lose, if the company is mismanaged. Today,representatives of public shareholders don't have a view or voice in the affairs of the company because the controlling interest(CI) appoint all the directors. Directors control the proxy machinery at meetings to make sure either they or their nominees are appointed to the Board.

Many CIs for their money derive unjustifiable higher benefits of control and deployment of staff and assets,salaries,fees and perks. The Investments of the IMS are entitled only to dividends and value appreciation(If any), which are dependent on good management, transparency and accountability, he said. Invariably they have lost much in a mafia manipulated stock market, without proper checks and balances and deterrent punishment for wrongdoing.

 

The President,Prime Minister,Finance,Economic,Investments and Foreign Diplomacy Ministers their deputies and special advisors must give the leadership to create a paradigm shift, with the slogan:”Energize enlightened, Creative, Competitive, Caring Capitalist enterprise (ee4C) and Destroy deceiving, Corrupt, Crony Capitalism (dd3C).” Many of those at the helm are Royalists (Polonnaruwa and Colombo varieties). Rightous robust and reliable Royalists cannot let down their great alma mater. He further added, ‘independent directors’ are like white elephants in companies, appointed for the sake of compliance with the listing rules,but doing little or nothing to question the management on dubious transactions.

 

The SEC Act and Listing Rules must be amended immediately to save the CSE and the investing public.In the past year we have seen shareholders being menacingly threatened and in some instances assaulted for asking questions from management on transactions. In one case a shareholder was threatened for strongly supporting Vignarajah's views on the dismal performance and mismanagement of the company at their AGM.

 

What was the regulator doing during these times? Did they summon both parties over a written complaint by the victim endorsed by three reliable eye witnesses.

The regulator must be more assertive in making sure companies follow the spirit and purpose, not merely the letter of good governance.

They have to let the committed IMS do the job through their representation, said the veteran campaigner for virtually the Human Rights of the honest, hardworking people to retain their life savings and livelihood.

When questioned on the potential conflict of interest that would follow if shareholders from competing companies are allowed an automatic right to a seat on the Board. Vignarajah responded that ‘it is such a simple solution.

Obtain an affidavit from an Independent Director, that he was not, and will not be related,connected or influenced by the controlling interest. He would further declare that he does not have any interest conflicting whatsoever, with those of the company or the group'. Many controlling group directors have flagrantly participated in related party transactions(RPT)and also mismanaged the companies, unjustly enriching themselves and impoverishing the public shareholders. It appears that the regulators are unwilling or do not have the capacity to redress.

 

Therefore, IMS need adequate board representation. In fact, it will be a healthy move to have a majority of independent shareholder representation on the board who would be very supportive of an honest management, which will grow the company and equitably share the benefits with all the stakeholders. It is logical the CI have control of the employees,management and the board aided by opaque and secretive practices.

The errant CI even organise crony minority shareholders(CMS) to filibuster and divert attention away from their misdeeds which are questioned by the independent minority shareholders (IMS).

Vignarajah said that he would be writing to the Securities and Exchange Commission(SEC) Chairman Tilak Karunaratne who seems to be sidelined if not isolated, by key elements in administration and the Commission who played ball with the previous regime.

 

He called on SEC to support the Finance Ministry and other relevant ministries to secure the effective minority shareholder participation in the appointment of independent directors.

“The stock market has not regained investor confidence that was lost during the previous regime, due to corrupt and unethical practices of officials and those managing public listed companies.

 

It is incumbent for the SEC to do what it's supposed to as a regulator and act on this proposal immediately with the above suggested amendments to ensure better performance,and transparency in the workings of all public listed companies,” he said. “The essential function of a director should be to protect the interest of the company, shareholders, employees and other stakeholders engaged in creating an enterprise society to benefit the country.

Accountability and transparency of an entity where there is direct or indirect public shareholding is vital. It is in this regard that independent minority shareholders' representation on the Boards become important, if not the most important factor”