- Shareholder activism has been on the rise in Nigeria in recent years, but there are concerns about the effectiveness and accountability of shareholder associations.
- There are concerns that some shareholder associations may be collaborating with corporate executives in corrupt practices, undermining the integrity of the capital markets.
- The Securities and Exchange Commission (SEC) has released a code of conduct for shareholder associations, but it remains to be seen whether this will be enough to address the challenges facing shareholder activism in Nigeria.
The privatization program of the Nigerian government in the late 1990s and early 2000s ushered in a new era of shareholder activism in the country.
However, as more and more shareholder associations have emerged, there are concerns about their effectiveness and accountability.
Market operators have alleged that some of the shareholder associations collaborate have been seen as collaborating with corporate executives in corrupt practices, while others are seen as being more interested in personal enrichment than in protecting the interests of shareholders.
The Securities and Exchange Commission (SEC) has released a code of conduct for shareholder associations, but it remains to be seen whether this will be enough to address the challenges facing shareholder activism in Nigeria.
The Rise of Shareholder Associations in Nigeria
Before the privatization program of the Nigerian government, most shareholders were passive investors who were content to let management run the companies without interference.
However, as more and more companies were privatized and came under the control of private shareholders, these new owners began to demand more accountability and transparency from management.
One of the leading figures in the rise of shareholder activism in Nigeria was the late Akintunde Asalu, the president of the Nigerian Shareholders Solidarity Association (NSSA).
Asalu founded the NSSA in 1998 to educate shareholders about their rights and empower them to hold management accountable.
Under Asalu’s leadership, the NSSA became a powerful voice for shareholder rights in Nigeria. His work through the NSSA helped to open an era of shareholder engagement in the capital market.
Following the NSSA’s lead, other shareholder associations began to spring up. Some of these associations were formed based on location, while others focused on specific industries or sectors. Still, others were created simply to capitalize on the economic and commercial benefits that came with being a shareholder association.
Data obtained from the Securities and Exchange Commission (SEC) by Nairametrics showed that currently 111 shareholders’ groups are recognized by the SEC and are also registered by the Corporate Affairs Commission (CAC) ( The Securities and Exchange Commission, Nigeria).
Other shareholder associations in Nigeria include: The Independent Shareholders Association of Nigeria (ISAN); The Zonal Shareholders Association of Nigeria (ZSAN), which is made up of eight zonal shareholder groups: Ibadan, Onitsha, Lagos, Abuja, Kaduna, Port Harcourt, Kano, and Jos Zone Shareholders Association; The Progressive Shareholder Association of Nigeria (PSAN); The Renaissance Shareholders Association of Nigeria (RSAN);
Proactive Shareholders Association; The Association for the Advancement of Rights of Nigerian Shareholders (AARNS); and The New Dimension Shareholders Association, among others with a variety of names and groupings.
However, the proliferation of these associations, coupled with the lack of proper regulation has led to a loss of trust among investors and companies.
This is despite a code of conduct for shareholders’ associations formulated in 2016 by the Securities and Exchange Commission to uphold ethical standards among the members.
shareholder associations as currently exist are neither effective nor respected and therefore, not taken seriously by stakeholders including public companies.
They are perceived as often seeking pecuniary benefits from companies as against ensuring good governance.
The associations are also perceived as disruptive rather than disciplined at AGMs. Besides, there are too many shareholders’ associations, making it difficult for regulators and others to effectively engage with them.
Concerns over collaboration with corporate executives
Nairametrics gathered that though the rise of shareholder activism in Nigeria is a positive development, there are allegations that some shareholder associations may be collaborating with corporate executives in corrupt practices.
This is a serious issue that needs to be addressed by regulatory agencies and reputable corporate leaders.
There have been allegations that some annual general meetings in Nigeria are being rigged.
Once the leaders of the shareholder association are bribed, shareholders are simply told to sing the praises of management, rather than asking questions about the company’s finances.
This is a serious problem, as it undermines the integrity of the capital markets and prevents shareholders from holding management accountable.
Even more concerning is the hand-on-the-glove partnership between some shareholder associations and vested interests in the market.
These individuals are quick to lend themselves to manipulation by these interests, which are often inimical to the interests of the generality of investors.
AGMs in Nigeria becoming ineffective:
Annual general meetings (AGMs) are a critical opportunity for shareholders to hold management accountable and to ask questions about the company’s performance.
However, some AGMs monitored by Nairametrics revealed that some of the meetings have become increasingly ineffective, as shareholders have taken on the role of “praise singers” and executives have become insulated from scrutiny.
Some executive members of many shareholder associations now maintain close personal relationships with the executives of the firms they are meant to check.
This has led to a situation where shareholders are more likely to sing the praises of management, even in the face of poor performance, than to raise critical questions and they are discouraged from raising any issues that management may deem to be sensitive.
This has made it difficult for shareholders to hold management accountable and to ensure that the company is being run in its best interests.
The situation is further compounded by the fact that some chairmen of boards of companies have been “sold on the praise singing drama.”
These chairmen are more likely to give an audience to those who sing their praises, even if they are not asking any meaningful questions.
This further discourages shareholders from raising critical issues, as they know that their concerns will not be taken seriously.
The decline of AGMs in Nigeria is a serious problem. It undermines the integrity of the capital markets and prevents shareholders from holding management accountable. This is a threat to the interests of all investors, and it needs to be addressed.
SEC’s Code of Conduct for Shareholders’ Associations:
In a bid to promote good governance and give a clear understanding of the principles of business conduct and ethics that are expected of shareholders during general meetings of public companies as well as their relationships with the companies outside general meetings, a code of conduct for shareholders’ association was released in 2016 by the Securities and Exchange Commission (The Securities and Exchange Commission, Nigeria).
The code of conduct was to ensure that association members uphold high ethical standards and make positive contributions to ensuring that the affairs of public companies are run ethically and transparently.
The code makes explicit provisions that the associations must abide by. These include having a constitution or bylaws, which shall govern the operation and membership of the association; having executive officers who must be elected through an electoral process; maintaining books of accounts which shall be subject to annual audit by a qualified auditor, filing annual returns to the Corporate Affairs Commission (CAC); filing an annual report of its activities with the SEC among others.
The code was also aimed at sanitizing the activities of shareholders’ associations and positioning them to effectively promote good corporate governance in public companies for enhanced shareholder value.
It was also intended to ensure the highest standard of conduct among association members and the companies with whom they interact as shareholders.
Lamido Yuguda, Director General, SEC stated recently that in 2016, under Section 8(y) of the Investments and Securities Act (ISA), the Commission released a Code of Conduct for Members of Shareholders’ Associations to guide their conduct during general meetings of public companies and their relationship with public companies outside the general meetings, and for other purposes connected therewith.
According to him, This Code is still in force and is intended to ensure the highest standard of conduct amongst members and the companies with whom they interact as bona fide shareholders.
- He said, “The Code is designed to ensure that association members uphold high ethical standards and make positive contributions in ensuring that the affairs of public companies are run ethically and transparently in compliance with the Nigerian Code of Corporate Governance and the SEC Corporate Governance Guidelines”.
However, the National Coordinator Emeritus and Founder of the Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu said the proliferation of shareholders associations should be blamed on SEC.
According to Nwosu, his group is not against any other association growing as a formidable association would engender good corporate governance in the system.
He noted however that on various occasions when ISAN had called on the SEC to investigate some of those associations he described as a one-man show that has brought disrepute to the system to determine their ingenuity, SEC had refused to act.
He explained that the rules that any group that has up to 50 members should be allowed to register as a shareholder’s association was approved during the Al-Faki regime but according to him some of these groups currently don’t have up to five followership.
- “These people don’t even know that registration won’t take them to AGM unless they are shareholders in the company, hence they keep on causing trouble at various AGMs,” he said.
What the shareholders are saying:
The National Coordinator of ISAN, Mr. Moses Igbrude in an exclusive chat with Nairametrics said that the challenges of too many associations on a common course, control will be a herculean task because of mutual suspicion.
He noted that why it is the right of people to form an association it is also expected that their rights go with responsibility.
- “They should abide by the constitution which they use in forming the association. The truth is that when we set up an association, we should follow our mission statement.
- The challenges are that when you have too many things like these associations, control will be a problem, you will also have a mixed multitude which will include bad eggs and mutual suspicion, in the process we undermine each other,” he said.
He noted that some companies take advantage of the multiple associations to create divides and rules to achieve their purpose of undermining the interest of the minority shareholders.
- “Even the Chairman of the board of directors of some companies encourages rascality at the AGMs, they select who among the shareholders will sing their praises to speak at the AGMs,” he said.
He noted that without unity of purpose among the associations to pursue a common goal is a very big concern to the growth of the capital market.
The chairman, of the Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, said the development is worrisome because of the bad image it tends to create.
Okezie likened the emergence of many shareholders associations to the high number of political parties that registered in the just concluded 2023 elections in the country.
He said many of the associations are posing to represent the shareholders, while in fact, they have no mission.
- According to him, “Most of the said shareholders’ associations have no mission of what they are out to achieve. They think the shareholders’ platform is a place to make money. Their activism attempts cannot help the shareholders because they do not understand the principles and ethics of being a representative to the shareholders.
- “If you look closely at their activities, you will discover that they are not complying with Companies and Allied Matters Act (CAMA) laws. They think all the associations representing companies’ shareholders should be concerned about only getting dividends”.
PSAN Chairman said some of the associations are now like market women roaming in the market. He, however, blamed the situation on the market regulator.
The President of the New Dimension Shareholders Association, Mr. Patrick Ajudua speaking to Nairametrics on the reason for a staggering number of shareholders associations said that it has to do with the capacity of the older associations to adhere to their core mandate which is the protection of the interest of the minority shareholders.
- “Where the mission is lost, some members will decide to move away to form another association based on their ideology.
- It is likened to a political party that is formed based on ideology and decided to derail from it, some members may decide to realign themselves to form another association,” he said.
Ajudua added that associations are formed based on the geographical location of members for convenient sake.
- “For instance, shareholders association in Kano may decide to restrict their membership only to the Northwest zone,” he said.
He stated further that some shareholders may also decide to derail by not following the objectives of the association they belong to, thereby compromising their independence as activists.
Speaking on the challenges of the multiple associations, Ajudua said:
- “The situation will make it fight a united battle for the liberation of unfriendly policies in the capital market.
- It will be very difficult for regulators to deal with multiple shareholders of over 100 because they will not know who to deal with without causing injury to others.
- There will always be difficulty in harmonizing positions on matters that affect the minority shareholders in Nigeria,” he said.
Mr. Mike Eze, Managing Director, Crane Securities Limited, speaking on the way forward for shareholders said shareholder activism in Nigeria should not be synonymous with confrontation and intimidation but effective engagement.
Eze noted that to do so requires knowledge of their companies and an understanding of the subject matter.
- “Effective shareholder activism complements regulators in investor protection, promotes good corporate governance, and could enhance shareholder value.
- To make Shareholders’ Associations stronger, more influential, and more effective and indeed enhance shareholder value, it is advised that some of the associations should form stronger alliances by way of mergers. Mergers would produce stronger and better associations.
- It is also worthy of note that stronger and more coordinated Shareholders’ Associations would foster the protection of investors’ interests through the enhanced scrutiny of the activities of companies by members of the associations.
- Through the associations, shareholders would also be provided with platforms for networking and exchange of ideas as the associations enlighten members through their meetings and capacity development programs,” he said.