As its house finally gets in order after a long period of confusion over the chairman and the members of the Board, the Securities and Exchange Commission of Pakistan (SECP) appears to have moved quickly to pick up the thread of corporate sector reforms.

Last week, the commission released a guidebook stipulating best practices for conducting board meetings and (shareholders) general meetings in the light of requirements of the Companies Act, 2017.

There is little doubt that such a guideline and monitoring by the regulator was long overdue.

The formation of the board of directors has assumed importance after growing interest of qualified individuals — usually retired chairpersons and CEOs of major companies — to occupy the seat of an independent director. In contrast with the pittance that the directors were paid several years ago, big companies, particularly banks, now pay mouth-watering amounts in meeting fees to their board members.

All listed companies are required to hold a meeting for the election of directors.

Sometimes people purchase just ‘one’ share of a company with the aim of qualifying for participation in the AGM and return with a ‘lunch box’

Provision 161 of the Companies Act states that ‘a director shall hold office for three years unless they resign or vacate office earlier due to a fresh election, are disqualified from being a director, or otherwise cease to hold office.’

According to Section 154, the minimum number of directors of a listed company shall not be less than seven. The selection of the board and the conduct of orderly directors’ meetings leave a little to be desired, but it is the Annual General Meetings (AGMs) that remains to be regularised.

Every company is required to hold an AGM, once at least in every calendar year following the close of its financial year. The shareholders’ AGM provides an opportunity to investors to meet the board and discuss company affairs.

Yet in Pakistan, participation is seen to be generally low. Most minority shareholders who do attend are caught yawning at AGMs. This is perhaps due to the small number of investors in equities — by many accounts static at around 300,000 since last many years. And most small shareholders with meagre means are generally short-term investors in small-sized companies.

Often unlettered and with an aggregate stake of well under five per cent, small shareholders are neither able to understand the intricate entries in the financial statements, nor do they have the power to block the passage of resolutions that the board may propose to pass.

The AGMs of some companies are nonetheless swamped by shareholders, not for their interest in the proceedings but the “gifts” that the boards are forced to dole out.

In AGMs of scores of local listed companies, the questions by some genuine investors on the figures presented in the financial sta­tements are usually drowned in the cries for ‘gifts’ by the small sha­­reholders attending the meetings.

The ‘gift culture’ at the AGMs has witnessed a dramatic fall in recent times as managements have increasingly learnt to say ‘no’ following strict prohibition by the regulators.

But at some company meetings, the old habits have refused to die and small shareholders continue to pester the boards for such petty gifts as a wall clock, New Year’s diary, shirt piece, 2kg bags of sugar or even a lunch box.

Sometimes people purchase just ‘one’ share of a company with the aim to qualify for participation in the AGM and return with a ‘lunch box’.

At a recent general meeting of a refinery, some shareholders with bare minimum holdings, coerced the board for a gift with the threat to raise a cacophonous hullaballoo — in case of refusal — against the remunerations of directors stated in the annual accounts.

A high net-worth, value-investor who regularly frequents annual members’ meetings since decades in search for knowledge about companies, told this writer that the rumpus made by shareholders defeats the whole purpose of the AGMs.

In principle, the directors sitting on the dais are supposed to answer questions regarding the affairs related to the company, its audited accounts and future plans. “Such incisive intelligent questioning provides a clue to the investors to remain invested in the company or seek an exit through sale of their stake,” said this investor.

He recommends that large companies with big sums in market capitalisation should be directed by the regulator to hold ‘analysts’ briefing’ which may be attended by equity analysts and investors holding meaningful number of shares, say 1,000 or more.

But after all is said and done, part of the blame for the minority shareholders’ rowdyism at the AGMs perhaps rests on the company boards that deny shareholders a return on their investment, in the form of a dividend, year after year.

Published in Dawn, The Business and Finance Weekly, December 3rd, 2018