SEC bans pre-AGMs, distribution of gifts – TheNigerialawyer

The Securities and Exchange Commission has banned the meeting of
public companies with select group(s) of shareholders prior to an
Annual General Meeting/Extraordinary General Meeting, as well as
the distribution of gifts at AGMs.

SEC said in a statement on Sunday that the move was in a bid to
ensure that investors got more value for their investments and that
they saw a positive impact on their earnings per share.

In a draft Exposure of Sundry Amendments to the Rules and
Regulations, SEC said it was seeking to create a sub-rule to
regulate the conduct of AGMs.

It said the sundry amendments were the proposed amendment to
Rule 42 (2)- Half-Yearly Returns, proposed amendment to Rule 67(2)-
Individual Sub-broker and proposed amendment to Part N Rule 602 –
Miscellaneous Rules.

The statement read in part, “Proposed amendment to Part N Rule
602 – Miscellaneous Rules seeks to create a Sub-rule 4 and 5
pertaining to the organisation and conduct of Annual General
Meetings.

“The new sub-rule specifically seeks to reduce the cost of
organising shareholders’ meetings by making illegal the
distribution of gifts to shareholders, observers and any other
persons at annual and extraordinary general meetings.

“Should the rule be agreed on, public companies shall not
convene any meeting with select group(s) of shareholders prior to
an annual general meeting/extraordinary general meeting.”

Justifying the proposed rules, SEC observed that some companies
arranged meetings with select groups of shareholders ahead of
general meetings to discuss proposed resolutions and agree on
strategies, which it said were often detrimental to the interest of
other shareholders.”

“Companies that violate these provisions shall be liable to a
penalty of not less than N10m,” SEC said.

In the draft, SEC lamented the huge amount spent by such public
companies on corporate gifts at AGMs/EGMs, which it said was
greatly impacting on their profitability.

It argued that at a time when few companies were making
reasonable profits and even fewer could afford to pay dividends,
the latest move would positively impact on earnings per share of
many if the amount budgeted for gifts at AGMs/EGMs could be
reserved for other relevant operational or administrative
expenses.

SEC added that the proposed amendment to Rule 42 would lead to
the creation of sub-rule 190 (3), which states that “public
companies shall disclose some minimum corporate governance
information on their websites including governance structure,
composition and structure of the board, shareholding and dividend
analysis among others.”

Justifying the amendment, SEC said as part of the corporate
governance scorecard implementation strategy, companies were
expected to disclose a minimum corporate governance report on their
websites and the information was expected to be structured to
contain reasonable corporate governance information on the public
companies.

On the proposed amendment to Rule 67(2) – reinstatement of
individual sub-broker function, SEC said the deletion of Rule 67
(2) in November 2017 generated a lot of comments from the Nigerian
Stock Exchange and the Association of Stock Broking Houses, who,
thereafter, requested the reinstatement of the function.

The statement read in part, ‘The Rules Committee revisited the
issue and the commission agrees that reinstatement of individual
sub-broker function will help in enhancing financial inclusion,
deepening the market, and attracting more retail investors, as well
as enabling the sub-brokers to have more presence at the grass root
level.”

Reacting to the new rules, the National President, Constance
Shareholders’ Association, Shehu Mikali, described the banning of
gifts at AGMs as a nice move by SEC but insisted that the pre-AGMs
should not be banned because it had to be on the companies’
decision.

He said, “SEC rules should depend on how the companies have been
doing and the kind of the stakeholders the companies want to brief.
But in other to sanitise our AGM system, we are in support of the
ban on the distribution of gift items at AGM venues so that
serious-minded shareholders can come to the meetings and contribute
meaningfully.

“This will also reduce the tension and rowdiness at AGM
venues.”

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