Shareholder activism in Nigeria

The role of shareholders in publicly quoted companies has evolved over time, and is often taken for granted in developed countries. In Nigeria, obstacles to coordinated shareholder activism to positively influence a corporation’s behaviour may be overcome through changes in the code of corporate governance, shareholder associations and information and communication technologies.

A paper from the Centre for the Study of Globalisation and Regionalisation, in the UK, explores how recent developments in Nigeria can contribute to shareholder activism to improve participation in corporate governance. This is particularly relevant in the light of the recent financial scandal involving Cadbury Nigeria, which cost investors a lot of money. Corporate governance and accountability is on the agenda, and shareholders can play a central role in influencing management by exercising their rights as owners.

Shareholder rights were originally recognised in US law. In the 1960s and 1970s shareholders pressured companies in areas such as product safety, environmental pollution and employment discrimination. In the 1980s, shareholder activism shifted to anti-takeover activities, but the call for social and environmental responsibility emerged again in the 1990s from non-governmental organisations, churches, and mutual and pension funds.

The Nigerian Stock Exchange (NSE) has over 260 listed companies, and shareholding has grown from a few thousands to an estimated 10 million largely due to massive privatisation. By law, even though boards of directors are not bound to obey the directives of shareholders’ general meetings, there are certain powers granted to shareholders. This makes them a potential effective force in corporate governance. The author observes that in Nigeria:

• While notice of Annual General Meetings must be given in newspapers 21 days in advance, low readership rates and inaccessible venues exclude many shareholders.
• Effective exercise of shareholder powers means as many shareholders as possible should participate in voting, but directors often get themselves nominated as proxies.
• Shareholders can propose resolutions at meetings, but leaders of shareholder associations are often bribed to support management.
• Nigerians score poorly on fair conduct of shareholders’ meetings when compared to other emerging markets in the Middle East and North Africa.
• Other problems include lack of information, shareholder apathy and a weak judicial system for shareholders to pursue corporate irregularities.

Privatisation has meant foreign shareholders constitute a large and organised group who can influence Nigerian companies. Nigerian shareholders generally have small shareholdings and are much less organised, so they are not able to influence companies. Recent developments that could contribute to the empowerment of shareholders include:

• The Code of Corporate Governance (2003), which encourages shareholder associations, supports minority shareholders and calls for better meeting arrangements
• Shareholder associations - block voting is evolving in Nigeria, with seven Zonal Associations and other private groups to serve the interests of the investing public.
• Improvements in information and communication technologies, which help investors access information (for instance on company websites) and exchange experiences.

Much can be learned from experiences in developed countries to improve the processes surrounding shareholder meetings. In Nigeria, such improvements would justify the interest of shareholders in moving beyond investing to ensuring their companies are both competitive and socially responsible.