The unflattering truth about being a minority shareholder

It’s the season of annual general meetings. For companies whose shares are traded on the Uganda Stock Exchange, the annual general meeting is like a rite of passage. Elaborate and choreographed to the last detail. It is the time when shareholders converge and ‘pass’ resolutions about things like approving the audited accounts, appointing directors and such other things as the real owners may wish to introduce.
I have been attending these meetings for quite a while, and the habit and culture seems to be catching on. Enter one Andrew Muhimbise, self-appointed and aggrieved shareholder activist all rolled in one.
He has been moving from one annual general meeting to another, agitating for the rights of the shareholders.

He has also been writing stinkers about the boards of these companies and making out like they are in trouble. Maybe, he has a point, but does not know how to bring it across.
Or maybe he has read somewhere about shareholder activism and he must pioneer this here. I do not know if he actually knows the way limited liability companies are actually run and what one ought to expect as a shareholder. Let me take time out to share with him and others who want to invest in these quoted companies the unflattering truth about this business.
First and foremost, companies are not democracies.

The real decisions that drive the management of public limited companies are made on the basis of the number of shares held. Which reminds me of that very local saying; don’t push the bicycle spoke into the doughnut if you have no money (‘atayina sente, tafumita mukindazi’).
It is not the kind of place where ‘one man one vote’ democracy works.

If that was the way companies were run, then they would not work in any case. You can try and find out what happened to public enterprises where very one had a ‘say’.
In a presumed democracy like Uganda, a peasant probably has the same power and voice as a tycoon in Kampala. Not so in the corporate world. The power of your voice is a function of how much you have invested. It is not just about holding a few shares and coming to the party. Decisions are made on the basis of voting shares held.
So imagine yourself arriving at an annual general meeting where three shareholders own 83 per cent of the voting shares. What point are you going to make when the presiding chairman holds all these proxy votes? Just remember those three shareholders are probably not even in the meeting! If the chairman, allows you to speak, he is really just being ‘nice’ and polite.
This leads me to the second unsavoury issue we need to understand about companies.

The shareholders who control the company appoint board members. So unless minority shareholders can act as a block, it is difficult to see how they can influence who gets appointed onto the board of quoted companies.
Most companies will appoint people onto their boards either because of their skills and knowledge or connections.

The only test that the regulator would probably raise is whether these board members are ‘fit and proper’. Now that allows for a lot of latitude.
So what can a smart minority shareholder do? One is to first understand the business of the company in which you are investing. Only invest if you think the company is well governed.
Second is to have an ear to the ground. If you think a there are fundamental issues with the industry, drop the company’s shares. In any case the stock market will have this information incorporated in the company’s share price, which would be moving south. If this doesn’t make sense, then you ought to have an investment advisor as opposed Dutch courage.
Prof Sejjaaka is country team leader at Abacus Business School. [email protected]
@samuelsejjaaka