How to enhance minority shareholder

protection in Nigeria
https://tennygee.wordpress.com/2013/08/23/
improving-minority-shareholder-
protection-in-nigeria/
teingo / August 23, 2013
Introduction
The minority shareholder is one without controlling interest in a company. A direct
consequence of the majority rule in corporate administration is the fact that the minority
shareholders are at risk of exploitation by the majority. Thus, there is need to protect this
group of shareholders in order that their interest in the corporation is not jeopardised. In
Nigeria, protection of the minority shareholder has a strong statutory backing and the
corporate law spells out the peculiar rights and remedies available to this group of
shareholders beyond the general rights of every shareholder. This includes right to
information, right to voice an opinion on the affairs of the company, right to seek redress for
wrongful acts of the majority and right to receive distribution of the company’s property after
liabilities have been settled. (See sections 224, 242, 300-314 & 480 Companies and Allied
Matters Act, 2004). Most of these rights are limited or could be extended by the
shareholders’ agreement or other company contracts like the articles of association.
Factors limiting the exercise of rights by minority shareholders
Despite the protection provided for the minority shareholder, there are certain factors that
have hindered the minority shareholders from exercising their rights in Nigeria. One of these
is lack of awareness/interest on the part of the shareholders. A majority of shareholders are
usually more interested in the returns they can get for their investment rather than how the
company is being administered. However, as there is a direct link between the quality of
administration of a company and the returns the company makes for its shareholders, there is
need for shareholders, particularly the minority to be more actively involved in the affairs of
the company they have invested in. Minority shareholders constitute a check on the excesses
of the majority in the administration of the company and they must seek to enforce their
rights and seek redress where such rights have been infringed by the majority in order to get
the best value for their investment.
Another limitation is the legal and judicial system and the role of the courts in company
affairs. By the very nature of disputes relating to shareholders, being a contract between
them, the court is generally reluctant to interfere in the affairs of companies. For this reason, a
high burden of proof is required in order for the court to be willing to adjudicate. This
constitutes a source of discouragement for those who genuinely have a case. Moreover, the
time consuming factor that is associated with litigation is a disincentive to minority
shareholders who may want to employ the judicial facility to enforce their rights.
Closely related to the issue of judicial system is the issue of high costs that would be incurred
in the course of pursuing minority rights related actions. Litigation is expensive and may not
be a viable option for the minority shareholder whose investment interest may be
insignificant. More so, when there is no direct benefit to the minority shareholder as is in the
case of derivative actions, the investor may not be willing to pursue a claim in court.
Although the law provides for costs to be awarded to parties, it is at the discretion of the
court. Thus there is no guarantee that a party would recover all costs incurred in pursuing a
legal action to enforce his rights and this creates a large room for uncertainties in the minds
those who may want to proceed with a legal action.
Recommendations
In order to ensure a vibrant and transparent capital market and investment climate, it is
important for stakeholders to rise to the occasion and take action to encourage small
investors. The regulators must seek to ensure a fair playing field for all participants in the
market while shareholders need to be more proactive. Some measures that should be
considered in this regard are discussed below.
Better regulation and education of shareholders
The Securities and Exchange Commission needs to embark on vigorous shareholder
enlightenment programmes, which will keep them, especially minority shareholders well
informed of their rights and the remedies available to them where such rights have been
abused. Presently, most of the efforts aimed at educating the shareholder is only available via
the website of SEC and this is inadequate considering the level of literacy generally and
computer literacy, access and availability in particular in the country. It would be more
effective for the SEC to organise workshops and seminars across the breadth of the country
for the purpose of shareholder enlightenment in order for shareholders to be better positioned
to optimize the vehicle of the capital market.
Furthermore, there is need to monitor the activities of listed corporate organisations to ensure
that they adopt best practices in the management and governance of their organisations and
this includes the protection of minority shareholders’ rights. Of particular interest in this
regard is the issue of payment of dividends to shareholders when such dividend has been
declared by a company. Recently, SEC reportedly put the figure of unclaimed dividends in
the country at an estimated sixty billion naira (N60bn) over three hundred and sixty-seven
million ($367m).The figure which has been on the steady rise in the past few years reveals
the inefficiency that is prevalent in the capital market and this is a huge disincentive to
investors.
Improved shareholder activism
A number of shareholders’ Associations exist in Nigeria with the aim of protecting the
interest of shareholders. However, the impact of these groups have not been very strong and
there remains much to be done in terms of canvassing and protecting shareholder’ rights,
enlightening shareholders and ensuring that corporate entities’ activities are monitored
independently of the regulators in order to identify infractions and report same. There is need
for improved activism on the part of these groups as it would be easier to initiate and propel
development in the capital market as a group rather than as individual shareholders.
Whistleblowing, influencing legislation for the advancement of the shareholder and
organising enlightenment campaigns for shareholders are some of the ways that shareholders’
associations can contribute to encourage shareholders to know and seek to protect their rights.
Improved infrastructure
Communication is a vital tool in the investment climate. Corporate organisations need to be
able to reach shareholders to keep them informed and also to send their entitlements such as
annual reports, notice of meetings, dividend warrants etc. There is need for efficient logistics
for the purpose of disseminating information. Poor logistics is one problem that has
bedevilled the investment climate in Nigeria. Inefficient postal systems, transportation
challenges, inadequate communication channels especially for those in the rural areas and
failure of shareholders to update their information with registrars have constituted setbacks to
an efficient system of communication. This is coupled with the fact that shareholders in rural
or remote areas or other parts of the country are never taken into consideration in siting
locations for company meetings. Most companies hold their meetings in the commercial
centre of the country – Lagos, on a regular basis without any changes year in year out thereby
discouraging those who are outside the province from participating. It is suggested that
companies should consider rotating venues for their meetings in order to give all shareholders
a fair chance to participate in the activities of the company.
Judicial infrastructure should also be improved to encourage investment. The Federal High
Court which is the proper court with jurisdiction to hear company related cases is bogged
down with an extensive jurisdiction over several matters with limited capacity to handle
these. It would be helpful if the jurisdiction of the Investment and Securities Tribunal is
expanded to cater for cases between investors and a company in order to fast track the
processes and thereby enhance the confidence of investors in the legal system.
Conclusion
In order to sustain a vibrant capital market and by extension, an improved economy, it is
imperative to provide a just and fair playing field for investors. One way to do this is to
provide the conditions that would promote the protection of the minority shareholder