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Expert challenges minority shareholders

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Minority shareholders have been urged to initiate a shareholder revolution and push for shareholders’ agreements with “the big boys” to secure a voice in the governance of the companies in which they invest.

UK-based corporate governance expert Alex Magaisa made the call after noting that shareholder relations in Zimbabwe typified “corporate tyranny”, which reduced investor relations to a “zero sum” game controlled by the “big boys”.

Securities Exchange Commission, which adjudicated in MedTech Limited’s disputed equity offering last month, confirmed to this paper that majority-minority shareholder feuds reaching the regulatory authority were increasing, forcing it to consider passing lockdown regulatory measures.

The remarks come as the local industry intensifies efforts to attract equity financiers to head off enduring viability and liquidity crises triggered by dollarisation, and as equities open up to foreign portfolio inflows after the calming of indigenisation fears.

Often confidential between the parties, shareholders’ agreements are company constitution-plus contracts agreed to grant extra protection to minority shareholders by laying out relational arrangements, including provisions on dispute settlement, minority buy-out, share transfer, pre-emptive rights and rights of first refusal.

The pacts often give certain minority shareholders the power to appoint directors.

Magaisa said shareholders’ pacts could provide the short-covering for minnows’ needs, while solutions to Zimbabwe’s weak institutional investor protection safeguards are being sought.

It has been hinted the Companies Act could be revamped to incorporate issues of corporate governance.

“Shareholder participation in Zimbabwe is skewed in favour of majority shareholders, yet minority shareholders have also invested in the companies,” Magaisa said.

“What minorities lose is what the big boys gain.
“They are encouraged to sign shareholder agreements favourable to all parties. They have to see how they can strike deals with the big boys.”

Magaisa observed that major shareholders in the country often collude into an “old boys’ club”, tying companies round their fingers and sustaining a mediaeval zero sum game.

In a zero sum game, the benefits are presumed fixed with the winning participants gaining from competitors’ losses, yielding a constant sum situation.

Magaisa noted that minority shareholders’ participation in annual general meetings and extraordinary general meetings was limited by lack of democratic muscle, which reduces them to decision-takers.

He also postulated that minority shareholders in the country had a limited role in the appointment of auditors, a role often annexed by directors aligned to majority shareholders.

“Shareholders are the ones who should appoint auditors,” Magaisa said. “But rarely do they do so. Often directors appoint and shareholders rubberstamp. That is suicidal because auditors deal with financial reports relating to the financial position of the company.”

Citing the Kingdom-Meikles saga and other corporate disputes as examples, Magaisa also argued that Zimbabwe’s shareholder dispute settlement record was atrocious and needlessly long and expensive, undermining trust and confidence.

“The adjudication of shareholder disputes must be effective, fair, cheap and time-effective.

“Once that happens people will have confidence to challenge directors and major shareholders,” he said.

“If anything goes wrong, you should be able to go to a court of law and seek remedy. That’s an important source of confidence.”

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