Although not a new phenomenon in the world, shareholder activism in Zimbabwe has come at an opportune time when the nation is rocked by massive corporate failures, owing to rampant corrupt activities, mismanagement and blatant violation of corporate governance tenets by those in charge of these corporate entities.
ROBERT MANDEYA
In the face of such wanton acts of commission and omission by the leadership in the corporate world, the government has watched helplessly, while those that have invested their meagre earnings (minority shareholders) in these enterprises have been left distraught and ravaged by the enormity of the loss of investment.
The minority shareholders have become victims of plunder and greed by those entrusted to manage their investments and have borne the brunt of deprivation, destitution and loss of earnings. Not least, those that have been surviving on these organisations as employees have not been spared either, with thousands thrown out of employment, relegating many families into desolation and debilitating poverty. Surely someone must be held to account!
Corporate leadership hiding behind the veil of limited liability Limited liability is the most popular form of business in Zimbabwe and this kind of company registration tends to separate (company assumes a legal persona) the company from the members running it. This set up has become prone to abuse by those running these companies, as they “willy-nilly” disregard all best practices recommended in the running of any business worldwide. However, there is now a growing demand by stakeholders to “pierce the veil” of limited liability, so as to reach to those implicated in any business malpractices and bring them to account for their misdeeds. This has given rise to the concept of shareholder activism, whose thrust is to hold business leaders accountable for their wayward business practices.
A lot of people in Zimbabwe are not aware of their constitutional rights, hence, the coming into being of such pressure groups is most welcome. The pressure group would help raise awareness of constitutional rights, while at the same time representing and protecting the vulnerable from all sorts of prejudice and abuse by those in corporate authority. There is need, however, to clearly define their mandate and reach out to society with clarity of issues.
What is shareholder activist? A person who attempts to use his or her rights as a shareholder of a publicly-traded corporation to bring about social change. Some of the issues most often addressed by shareholder activists are related to the environment, reckless investments and workers’ rights (sweatshops). The term can also refer to investors who believe that a company’s management is doing a bad job and thus attempts to gain control of the company and replace management for the good of the shareholders. This concept is a welcome development in Zimbabwe, given the recklessness with which some business leaders are conducting business. This has been vindicated by reports of malpractices in entities like National Social Security Authority, Premier Service Medical Aid Society, Grain Marketing Board, National Railways of Zimbabwe and a host of others that have since closed shop.
Shareholder activism has been motivated by the fact that, a lot of investors, both small and big, have lost some, if not a lot of money, due to the closure of companies listed on the Zimbabwe Stock Exchange. The main reasons for closures in the financial services sector has been insider loans given to directors/shareholders and management, while in other companies it has been due to gross mismanagement and blatant corruption.
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It is from the realisation that when a company closes, the investors, who suffer the most, are minority shareholders, who are left with worthless pieces of paper, called share certificates, “hence the need to set up the Shareholders’ Activism Platform, to protect all shareholders, but most importantly, minority shareholders”. When shareholders exercise their rights as owners, they can influence a corporation’s behaviour for the protection of all stakeholders. It is the group’s belief that, although shareholders don’t run a company, there are ways for them to influence the board of directors and management. Investors, who believe that a company’s management is doing a bad job and who attempt to gain control of the company and replace management for the good of the shareholders, are doing so to protect their investments.
Although the board of directors of a corporation wields considerable authority over corporate affairs, shareholders are a corporation’s ultimate authority. Shares represent ownership stakes in a corporation and when corporate directors undertake actions that harm the corporation, they harm the value of corporate shares. If this concept is properly pursued, it could be possible in Zimbabwe to sue corporate directors for wrongful acts that harm the corporation or the value of its shares.
Corporate directors are subject to the fiduciary duties of care and loyalty. The duty of care requires a director to exercise due care when managing corporate assets.
The duty of loyalty requires a director to avoid undisclosed conflicts of interest. Generally, he may not engage in self-dealing by profiting from acts undertaken on behalf of the corporation, other than to receive any compensation authorised by the corporation.
A board or management may also generally not take advantage of any business opportunities received, as a result of its relationship to the corporation. Fiduciary duties can be used to define many different types of wrongful acts that may or may not be explicitly prohibited by statute, but generally fiduciary duty means that the board member must put the interests of the corporation before his own individual interests.
Robert Mandeya is a social commentator. The views contained here are personal, you can contact writer on [email protected]
