Practicing Corporate Governance at Annual General Meetings in Nigeria

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By Dr. Olisa Agbakoba, SAN

Annual general meetings (AGMs) are integral components of corporate governance in Nigeria. Words like resolutions, proxies, votes, shares, directors and investors though synonymous with the Annual General Meeting (AGM) have their unique meanings and importance in the Corporate Governance world.

The general meeting is a regulatory tool which seeks to ensure that the interests of the directors of the company are aligned with those of the shareholders. A first time attendee at an AGM may be disappointed because the proceedings are shorter and less ceremonious than anticipated. In spite of the seeming conciseness of the deliberations at the sitting, the AGM is an important meeting of the shareholders.

It has been described by company directors as a dreaded but necessary evil. It is one of the few times within the year that shareholders, who constitute the ownership of the company interact with the officers who run the firm. The General Meeting, whether annual or extra-ordinary is an important mechanism for ensuring directors’ accountability. No matter how unceremonious an AGM may seem to a first time attendee, a lot of work has taken place behind the scene.

A successful outing therefore is a product of hardwork and co-operation between the Registrars (in the case of a publicly quoted company), the legal advisers cum office of the company secretary, the board which has the Chairman at the head, the auditors in addition to shareholders. The writer has however chosen to focus on the roles of the Chairman, Company Secretary and shareholders.

The Chairman being the first among equals, takes charge at company meetings. His principal role is to co-ordinate and provide leadership to the directors. He guides the board, sets its agenda and ensures it is an effective working group. He must promote a culture of openness and debate and is responsible for effective communication wtih shareholders, while ensuring that the highest standards of integrity, probity and corporate governance are upheld.

The Chairman is expected to maintain some degree of independence hence the universally acceptable corporate governance practice which advocates for the separation of the office of the chairman from that of the Chief Executive Officer. In jurisdictions which operate a voluntary system of corporate governance, companies are expected to comply with relevant codes or explain their reasons for non-compliance. Marks & Spencer, a notable public company in the United Kingdom once opted to have the positions of the Chairman and Chief Executive Officer fused, with reason.

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In justifying this action, the Conglomerate sought to persuade shareholders that the right checks and balances had been put in place. The dominance of Sir Stuart Rose, The Chief Executive who was handed the Chairman’s job was counterbalanced by the Senior Independent Director, who was given special responsibility for governance issues. In spite of the M & S example, these roles are best separated.

The Chairman is expected to be a broad-minded and knowledgeable person. In certain specialized businesses such as the banking and insurance sectors, emphasis may be placed on relevant industry experience. It has been noted that of the three United Kingdom banks that failed in 2007-2008, namely RBS, HBOs and Northern Rock, none had a chair with a banking background. In comparison, the Chairmen of HSBC, and Standard Chartered which emerged relatively unscathed from the crises that rocked the industry were lifetime bankers. Where a company Chair does not possess relevant industry experience, he should benefit from the expertise of his fellow board members and consultants when necessary.

At the AGM, the Chairman’s role is to ensure the effectiveness of the meeting process, counting proxy votes, allowing attendees to be heard, ensuring votes are taken on a poll rather than on a show of hands where the need arises, as well as facilitating communication between the board and its shareholders. In so doing, he must remain impartial. A Chairman’s reputation for impartiality can be said to be undermined if he does from the chair, any of the things that should be done from the floor.

The Chairman has a casting vote, which he is expected to use to the benefit of the company. He liases with the Company Secretary to ensure that the company complies with relevant corporate governance codes. It is imperative to commend the efforts made by the Financial Reporting Council of Nigeria to synchronize the various industry codes by producing a uniform corporate governance code. The Chairman’s role is made easier with the assistance of an efficient Company Secretary.

The provisions of the Companies and Allied Matters Act LFN 2004 (CAMA) equally help to bring order to meetings by determining what constitutes the ordinary and special business of shareholder gatherings. The distinction made between an ordinary and a special resolution further go a long way in ensuring that the will of the largest number is upheld in effecting fundamental changes to the form and structure of an entity.

Unlike the position of the Chairman, Nigerian law provides for a minimum qualification for the company secretary of a public corporation. According to Section 295 of CAMA members of the Institute of Chartered Accountants, Nigeria Bar Association, Institute of Chartered Secretaries, any person who has held the office of the secretary of a public company for at least three years of the five years immediately preceding his appointment in a public company as well as a firm or body corporate consisting of persons who are qualified.

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In recent times, the role of the company secretary has become more attractive, having evolved from a merely clerical job description to an interface between the directors and outsiders. This professional is described as one who acts as an intermediary between the company and external agencies. He or she assists with corporate acquisitions and disposals, takes custody and ensures proper use of the company seal, while maintaining the registers and records required by law.

Further, he or she attends board and committee meetings, as well as Annual General Meetings and takes minutes of the same. The duties of a Company Secretary may broadly be divided into responsibilities to the board, the company and shareowners in addition to relevant stakeholders. The office is now better protected by law, in the case of public companies.

The AGM is the Company Secretary’s baby and therefore he or she must work hard to ensure the success of the outing. Firstly, the company secretary has a duty to ensure that the notice of the AGM is sent timeously and that the annual report and accounts are made available to the shareholders. This officer must provide directors with guidance in their duties and powers, by making them aware of all relevant laws and regulations. He or she prepares the board agenda and it is important to keep the Chairman informed of any changes.

It is the responsibility of the company secretary to ensure that the organisation complies with all relevant legislations and responsibilities while keeping board members informed of their responsibilities. He or she deals with correspondence between the company and the shareholders and makes arrangement for the payment of dividends declared within the prescribed period as provided by the law. Importantly, the Company Secretary must carry out these functions with the highest degree of expertise and professionalism.

The recent launch of the Corporate Governance Rating System by the Nigerian Stock Exchange though a laudable initiative, increases the burden on company secretaries to ensure that their companies comply with applicable corporate governance rules. A system whereby ratings are ascribed to publicly quoted companies based on uniform criteria will on the long run promote corporate accountability.

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The existence of various corporate governance codes including the one produced by the Securities and Exchange Commission as well as the banking and insurance and communications industry specific codes has been an impediment to compliance enforcement. However efforts are being made to reduce the confusion created by the existence of several industry specific corporate governance codes, by harmonizing the contents. The Financial Reporting Council is advocating for a unified code in this field of law.

In conclusion, the general meeting of shareholders (AGM) serves as a corporate forum to obtain the consent of the shareholders for decisions that do not lie within the managerial discretion of the board of directors. The general meeting can be described as a platform for shareholder democracy and provides a system of checks and balances to minimize agency costs.

It is therefore important that shareholders exercise their voting rights by supporting proposals that enhance shareholder rights and increase the value of their claims on the corporation, as well as oppose management proposals that reduce their rights and the value of their claims. Companies should be encouraged to circulate a record of the AGM to all shareholders as soon as practicable afterwards, at a minimal cost.

A resume of discussions at the meeting (but not a full and detailed record), together with voting figures on any poll, or a proxy count where no poll was called, should be made available to the shareholders on request. Further, the law protects the interest of shareholders in a number of ways. Rules are laid down for the delivery and content of notices, the right to attend general meetings and the mode of regulating entitlement to dividend.

Further, the interest of shareholders is served in the provisions stipulating how an independent Auditor can be removed. All relevant statutes must continually be reviewed in line with practical developments, if the meeting of shareholders is to remain relevant and effective.

Dr. Agbakoba is the Senior Partner and Head of the Arbitration & ADR practice group in Olisa Agbakoba Legal (OAL). He’s one of Nigeria’s leading experts in arbitration and has presided over several complex cases.

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