One reason that small shareholders who attend company annual general meetings are less interested in proceedings and more in what is laid out on the tea tables is that small shareholders have little or no say in what the Board has done or plans to do.

Declaration or omission of dividend, for one, is entirely in the hands of the directors. The Companies' Ordinance 1984 empowers the board of directors to 'recommend' dividends and the shareholders at annual meetings may reduce-if they want to- but not increase the dividends 'recommended' by the board.

The double-digit dividend yield on equities is the fuel that has fired the stock boom, that is now in its third year running. Compared to that, returns on risk-free investments have been on the wane. Bank deposits give less than 3 per cent. And since December 1999, when the government began reducing returns on National Saving Schemes (NSS), the yield on some of its saving schemes, particularly Special Saving Certificates (SSCs) that had previously provided people-mostly of the lower and lower middle class- with a comfortable level of risk-free fixed income, has lost its lustre. From a fabulous 16 per cent in 1998, the return has plunged to niggardly single digit.

Dividend yield on some of the sectors on the Karachi Stock Exchange in 2002 were: Woollen 16.5 per cent; invesment companies/banks 14.6 per cent; transport & communication 13.2 per cent and modarabas 11.6 per cent. Inspite of the galvanizing stock prices, most sectors on the KSE still produce dividend yield in excess of 10 per cent.

But for all that, many large companies including some multinationals that earn excitingly huge sums in profits, prefer to retain larger part of the earnings in reserves at the cost of cut in dividends. The government had attempted to coerce company boards to share more profits with shareholders in cash dividend, but the attempt eventually failed.

In the Finance Act of 1999-2000, the government decreed that companies making profits, distribute 40 per cent of it (after tax) in dividend to the shareholders or face an additional tax penalty of 10 per cent on the sum of reserves that exceed 50 per cent of the company's capital. The trick worked for a time and dozens of profitable companies that had been omitting dividends began to strike some balance between retention and distribution of earnings to shareholders.

But then came a severe backlash. A major group with several profitable listed comapnies in textiles, cement and energy, threatened to buy-back small shareholders' equity and seek de-listing from the stock exchanges. The group's contention was that the budgetary provison had become a bottleneck for the company's expansion plans that required sums in billions of rupees.

While dozens of loss-making companies had repurchased small investors' stake and got themselves de-listed, the high valued dividend yielding companies of the group, proved unnerving for the government and the corporate monitors. Under the provisions of the law, they could not block the company's exit from the bourses, but the fear was that if one 'blue chip' was allowed to go, many others would follow.

Already the number of listed companies is all too small. According to the recently released Annual Report 2003-04 of the Securities and Exchange Commission of Pakistan (SECP), total number of registered companies is 41,828, of which 1,553 new companies were registered during 2003-04. Compared to that the number of companies listed at the stock exchanges is just 699, with the majority still the lame-ducks.

The federal budget 2003-04, further reduced tax rates for private comapnies by 2 per cent to 41 per cent. That would progressively be trimmed down in the coming years to 35 per cent-equivalent to the tax rate on public listed companies. The gradual closing of gap between tax rates applicable to listed and unlisted companies and increasing demands placed on corporates by otherwise laudable 'Code of Corporate Governance' are other reasons that have kept sponsors away from the primary capital market. Compared to the early nineties, Initial Public Offering (IPOs) have almost dried up. In the last six years, less than two dozen companies have come up to the bourses to raise funds in fresh equity offerings.

Based on the annual accounts received by the KSE upto September 30, 2003, some 251 companies had announced their financial figures for the year 2003. Of those 200 had made profit while 156 had paid dividends.

Companies that declared profits, but omitted dividends number 44. A year earlier, out of the 627 companies that had announced results, 429 had made profit with 307 announcing a payout and 122 skipping dividend. For 2001, 662 companies had announced results; 426 making profit; 316 declaring dividend and 111 omitting a pay out.

Those who agree with the argument put forth by the boards of profitable-non dividend paying companies say that financial statements are purely historical. They tend to give very little guidance about where the company was headed. "We have to look to the future, not the past; to the cash flows, not the earnings". says a director of a listed company. They contend that often all of the profit that appears on the profit & loss account is not available in cash; much of it could be tied up in debts or stocks. Particularly in case of textile or sugar mills, cotton and sugar cane inventory may require huge cash flows. In the circumstances, therefore, companies may need to borrow money to pay dividends.

One opponent of the larger pay out policy points out that Warren Buffet's company, Berkshire-Hathaway Inc, whose class 'A' share is one of the most expensive stock in America does not distribute dividends; nor has Bill Gates' Microsoft been a consistent dividend payer.

Buckling under the pressure from powerful corporates, the budget 2001-02 incorporated a variation, whereby the companies were required to pay 40 per cent of the taxed profit or sum equal to 50 per cent of the paid-up capital, which ever is less.

Corporate regulators now seem to have substituted 'compulsion' with 'persuasion' to make listed companies remunerate the small shareholders. One of the breach of KSE listing regulation for which companies could be relegated to the 'defaulters' counter' is 32 (1)(b), regarding failure to declare dividend/bonus for five years from the date of last declaration. Companies have thus been persuaded to distribute cash dividend-even if as little as 50 paisa per share- from current profit, for minority shareholders only; directors and their associates in most cases agree to waive their share in the dividend.

Those who do not approve of such a payout policy frown at dividend from current profit, while companies still carry huge deficits on their balance sheets. But for the minority shareholders, those petty returns on their otherwise lost investments, also come as small blessing. It appears to be the right recourse to ask companies to pay dividends from current profits instead of waiting until the debris of accumulated losses have first been cleared, which in many cases could take ages.