THE previous Monday, Securities and Exchange Commission of Pakistan handed out its judgement in the case of an unidentified ‘plastic company’, which appears to have fallen short of its obligation to hold the shareholders’ annual general meeting.

“It is an important statutory event and provides an opportunity for the shareholders including those in minority to participate in discussions and vote on agenda presented at the AGM”, the regulator said. The Companies Ordinance 1984 lays out the procedure and timing of holding AGMs.

The CEO of a multi-national FMCG company, which is regularly hounded by ‘mischief mongers’ at its AGM, dismissed the plethora of regulations as ‘all paper work and nothing on the ground.’

And who are those mischief mongers that corporates are so anxious to avoid? Some knowledgeable shareholders with a tidy sum at stake, do attend AGMs to question the board on the performance of companies, its plans and prospects. They even confront the board when extra-ordinary resolutions are moved, ostensibly more for the benefit the majority stakeholders than the company. One such example being ‘inter-corporate financing’ in which those sitting across on the dais have common directorship.

But such lone voices of accountability raised by concerned shareholders who wish to protect their investment in the company, are often drowned in the noise from groups of rowdy shareholders, mostly occupying the back benches.

Arif Habib, broker-turned-industralist, conceded that at several company meetings, people other than shareholders are able to creep inside the meeting hall. Since they have nothing at stake, such unwanted ‘guests’ are busy in off-agenda activities. He recommends that strict monitoring should be done by company managements to prevent entry of non-shareholders.

Amin Tai,known for ‘value investing’ concept, concurs with Arif Habib. He reckons that in some AGMs, eight out of ten people occupying the members’ chairs are other than proper shareholders in the company At numerous stockholders’ meetings even women and children barge into the meeting hall. But why should they be anxious to attend the AGM? Company managements blush and dodge the question as too embarrassing. However a secretary of a large corporate explained that non-shareholders, their spouse and children make their way to the AGM venue for ‘refreshments’ served at the conclusion of the meetings.

“Many are even seen stuffing their cloth bag with ‘patties and pastries’, said this company secretary, a bit of pity discernible in his voice. The second and less excusable reason for genuine minority shareholders disrupting proceeding at AGMs is their clamouring for ‘gifts’. The ‘gift culture’ at the AGMs has witnessed considerable decline in recent years as managements have learnt to say ’No’.

Yet many weak managements yield to the rowdy shareholders’ demands for such petty gifts as a wall clock; a shirt piece (at the meeting of a textile company); a bag of 2kg sugar (at a sugar company’s meeting). If nothing else such shareholders settle down for as little as a ‘lunch box’. However, anecdotal evidence suggests that sometimes rowdy people are planted by the managements themselves to ’silence’ the shareholders who may be raising uncomfortable questions.

Many corporate watchers including Mr. Habib and Mr. Tai believe that the affairs at the AGMs could be streamlined if the regulators were to dispatch representatives to oversee the proceedings of shareholders’ meetings. The proposal though difficult does not seem impossible to implement.

But does the onus of irregularities at the stockholders’ meeting fall entirely on the minority shareholders? “This is a harmless unlike the dreaded ’Sokaiya’ in Japan—a group of specialised racketeers who extort money from companies by blackmailing managements, usually in their AGMs, by threatening to expose secret amorous exploits of directors”, says a high net-worth investor who holds stakes in companies listed in developed markets abroad.

In Pakistan, managements are at fault when they avoid paying dividends to investors, regardless of profit earned. Often unlettered, with a few hundred shares at stake, no representation on the board, the voiceless small shareholders are generally unable to understand the intricate entries in the financial statements. They also have no power to block the passage of resolutions that the boards may propose to pass.What inclination could they then have to participate in the proceedings?. Shareholders’ activism, now rapidly spreading in joint stock companies throughout Asia, is still far away from the listed corporates in Pakistan.

The Code of Corporate governance and stock market listing regulations stipulate: “All listed companies shall encourage effective representation of independent non-executive directors including those representing minority interest on the board of directors”.

While most independent directors, appointed by the company boards dread confrontation with managements, lest they are replaced and lose the handsome meeting fees, the concept of directors representing minority interest still remains a distant dream.

As for AGMs, until awareness is created among the stock investing public and the number of stock investors take a big leap forward from a scarce 300,000, no one expects the swarming crowd of interested shareholders to ensure their presence at AGMs as seen in the stockholders’ annual meetings of Warren Buffett’s Berkshire Hathaways in Omaha or closer at home, Dhirubhai Ambani’s Reliance Life Insurance in Mumbai. The latter holds AGM in a cricket stadium to accommodate more than one hundred thousand participating shareholders.

Published in Dawn, Business & Finance weekly, March 23rd, 2016