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SEC Rules On Corporate Gifts



Recently, the Securities and Exchange Commission (SEC) proposed an amendment to a sub-rule which is expected to reduce the costs of conducting corporate meetings. The proposed amendment, according to SEC, will outlaw the distribution of gifts at annual general meetings (AGM) or extra-ordinary general meetings (EGM) to shareholders, observers and any other persons.

SEC also proposed a N10 million fine against any company that flouts the rule on pre-AGM/ pre-EGM and gift distribution. The proposed sub-rule, if passed, will ensure a better return on investments for shareholders. Currently, values that ordinarily should be passed on to shareholders are being frittered away through phoney gifts to shareholder, pressure groups and similar other interests.

In a draft Exposure of Sundry Amendments to the Rules and Regulations, SEC said it was seeking to create a sub-rule to regulate the conduct of AGMs. It said the sundry amendments relate to Rule 42 (2) on  Half-Yearly Returns, Rule 67(2) on Individual Sub-broker and Part N Rule 602  on Miscellaneous Rules.

SEC said proposed amendment to Part N Rule 602 – Miscellaneous Rules seeks to create a Sub-rule 4 and 5 pertaining to the organisation and conduct of Annual General Meetings.

Justifying the proposed rules, SEC observed that some companies arranged meetings with select groups of shareholders ahead of general meetings to discuss proposed resolutions and agree on strategies which it said were often detrimental to the interest of other shareholders.

In the draft, SEC lamented the huge amount spent by such public companies on corporate gifts at AGMs/EGMs, which it said was greatly impacting on their profitability. It argued that at a time when few companies were making reasonable profits and even fewer could afford to pay dividends, the latest move will positively impact on earnings per share of many if the amount budgeted for gifts at AGMs/EGMs  were reserved for other relevant operational or administrative expenses.

Similarly, SEC said as part of the corporate governance scorecard implementation strategy, companies  are expected to disclose a minimum corporate governance report on their websites and the information is expected to be structured to contain reasonable corporate governance information on the public companies.

On the proposed amendment to Rule 67(2) – reinstatement of individual sub-broker function, SEC said the deletion of Rule 67 (2) in November 2017 generated a lot of comments from the Nigerian Stock Exchange and the Association of Stock Broking Houses, who, thereafter, requested the reinstatement of the function.

However, some shareholders have kicked against the move by SEC. The National Coordinator, Independent Shareholders Association of Nigeria, ISAN, Adeniyi Adebisi, in  an interview with journalists recently, said that AGMs and EGMs are established and administered by the provisions of the Companies and Allied Matters Act, CAMA. He noted that SEC has no mandate over these important meetings and is expected to observe proceedings at AGMs and EGMs like other observers. SEC does not define what constitutes a gift or a pre-AGM/pre-EGM.

He condemned what he described as act by some shareholders groups to turn their privileged positions into an opportunity to engage in dubious corporate activities. In his opinion, they are supposed to be providing checks and not turn themselves into cabals by seeking personal aggrandizement at the expense of other shareholders.

It is the position of this newspaper that the amount budgeted for gifts at AGMs/EGMs can be reserved for other relevant operational or administrative expenses, which would positively impact on their earnings per share.

We urge the regulatory authorities to up their game in close monitoring of activities of shareholder groups on companies quoted on the Exchange to prevent corrupt practices amongst them. Any group found colluding with management of quoted companies to plot strategies that are detrimental to other shareholders at AGM/EGM should be dealt with. The act of arranging meetings with select groups of shareholders ahead of general meetings to plot strategies to undermine the interest of other shareholders should not be condoned.

There should be full disclosure by management of quoted companies and every shareholder must be aware of how the resources of the company are used. No stone should be left unturned to ensure that the nation’s capital market is rid of corrupt practices so as not to discourage investors from coming  into the market.