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SEC to Regulate Yearly General Meetings for Cost Reduction

•Violation attracts N10m penalty
The Securities and Exchange Commission (SEC) is proposing a new sub-rule specifically seeking to reduce the cost of organising meetings, by making the distribution of gifts to shareholders, observers, and any other persons at annual and extraordinary general meetings, illegal.

According to SEC, the move would enable investors to get more value for their investments and positively impact on their earnings per share (EPS), which measures the profitability of a company.

Earnings per share are calculated by dividing the company’s net income with its total number of outstanding shares; the higher the EPS, the better its profitability.

The new rules come barely a week after The Guardian had exclusively reported that the excesses of some shareholder groups tend to undermine the overall interest of the majority of other stakeholders.

In a special report last week Monday, titled: “How shareholders’ activism ensures accountability, protects listed firm’, The Guardian had noted that much as shareholders have the right to be regularly updated on the health of their companies, some of their methods are often perceived as self-serving against ensuring corporate governance, and therefore demands better checks.

The new is contained in a draft exposure of sundry amendments to existing rules and regulations published by the SEC, which was obtained by The Guardian.

justifying the proposed rules, SEC noted that “some companies arrange meetings with select groups of shareholders ahead of general meetings, to discuss proposed resolutions and agree on strategies which are often detrimental to the interest of other shareholders.”

Thus, the regulator decried the huge amount spent by such public companies on corporate gifts at AGMs/EGMs, which greatly impact their profitability.

Consequently, the Commission warned that any listed firm that violates the rule shall be liable to a fine of not less than N10 million.

SEC noted that “Public companies spend a significant amount of money on corporate gifts at AGMs/EGMs, and this has a great impact on their profitability. Few of the companies are making reasonable profits and even fewer can afford to pay dividends.

If the amount budgeted for gifts at AGMs/EGMs can be reserved for other relevant operational or administrative expenses, it would positively impact on their earnings per share.”

SOURCE: The Guardian, Nigeria