SEC Proposes Rules to Enhance Profitability of Listed Companies

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To ensure that publicly listed companies are more profitable and investors get more value for their investments, the Securities and Exchange Commission (SEC) is proposing the introduction and implementation of a rule to regulate the conduct of Annual General Meetings (AGM).

According to the SEC, the new sub-rule specifically seeks to reduce the cost of organizing shareholder meetings, by making illegal the distribution of gifts to shareholders, observers and any other persons at annual and extraordinary general meetings.

Should the rule be agreed on, “public companies shall not convene any meeting with select group(s) of shareholders prior to an Annual General Meeting/Extraordinary General Meeting”.

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The rule among others is contained in a draft Exposure of Sundry Amendments to the Rules and Regulations published by the SEC.

The SEC in the Draft, lamented the huge amount spent by such public companies on corporate gifts at AGMs/EGMs, which greatly impacts on their profitability.

It argued that at a time when few companies were making reasonable profits and even fewer can afford to pay dividends, the latest move would positively impact on earnings per share of many if the amount “budgeted for gifts at AGMs/EGMs can be reserved for other relevant operational or administrative expenses.”

“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” the Rule stated.

Justifying the proposed rules, the SEC observed: “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.”

Companies that violate these provisions, the SEC warned, “shall be liable to a penalty of not less than N10m.”

Furthermore, the Proposed amendment to Rule 42 will lead to the Creation of Sub-rule 190 (3) which states as follows:

Public companies shall disclose some minimum corporate governance information on their websites including governance structure, composition and structure of the board, shareholding and Dividend analysis among others.

Justifying this amendment, the SEC said as part of the Corporate Governance Scorecard implementation strategy, companies are expected to disclose a Minimum Corporate Governance Report on their websites. 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)- Re-instatement of Individual Sub-Broker Function the SEC said the deletion of Rule 67 (2) in November 2017 generated a lot of comments from the Nigerian Stock Exchange (NSE) and Association of Stock Broking Houses (ASHON), who thereafter requested for the reinstatement of the function.

“The Rules Committee revisited the issue and the Commission agrees that reinstatement of Individual Sub – broker function will help in enhancing financial inclusion, deepening the market, and attracting more retail investors as well as enable the Sub – brokers have more presence at the grass root level”. The SEC added.