Saturday, March 21, 2009

Can Minority Shareholders influence Management ?

As a minority shareholder myself in several companies, the question which has always popped up in my mind is the extent of influence which minority shareholders have on the Management of the companies which one owns. After all, as part-owners of a company, minority shareholders should have some influence or say on the running of the business, besides just showing up to attend AGM and voting on perfunctory matters. However, let's explore how this could be done in a more constructive way, and whether Management actually responds in ways which would enhance shareholder value.

In the kind of economic environment we are in now, companies have started bombarding (yeah, carpet bombing) shareholders with rights issues. Hapless minority shareholders have to choose between forking out cash or else get diluted (sometimes massively so). So can this be taken as a sign that Management has ignored the plight of minority shareholders and went ahead with such issues due to the backing of the majority shareholder (in most cases, it's Temasek). How can aggrieved minority shareholders voice their displeasure and disappointment ? It would seem that there are currently no proper channels or avenues besides the EGM; and even then the majority shareholders' votes would more than negate the small voices of a majority of the minority shareholders. This is indeed worrying and should be properly addressed by SGX.

Another avenue which shareholders can make themselves heard is through the so-called IR department (an abbrieviation for Investor Relations). Some companies have their own IR department while others engage a PR firm as their IR contact. Shareholders can call in to ask questions about the business or to request annual reports (I've done so myself). However, the flip side is that the person whom you're asking is unlikely to be the top Management or someone from the Board of Directors; which means the answer you probably will get is a standard one. Since companies do not like to disclose price-sensitive information, you may just get a curt reply that they are not in a position to comment further. Companies hiring the PR firms are more "marketing" by nature - they tend to use nicer language in press releases and to phrase things more positively. Nothing wrong with that, but sometimes the truth is the truth so let's just call a spade a spade. Companies I own which engage such PR firms are Ezra (Oaktree Advisors) and Swiber (August Consulting). Companies such as Boustead and Tat Hong have their own IR department.

A more effective way of getting your views heard by top management is, of course, to attend the AGM and/or EGM. I've always found that I can engage the top management in conversation to ask about the latest developments surrounding the company, as well as to find out about the company's plans for the future. Most companies have Management teams which patiently entertain all shareholder queries, which is a very good thing indeed. However, whether any suggestions by shareholders on how to run the business are taken seriously or not is in question, as minority shareholders are not assumed to know enough about the business to be able to contribute anything constructive. This I am fully aware of, but I feel that during such unprecedented times, Management should remain open to constructive suggestions and filter out the bad ones; as they themselves may be facing problems in growing their business.

As a shareholder who studies the business intently, I would very much hope that any suggestions which I make can be seriously considered so that Management can take the best measures to enhance shareholder value. This would indeed be a synergistic co-operative effort by both Management, Directors and Shareholders !

10 comments:

millionairemind said...

MW,

It has been a long time since I revisited your blog and posted something. You do write well, keep it up.

As for minority shareholder's ability to influence management, I suggest we forget about it.

That is the reason I NEVER KID myself that I am a business owner. All stocks are speculative.

Just look at Swiber and the loss on Q4. Did they give ample warning about the loss?? NO! When the news are good, they go around with a loud hailer... and alot of ppe. re-broadcast for them.

When news are bad like lack of earnings, have you heard them even give a warning???

Please be careful of having sunk-cost bias in your treatment on the company shares that you owe. I hate to see ppe. lose hard earned money to the market.

Good luck out there. I hope you can make back what you lost.

Cheers,
mm

musicwhiz said...

Hi MM,

So nice of you to drop by, I missed your good advice and your pearls of wisdom !

While I agree with you on companies ignoring minority shareholders, I don't totally agree that all stocks are speuclative. Perhaps we come from different angles so that's why we differ, but I am OK with that.

As for Swiber, yes I am fully aware of their "issues" and how their press releases are always so glossy and optimistic. This is why I have increased my exposure to other companies like Boustead and Tat Hong which are more "no-frills". I realized the mistake of believing in hype and yes, the sunk-cost bias probably also comes into play.

Thus, I humbly admit that Swiber was a case of the gloss blinding me from the facts. Thanks for highlighting that.

You have a great week too !

Regards,
Musicwhiz

WY said...

Hi Musicwhiz,
I'm new here.
You have a great blog, many insightful ideas.. Thx.

I have compiled some resources on shareholder activism:

http://wy-on-investment.blogspot.com/search/label/shareholder%20activism

Feel free to check it out.

Hopefully minority shareholders in Sg have a voice.

musicwhiz said...

Hello WY,

Thanks for visiting and thanks for your comments too.

Your blog is interesting, and I will spend some time to read it. Thanks for the link !

Cheers,
Musicwhiz

WY said...

Thx.

Feel free to comment and add on to my blogs.

musicwhiz said...

Hi WY,

You're welcome. Take care.

Musicwhiz

Kay said...

Hi Musicwhiz,

I've given up on the ability of the minority shareholders to be able to exert some influence on the company. The recent takeover of SFT by SATSvcs is a pretty good example. In my opinion, it would be far easier to spot and buy into a company whose management are dedicated to putting the interest of the shareholders as their foremost priority. The integrity and honesty of the management are plus points too.

On paper, shareholders are supposed to be business owners albeit on a much smaller stake but in reality, I would see shareholders as contributors of easy capital who are at the mercy of the management. The recent spate of rights issue has left me rather convinced over this point.

Kay

musicwhiz said...

Nah Kay,

Don't feel too discouraged. Though as minorities we don't get much say, I guess we have to compensate by buying good companies so that Management has a natural ability to maximise shareholder value.

Yes, rights issues are a way to "milk" shareholders. This seems obvious from the recent spate of rights issues, I agree. There's nothing much one can do about it unless you have very deep pockets, or else you get diluted.

Regards,
Musicwhiz

jesus said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Sara

http://smallbusinessgrant.info

musicwhiz said...

Hi Sara,

Thank you for visiting and reading. If you can, please recommend to other friends as well ! Hehe.

Cheers,
Musicwhiz