RISE and fall of a company’s shares is directly related to the operations and financial performance of the company.
As such, scrutiny of financial and operations information revealed during annual general meetings is a must and minority shareholders should duly exercise their rights to demand an explanation on the information revealed.
According to a Universiti Malaysia Sabah study, minority investors often had a shallow knowledge on companies’ ownership structure, companies’ policies and shareholders roles and rights.
Echoing that, a local business portal recently quoted a company that conducts trainings on value investing as saying that the moment someone invest in a company, they are buying into that business.
“Although it’s a small portion, the investors may have invested 50% of their personal funds in that particular company. So, they must treat the company like their baby,” Low Chern Hong, head of operations at 8VIC Malaysia Sdn Bhd, reportedly said.
According to Low, retail investors focused mainly on share price and dividends only without going deep into the fundamentals of the company.
The report also highlighted many retail investors failed to look into key points to a company’s success i.e business model, cash flow and the company’s debt among others.
It was said most often than not they would only look at revenue and net profit.
It was also reported that the Securities Commission (SC) had recently said minority shareholders can better protect themselves by paying more attention to the appointment of independent directors, by participating in the two-tier voting process for independent directors over 12 years of service.
The SC reportedly reminded minority shareholders that while their shareholdings may be relatively small, collectively they could account for more than 50% of shareholdings. Thus their votes can affect the outcome of a resolution.
A joint study on the first-year implementation of the Enhanced Audited Report (EAR) in Malaysia revealed that key users of audit and financial reports found value in the new reporting standards.
Some two-thirds of surveyed respondents acknowledged the improvements the new standards bring and that it is a key tool in navigating complex financial reports.
One of the most significant changes brought by the EAR is that auditors of listed companies must report the Key Audit Matters (KAMs) – matters that were of most significance in the audit of the financial statements and how the audit addressed those issues.
The adoption of the EAR and disclosure of KAMs have given a boost to shareholder activism.
According to the joint study, a significant proportion of retail investors found KAMs particularly helpful in identifying financial reporting and audit matters to raise at annual general meetings (AGMs) to the auditors (80%), and the board of directors and management (81%).
However, the findings also revealed that shareholders and investors have yet to fully take advantage of the disclosure of KAMs by questioning the auditors and board of directors at AGMs.
KAMs act as a red flag, essentially highlighting to stakeholders and investors the issues of concern in the financial management of the company.
As such, minority shareholders should leverage on the mandatory disclosure of key audit matters to seek explanations and clarification on issues of concern raised during the audit process.
A more robust questioning of the auditors and directors during AGMs by minority shareholders will go a long way in strengthening transparency and corporate governance in our capital markets
That said, Conventus Law, an online legal media platform, with greater awareness put forward by institutional shareholders and institutions like the minority shareholders watch group (MSWG) and the persistence of shareholders to exercise their right, shareholder activism can be said to be on the right track in its objective of protecting shareholders’ interest. – Nov 1, 2020
