ZIMBABWE Trends and Developments Contributed by: Norman Chimuka and Tonderai Sena, ChimukaMafunga Commercial Attorneys
resolutions in a manner that they largely see fit. Con- vening a shareholder meeting is onerous by compari- son. This separation carries the potential of a diver- gence of interests between the shareholders and the managers without an effective check on the powers of the managers. This is amplified by the modern stock markets which result in thousands of people investing in stocks in different companies, thereby creating a situation where the average listed company does not have a single or a group of shareholders capable of exercising any superintendence over the activities of the managers. This, in turn, creates a feeling in most shareholders that their attempts to be more active will not bring about any noticeable change. In addition, another factor that is contributing to shareholder apathy is that shareholders do not have adequate knowledge about their legal rights and pow- ers. This is mostly the case with the majority of public shareholders. Shareholders would probably be more actively involved in the management and running of the company if they had good knowledge of corporate practices and the rights and responsibilities. Over and above that, more participation in the gov- ernance process comes with costs, and sharehold- ers holding few shares generally have no incentive to absorb those costs, which also contributes to share- holder apathy. Shareholder Activism Whether shareholder activism ought to be promoted or restricted has been an issue of concern in the cor- porate world. Shareholder activism refers to actions taken by shareholders to influence the company’s management and policies. This can involve individ- ual investors raising concerns or organised groups launching campaigns to pressure the board of direc- tors. Put differently, shareholder activism implies tak- ing an active role in a company in which one owns an interest. It can take many forms. It may include attending AGMs and other shareholder meetings to ask directors to account for various issues, engag- ing management and directors on contentious issues, questioning board composition, and engineering the removal of unsuitable directors. Although sharehold- ers are generally not actively involved in the manage-
ment of the company, they can influence the direction that the company takes. Whilst there are no empirical statistics available to support the view that particular groups/types of share- holders are more active than others, it is normally the minority groups of shareholders which engage in shareholder activism to protect themselves. Major shareholders do not need to engage in activism as they have a plethora of avenues for controlling the affairs of the company. The proponents in favour of shareholder activism argue that companies with active and engaged share- holders are more likely to be successful in the long term than those whose boards are left to do as they please. Contrastingly, those opposed to it argue that increased shareholder participation in the governance process creates another set of corporate governance problems, abusive transactions, increased minority shareholder oppression, and aggressive pursuit of the “bottom line” to the exclusion of all other consid- erations that are detrimental to the interests of other legitimate stakeholders. In private companies, particularly small ones, the shareholders more often than not exercise substan- tial influence on the company’s management. There is effectively “owner management”. However, in some public companies, the shareholders can become numerous and dispersed, thus each holding a small number of shares. In such a company, there is a com- plete disconnect between ownership of shares in the company, and control of the day-to-day affairs of that company. There is a separation between “ownership” and management, with the shareholders “owning” the company shares but management controlling the company. In companies with dispersed shareholders, boards of directors tend to have significant power. This power is not an inherent corollary of the separation of con- trol from ownership but is also due to legal rules that largely insulate directors from shareholder interven- tion. Separation of control from ownership results in directors being put in charge of investments made by other people, and hence, the reason why the position of a director is a fiduciary one. Directors can use their
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