LEGAL VIEWPOINT: Governance and shareholders

By Dr AbdelGadir Warsama Ghalib, Legal Counsel

Asia 728x90

The shareholders are the owners of the company and they are the first party to gain and benefit from the success and profits earned. In fact, it is really hurting to mention that many shareholders are not aware of the rights and duties they are supposed to learn and undertake. Members of the Board of Directors, are mainly from the shareholders and, by virtue of this, all shareholders are supposed to be conversant and likewise vigilant for their benefit, the company & the community.

A valid question arises, what are the duties of the shareholders according to the law & governance principles? Generally, current policy matters, future plans and far-end strategies are to be under their care, this comes as part of their prime duty to assist the Board of Directors of the company in going forward to achieve all such objectives needed for the sustainability of the company.

To achieve this goal, the law \ governance principles explain and give the Board of Directors the duty to call the shareholders, of public joint stock company, who shall attend the meetings \ assemblies and participate actively in the agenda. Herein, we mention that there are two kinds of meetings \assemblies. These meetings are different in character and in shape because there is a special task to be undertaken by each of them.

The first type of assemblies is the Ordinary General Assembly (OGA), while the second is the Extra Ordinary General Assembly (EOGA). In most cases, there is some confusion or, we could say, some misunderstanding regarding the two assemblies, particularly, in relation to the functions of each one. In fact, in some discussions with executives in Ministries and shareholders, all were of the opinion that such classification and terminology cause big confusion.

The law, provides for the two types of assemblies and explains the difference between the OGA and the EOGA. We have to mention that for each of the assemblies there are certain requirements and statutory conditions such as: Who calls for the required assembly and why this right is given? Who chairs the assembly and who attends? What is the required quorum for each assembly? What are the issues or agenda to be discussed in each of them? In addition to certain specific legal duties stipulated in the law, the shareholders normally discuss & outline the policies to be resolved by the Board of Directors and implemented by the management of the company. Such parameters, we could say, are normally orchestrated during the OGA. This means the general policy matters are taken care of by the OGA.

 However, in all cases the agenda for each meeting should be given by the Board of Directors to the shareholders prior to the meeting. The authority to call for the OGA is vested, according to the law, with the Board of Directors In some instances, the law gives the authority to the shareholders and other competent authorities, however, the law makes it mandatory that the Board shall call for at least one OGA each year. The law also gives the power to the Board to call for additional meetings at any time in case there is a need.

In practice, we have noticed that Boards of Directors in certain companies appear to suffer from a kind of phobia and therefore they do not want to meet or face the shareholders. While some others may be either egoistic, indifferent or naïve. Hence, they sever the link between the Board and the management on one hand and the shareholders on the other hand. This approach is totally against the law and against the principles of corporate governance. It should not be forgotten that shareholders jointly own and hold the company and this is why they are — holders. From this point comes the importance of the link between the management and the shareholders and this link should always be maintained under the eyes of the Board of Directors.

Good management will do its homework and also ensures the shareholders do theirs. However, neither the executive management of the company nor the Board should take matters of routine administration work to the shareholders because this is not their duty.

On the other hand, the EOGA, shall convene to discuss certain issues as amendments in the Memorandum of Understanding or the Articles of Association, the new objects of the company as and when duly elected, increase in tenure of the company, issues regarding dissolution or liquidation or merger or acquisition, decisions related to sale, or any other similar transaction, of the project for which the company has been established. These issues are reserved by the law to the EOGA. In other words, any decision related to the above issues will be deemed void, ab initio, and contrary to the law if they are not taken by this particular assembly.

Above shows the important role of the shareholders through assemblies called by the Board of Directors and all are advised to fulfil their duties for the sake of the company & likewise their own sake. Shareholders and to the same degree, the Board of Directors, shall be vigilant & careful to fully preserve their duties and legal rights.