Customs Street Advisors is a full service investor relations firm based in Lagos, Nigeria.

Rebel with[out] a cause: Theory and Practice of Shareholder Activism

This week on Street Talking on NEXT, I review the tactics of shareholder agitants on the Nigerian Stock Exchange in 2009 and identify why they enjoy very limited success in galvanizing popular support.

In his famous 1947 essay, ‘The Sources of Soviet Power’, George Kennan, the late distinguished foreign policy wonk, writing under the pseudonym ‘X’, advised the US government that only ‘the adroit and vigilant application of counterforce at a series of constantly shifting geographical and political points’ could contain Russia’s imperial ambitions. His ideas would lead the US to sponsor several proxy wars in countries far removed from the epicenter of its vital interests such as Angola, Laos and Vietnam.

Walter Lippman, a contemporary critic of Kennan’s thesis, counter-argued that writing a blank cheque in favour of belligerents who are not accountable to US citizens, in defense of so-called liberty, would be ‘a strategic monstrosity’.

Recent agitations by groups backed by powerful shareholders of companies on the Nigerian Stock Exchange indicate that such strategic monstrosities are not the exclusive preserve of global Powers.

In a sense, there are a number of surface similarities between Kennan’s ideas and the shareholder guerrilla wars that were waged on the Nigerian Stock Exchange in 2009. From the sniper shots of Bamidele Sanya’s Committee for the Defense of Justice & Advancement and the aerial bombardments of Mukhtar Mukhtar’s Shareholders Trustees Association Nigeria against the Femi Otedola-led African Petroleum board to the artillery shelling of Ibrahim M. Muktar’s Committee for the Defense of the Capital Market, psychological operations of the Concerned Shareholders of AP Plc and the napalm carpet bombing of the FactsNigeria.com website against Alhaji Aliko Dangote during the AP share price manipulation scandal to the more recent land-mine planting season of the Renaissance Professionals against the Central Bank and new bank CEOs, one sees a growing trend for deep-pocketed but offended shareholders to lend their support to third-party agitators with a common agenda to create a diversionary nuisance to company boards.

These campaigners have been described as mercenaries, faceless and false groups, hatchet men, hired guns and back-door advocates. Maybe so, maybe not. Whatever the case, it is undeniable that their media publicity gives them public attention. But publicity does not equate to effectiveness and attention does not auto-convert to support. To be effective, an agitation campaign must go beyond feverish assaults at discrediting opponents. There is nothing easier than throwing stones. The real challenge lies in articulating a realistic and credible alternative for protecting shareholder value and coalescing apathetic or initially hostile investors around those objectives to become ardent co-crusaders. For example, one may compare the reactions of visitors to DayoCoker.Wordpress.com during the blogger’s vociferous campaign against the former management of Intercontinental Bank to the groundswell of support activists like the Finger Interests enjoyed in their campaign to oust Ken Lewis, the Bank of America CEO, through their website, BacProxyVote.com.

The financiers of these Astroturf campaigners need to wake up to the reality that bankrolling full page ads is only the beginning of an arduous race against an incumbent management. The public entertainment value of caustic running commentary on the activities of company boards or particular executives cannot compensate for the necessity of building consensus on how best to hedge value. Crucially, this requires that the campaigners earn the trust of their publics. The onus is on them, as initiators, to prove why they are qualified to lead others. Furthermore, trust is constructed around transparency and access. Campaigners need to show that they hold themselves up to the same access, accountability and disclosure standards that they demand from companies. He who comes to equity must come with clean hands. Indeed, the label ‘faceless’ is a damaging one. It smears the campaigners as clandestine labourers operating in the twilight zone of illegality.

For instance, in one of its ads asserting its right to express their ‘views towards national Renaissance’, (‘Are we back to Military Repression or Under President Yar’Adua’s Rule of Law?’), the Renaissance Professionals describe themselves as ‘a group of like-minded Nigerians who have a stake in the Nigerian banking industry and indeed the Nigerian economy.’ That was it.

In the only public statement the group has ever made on the identity of its sponsors, it refused to declare their names, contact address, track records, ownership stakes, proposed restructuring process and desired outcomes to restore the banks to legacy shareholders. Public interest in this information is not voyeuristic. It is vital to establishing the credibility of the group, attracting support from other shareholders and perhaps, setting the stage for constructive engagement with the management at the bailed out institutions.

The whole idea behind guerrilla combat is to be invited to the negotiating table. Sooner or later, the proxy masters will come to realize, like the US learned at great cost, that guerrilla campaigns do not succeed without grassroots support. In the time being, the wasteful grandstanding will continue to provide an amusing spectacle.

The original article may be read here on the NEXT website.

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