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

Chasing Shadows: Who Benefits When Owners Own Up

This week on Street Talking in NEXT, I argue that smart companies should welcome the Central Bank of Nigeria governor’s call for greater disclosure in shareholder identification.

Sanusi-watching has become Nigeria’s most popular spectator sport. Every other week, the Central Bank governor beams his searchlight at a dark corner of the banking attic to expose a mangled mass of cobweb. Oddly, his admission at a seminar last week that the regulator does not know the identities of owners of significant blocs of shares in ‘a very large number of financial institutions’ has been received with indifference. In typical fashion, the gallery has latched on to his more ‘incendiary’ announcement at the same event that the CBN would limit the tenure of non-executive directors of banks to two years subject to renewal only at the apex bank’s instance. ‘What gives him the right to do so?’ many have asked.

The CBN’s authority to impose a ceiling on non-executive director tenure and the propriety of announcing a major policy decision at a public forum aside, I think that companies should applaud Sanusi for championing transparency in shareholder identification. However, my reasons for urging their interest diverge sharply from the Central Bank governor’s who asked ‘Who owns the banks? Are they money launders? Drug barons? Government money?’ In reality, I doubt whether the presence of the Archbishop of Canterbury and Dalai Lama together matters much to any company.

In fact, it baffles me that there has never been any public advocacy on the subject of shareholder identification. There may be a good reason why it has been kept off the agenda. Could it be because quoted company boards of directors, stock brokers, issuing houses and registrars are complicit in freezing the trail that leads to some beneficial owners? I cannot say. Or might it be that they have been so busy covering up their own tracks that they are missing the significance of the tracks being laid by non-insider investors? Their covert ambition has been to ensure that control never slips out of their hands. Did anyone say ‘hostile takeover’? Not in your dreams, not in my time. They and their proxies are in firm control. Why would they bother about any shareholder identification when the free float is laughable and they have a maze of interlocking ownerships that would make any Byzantine emperor proud? With that kind of moat, they can flick away any interloper’s unsolicited interest like a dead insect. At least, this has been their solace.

Anyone who has followed global markets in the last few years knows full well that shareholders can wield influence far in excess of their ownership stakes. Activist investors with absolutely no interest in taking over the company have become a fixture of the governance universe. From retail investors like Eric Jackson who with only 45 shares launched a widely covered shareholder campaign against the board of Yahoo! using YouTube in 2006 to the Roman Catholic Sisters of Charity of St. Elizabeth who pushed for the publication of risk management policies in plain English at Bank of America’s 2010 annual general meeting and went on to win 39% of votes in support, there is a trend for proposals to stand on their merit and not on the number of shares owned by a shareholder.

The bulky ledgers of tiny print with columns of names and holdings in registrars’ offices contain a wealth of intelligence for every company’s investor relations (IR) efforts. Companies are fond of mistaking blasting ego-propping communications of corporate accomplishments to shareholders as IR. That is mass communications and useful as it may be, it does not build relationships, which is the operative goal of IR. Boards need to closely monitor the geographic breakdown, composition, concentration, investment styles and turnover of their shareholder base to craft effective investor relations strategies. Anything else is akin to throwing spaghetti on the wall.

In a paper calling for improved disclosure in shareholder identification, ‘Shareholder ID: The Resounding Silence of Non-disclosure,’ prepared by PR Newswire’s Disclosure Advisory Board, the writers lamented the ‘thunderous silence’ on hidden ownership. They argue that it is unfair to demand full disclosure from companies while permitting investors who may have hidden agendas from disclosing their interest in a timely fashion. Transparency is a two-way street.

In banking, there is the policy of Know You Customer. Companies must now institute a policy of regular Know Your Shareholder audits. While board members with vested interests will want to see the central bank governor’s latest comments as another round of witch-hunting about to begin, he is doing them a big favour by indirectly fighting for their right to know buyers of their shares. At least, now the law would ensure that no one comes from behind them to spring a hostile takeover. However, like I have been saying, the whole point of shareholder identification is not about stealing the company from its owners. It is about giving them an edge in their capital market relationships. I only hope that they will seize that edge when it is placed before them.

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