Listed cos’ directors: Stakeholders object to revision of SECP voting scheme

ISLAMABAD: Stakeholders have raised serious objections to the Securities and Exchange Commission of Pakistan’s revision of the voting scheme of directors in the listed companies.

The SECP has also received objections that the new mechanism may prevent minority shareholders from getting appropriate representation on the board of the listed companies.

The SECP’s documents revealed that the voting scheme under the category of voting regime needs to be revised as per committee recommendation. Instead of distributing a member’s total votes (shares held by him/her multiplied by the number of directors to be elected) across the three enumerated categories, he should be assigned votes on a consolidated/aggregate basis which he may choose to may give to a single candidate in any category or distribute among multiple candidates in the same or different categories, SECP’s committee recommended.

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The recommendation was disagreed by few in the feedback mentioning that any further change may lead to complication and distort the mix of directors. It may affect the mandatory election of directors in each category.

Other suggested that the requirement for having one-third independent directors should be calculated based on the number of elected directors. Nominee directors should be excluded for calculation of one third members as independent directors.

Further, for a separate category for minor shareholder director sponsor should be barred from voting in that category.

The SECP responded that although the category-wise requirement has generally been appreciated by the industry, concerns have been raised that the new mechanism may prevent minority shareholders from getting appropriate representation on the board. e.g. in the female category the candidate backed by the sponsor/ majority shareholder will always win and similar pattern can be observed in other categories which have small number of seats. Issue is aggravated in the case of companies having small free floats.

After review, it is observed that removing the concept of proportionate voting as recommended by the Committee without any mitigating measures can also adversely affect the interest of minority shareholders. e.g. if there is no candidate from minority shareholders in the female and independent categories, the candidates backed by sponsors will be elected without any reduction in voting rights. On the other hand, if minority shareholder nominates candidates in multiple categories, it will result in dilution of voting rights across different categories.

It is considered that elimination of proportionate voting may not be sufficient to address the issues being highlighted and reforms in the primarily law i.e. Companies Act, 2017 may be required to ensure that revised regime does not compromise minority interest, the SECP added.

Copyright Business Recorder, 2024