Dr. Ali Al-Ghamdi
IN a precedent in the history of shareholding companies, the general assembly of Alujain Corporation has removed all members of the board and appointed a new board of directors. The reason: No profits have been made nor distributed to shareholders despite the fact that the company has been in the business for years. There should be a law or some regulations that remove members of the board of a company that has not made any profits and appoint more qualified and competent directors.
There are companies that have been operating for decades now and have not made any profits; still, the chairman and the directors of the board have full privileges and get paid salaries, bonuses, travel allowances and other perks while the poor shareholder has not been given any profits. This poor shareholder might have invested all his savings in the company or might have taken a loan to hold shares in the company. That is why many shareholders were happy to know that the members of Alujuain Corporation’s board got replaced by new members.
A day before Alujain Corporation’s general assembly took place, a general assembly of a mega company was held. This company’s initial public offering took place a decade ago. At the time, the bonds issued were higher than the price of a share and were really exaggerated. Besides, the profits were distributed only once at a price that is half a riyal for each share and that was two years ago. That is why the shareholders attacked the board of directors in the last general assembly meeting and accused them of negligence. The shareholders even implied that corruption practices were the reason why the company had not made any profits.
Some shareholders accused the board of directors of signing agreements with entities with which they have mutual personal interests. This indicates that the board of directors focused only on these agreements and left out the others, an action which the Companies’ Governance Law does not permit unless the general assembly has approved it.
In a previous article, I stressed the fact that general assemblies are not important or have no value at all because only few shareholders attend these meetings and those shareholders own a small number of the shares that are required for the quorum. The big shareholders who have the largest number of shares are the members of the board.
Therefore, the one who laid down the Companies’ Governance Law and granted the general assembly the right to violate the conditions of the law is either someone who is not aware of the reality of general assemblies on the ground or someone who is biased towards the big shareholders, mostly the members of the board. The law does not consider the shareholders with small shares who end up losing their rights to take any action.
During the recent general assembly of the mega company, something shocking happened. The board of directors asked the general assembly to approve an increase in the amount of bonuses given to the directors from SR150,000 to SR500,00. As far as I know, no board of directors of any major company has made such request before. Of course, the shareholders rejected the request and protested. It is a strange thing: the company has not distributed any profits while its board wants an increase in bonuses. It is not just a small increase, no, it is a big one, which does not make any sense and is not acceptable.
I know a private company that was turned into a joint-stock company but the owner and his family acquired most of the shares and issued some for public offering at an exaggerated price. In the first few years, modest profits were distributed to shareholders. It has been few years now since the profits were distributed. The company’s board has not given profits under the pretext that they want to strengthen and consolidate the company’s financial position.
The son of the chairman of the board, who is a member of the board, gets a bonus similar to the one given to other members. However, this son also holds a position in the company while the Companies’ Governance Law does not permit such action unless the general assembly has approved it. Since the family owns most of the shares, the general assembly’s approval is a sure thing. The strange thing is that the son’s salary was SR650,000 in the first year. In the next year, it was increased to SR850,000 while in the following year it was SR1,200,000. Today, the salary is SR1,800,000. The shareholders have not been given any profits so far.
The above are some examples which shed light on the reality of shareholding companies. Recently, a Saudi lady was appointed as the chairwoman of the Capital Market Authority. I hope she will protect the rights of small shareholders and amend the governance law to prevent any circumvention. It is not right that the law permits the board of directors to sign agreements with entities with which they have mutual interests. The law should be revised by a legal committee to avoid any negative impact it causes.
