Unlike their global peers, activist shareholders are seldom seen taking up a cause in the UAE or in the region. More often than not, they hardly attend the board meetings, let alone raise issues that protect shareholder rights.
Companies such as Drake and Scull International, Abraaj, and Marka among others have failed to protect the rights of shareholders on allegations of corporate governance issues. Shareholders of Marka Holding, which has been suspended from trading since April 2018, decided to liquidate the company amid mounting losses and bank debts. The company failed to get in a strategic investor amid issues of corporate governance and a failure to restructure debt,
“The company could not sustain its payments … if the money had come in earlier, even six months ago, we would not be in this situation,” according to Khalid Bin Kalban, chairman of board of Marka.
Analysts said the downside for the company would have been limited if activist shareholders or board members had played their part. “Activist shareholders attempt to “bring about change”, through acquiring a large shareholding and obtaining a seat on the company’s board,” said Vrajesh Bhandari, senior portfolio manager at Al Mal Capital. “In the region, given most businesses are tightly held and controlled, not much activism is seen. Legally speaking, a director can be criminally liable under the UAE Federal Penal Code in relation to Fraud & Embezzlement. It is an offence for any chairman, director or employee of a company to influence prices of the securities issued by the company.
“However, there cannot be legal punishment for management failures (error of judgement). Also, in most cases it is very difficult to prove negligence.”
According to Issam Kassabieh, senior financial analyst — research department, Menacorp, “Governance is a crucial factor to a company’s success and is essential for protecting each shareholder’s rights. Having said that, it is each shareholder’s duty and obligation to ensure proper governance, whether a major or minor shareholder.
“However, from what we have seen in the past couple of years from companies that have faced issues of that nature, annual general meeting attendance was weak, transactions were gone unquestioned at several times, and from a regulatory aspect took a lengthy period of time to be attended to.”