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The AGM circus shows our financial immaturity

Jul 13, 2008 Management, Sunday Nation

The amazing success of the Safaricom IPO confirms that we are on our way to becoming a shareholder democracy, does it not? Hundreds of thousands of new shareholders have been brought into the bosom of capitalism, and are basking in the promise of the new wealth that will follow – yes?

Anyone who thinks we are en route to a mass-capitalist society needs to just visit the Annual General Meeting of any listed company to check up on this. My work takes me to quite a few, and I rarely leave inspired about the future.

People flock in their thousands to the bigger companies’ AGMs. By observation, many come from rural outposts, using the meeting as a reason to come to the capital city. Most, I am afraid to report, haven’t the faintest clue what they are there to do, or indeed what ‘their’ company does. They are simply like children at the circus, waiting for the show to begin.

And a show it is. Many companies now organise dancing and singing troupes to perform at AGMs, thereby accepting that there is no serious business to be conducted there. They give out freebie packs – to much pandemonium. I have often heard shareholders (and even financial journalists) rating companies according to the quality of the free lunch provided.

Once the business of discussing the company’s Annual Report is underway, a few questions will indeed be asked by shareholders – mostly by the half-dozen or so ‘career shareholders’ we have in this country, who are found at each and every public AGM and who invariably try to impress the assembly with predictable and banal questions.

When the average shareholder does get to ask a question, it will be along the lines of:”Why can’t this meeting begin at 11.00 am instead of 2.00 pm, to allow us to use the afternoon for other things?” Or “Why didn’t we begin this meeting with a prayer to bless the proceedings?” Or “I demand that this company publishes the names of all employees so that we can confirm that the country’s eight provinces are represented equally.” Heaven help us.

Because shareholders behave like children, they are treated as such by chairmen and directors. The meeting is tightly scripted; questions are given short shrift, whether important or not; and the major issues facing the company are almost NEVER discussed. The company’s competitive edge; its penetration of regional markets; the trends in its cash management; the turnover in senior management: I have yet to attend an AGM where questions like that are raised.

If even 10 million Kenyans buy a few shares in a few companies, we will not become a knowledgeable shareholder economy. In fact, the more the shareholders out there, the more vulnerable they are to criminal manipulation by stockbrokers, who herd these people out of the villages with the contents of their freshly emptied mattresses and lure them into putting their life savings into whichever company the stockbroker is promoting that week. Like sheep being taken for fleecing.

If you want to see the tragedy that unfolds, go and look at the queues outside the now defunct Nyaga Stockbrokers. Look at the distress on the faces of the assembled, as it sinks in that ten years of hard saving may have disappeared in the blink of an eye. We are not creating shareholder democracy here, we are creating a ‘karata’ economy where a few schemers dupe millions of suckers.

The Safaricom share, post-IPO, should have taught many a lesson. Even people you would expect to know better bought shares at Sh. 5, expecting the price to rocket to Sh. 15 or more – just like that. Many bought the share simply because it was priced at five bob, thinking that that alone makes it attractive. Others – educated professionals – were heard arguing that surely Safaricom could not stay at five shillings when East African Breweries, which makes a smaller profit, trades at Sh. 150. And if you don’t understand what is wrong with that argument please, for your own safety, don’t buy another share until you do!

Safaricom is a success because it has a robust business model, determined leadership and a long record of innovation. It is not street-corner card game. If it is going to make anyone any real money, that will happen over a long period – and only if it manages to sustain its market leadership in the face of the very intense competition to come.

I repeat what I have written here many times before: money is not made in the crowd. If you are standing in a queue thinking you’ll be rich just by doing what everyone else is doing, think again. The chances are, some huckster is lining you up for fleecing. There are some simple laws of business life that we should all remember before joining the queues. That is a topic we shall return to next week, same time, same place.

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