The Tyranny of the Majority

FRIDAY March 27 started like any other day for corporate Zimbabwe.

The convening of an extraordinary general meeting (EGM) by Econet did not make the day extraordinary in any way for local investors.

Normally, these meetings last for 10 minutes with the only area of interest to analysts being the trading update. Otherwise the formal business is usually too ceremonial, choreographed and boring to say the least.

The chairman opens the proceedings by revealing that he has got some proxies, probably pre-empting any question of whether or not there is enough support for the resolutions.

He reads the resolution and gets someone – usually a member of the executive – to propose it before another interested party seconds it.

Voting is usually by a show of hands, by both those in favour and those against. In most cases, no one bothers to count the votes since it would not really change anything. 

Nothing is queried and “there being no other business to transact at this EGM”, the chairman declares the meeting closed.

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To many, the Econet EGM was not expected to be any exception to this procedure. This was not because the investors viewed the transaction as the next best thing to the formation of the inclusive government, but because the major shareholders always have their way in such circumstances.

Although some minorities might have had reservations, they lack the numbers to change the outcome.

The meeting was to consider a proposed instalment sale agreement in which Econet Wireless Global (EWG) would supply telecoms equipment, which is manufactured by ZTE of China and valued at US$93,9m, to Econet Wireless Zimbabwe (EWZ).

EWG is a company incorporated in Botswana and is the corporate parent (46,32%) of EWZ’s holding company, Econet Wireless Holdings Limited (EWHL) which is listed on the Zimbabwe Stock Exchange (ZSE).

EWG is led by Strive Masiyiwa and the company owns several telecoms businesses in Africa, New Zealand and UK among other places.

The ZSE-listed entity, EWHL through its subsidiary EWZ, has had several transactions involving the major shareholder and related parties before.

In 2003, EWHL acquired, in exchange for its 918 705 438 Class A ordinary shares, 100% of TSM whose only asset at that time was the 14% stake in Mascom valued at US$14m. Some analysts at the time argued that Econet was paying too much for the stake.

A year later, around December 2004, the investment in Mascom was sold to Econet Wireless Limited – incorporated in UK for US$14m. Management argued at the time that the Botswana mobile market with 32% penetration was saturated while Zimbabwe had more demand for mobile lines.

Although some shareholders were uncomfortable then, the transaction went ahead unhindered.

Earlier on, EWHL shareholders had approved a transaction which gave the company 5 047 581 (50,48%) of EWL, a business then worth more than US$75m.

The regulators allegedly took time to approve the transaction resulting in EWHL establishing an offshore trust account that would hold the 50,48%.

It is not clear how this issue was resolved or whether the 50,48% asset still belongs to the local company. Recent annual reports are apparently silent on this unless this writer missed it somehow.

Shareholders and analysts have not, to my knowledge, demanded to know what happened to this transaction.

Given this history, it was then refreshing to see minorities, notably Old Mutual and Terra Partners, rising to the occasion on Friday.

The price tag of US$94m was queried with some of the shareholders reckoning it was too high. That the major shareholder, EWG, was the seller of the equipment raised more eyebrows.

Was it an arms length business transaction between the two and if so how much profit did EWG realise on the deal?

Equally if the equipment was subsidised, what was the extent of the subsidy from the corporate parent?

The rationale for importing towers and shelter for US$20m was also questionable given that the items can be supplied locally at reasonable prices.

The circular’s silence on the advisory charges did not help the matter either given the perceived conflict of interest.

The fact that minorities correctly demanded and were granted an opportunity to vote through a secret ballot, as opposed to the usual show of hands, was in itself encouraging.

Whereas the results of the vote are in dispute, with some shareholders claiming they were “rigged” while an official notice from the company says there were “above board”, the significance of the turn of events on Friday cannot be downplayed.

Major shareholders, company boards and management should not be allowed to trample on minorities.

Granted, the majority carries the day in a democracy.

However, the dictum of majority rule should not be used to justify disregarding the opinion of minorities especially with regards to corporate governance issues.

Otherwise it could lead to what is known as the tyranny of the majority in politics.

This is a scenario in which the majority advances its interest regardless of those of the minority as happens in the case of tyrannical despots.  

Major shareholders of public companies must not behave as if they are running a tuck-shop where they can do exactly as they please. 

When proprietors take their business public, they should expect public scrutiny, must not be economic with either facts or truths and should know that even a guy with 100 shares deserves to have his opinion respected.

Any person who is averse to this should delist their company. They cannot both have their cake and eat it at the same time.

In July 2008, a local weekly quoted Econet Wireless founder Strive Masiyiwa correcting the misconception regarding ownership of a public company in the wake of media reports that he was buying into RTG, when in fact it was Econet which was buying.

He said, “I do not own Econet, I am just a large shareholder in a public company owned by thousands of other Zimbabweans”.

He is reported to have gone on to say that it was unfortunate that people continued to treat companies like Econet, which are now large public companies as though they are privately owned. Rightly said Sir.

Nonetheless it is not usually the people but rather the major shareholders who treat listed companies as sole proprietorships. They disregard everyone including their boards and management.

Kingdom Meikles Limited recently revealed that certain facts surrounding the funds earmarked for investment were unknown to both the management and board.

Could this be true? If it is, then it should be unsettling to minorities. To think that the people on company boards and management can be unaware of material issues regarding the company they are paid to manage is gobsmacking to say the least.

This should give the minorities more resolve to find out exactly who runs the show in the companies in which they are shareholders. 

BY RANGA MAKWATA