Shareholder primacy

The debate on shareholder primacy has reached an advanced stage with a turnout that it is no longer the shareholder’s interests alone that matter. Profit companies are formed to make profits for the incorporators. Incorporators expect a dividend even though they have no right to a dividend. They also hold a residual expectation for a return on their investment. It is believed that wealth is achieved through well managed companies. In section 7 of the Companies Act of South Africa three themes stand out: wealth, environment and society. The Act is aimed at achieving the three themes. To this extent it resonated well with principles in the King III Report on Governance. Shareholder primacy has not been done away with even with the enactment of the far-reaching Companies Act. While it is still present other ideals have joined in, such as society and the environment. With the result that even though a profit company is formed to secure gains for the incorporators, it now has to channel resources to the society and environment within which it operates. This signals the emergence and consolidation of the triple-bottom-line approach. Today, a company is expected to play a more extended role than that for which it was formed. This role entails expending a portion of a company’s resources to other aspects which do not necessarily generate a profit for the shareholders. This is how companies earn corporate citizenship status. Social responsibility helps society to view a company in a positive light; this may have positive spin-offs on its balance sheet in the long term. Namibia now has an opportunity to shape its company law to align with those of the best economies in the world. In the end, a profit company ought to know that it was formed for the acquisition of financial gains for its shareholders, but in so doing it must then recognise other stakeholders. In the context of SOEs in Namibia, some SOEs must make a profit and declare a dividend to the shareholder, normally government. Boards and line ministers of SOEs should get working together and ensure SOEs under their watch do well on their mandates. Ministers with SOEs under their watch should see themselves as primary shareholders. This will enable them to demand better returns from the SOEs they account for. As of now, shareholder primacy is non-existent in most SOEs in Namibia? Every SOE in Namibia is a creation of statute, the mandate is contained therein, the basis for required performance is well laid and determined. To this extent, the role of the SOE Act and the SOEGC in particular should not be misunderstood, as SOEs respond first to their mandates as contained in their own enabling statutes. The SOE Act is somewhat of a guideline on certain issues to help SOEs run efficiently. There is a common phenomenon across SOEs in general, that financial independence and sustainability are proving to be unattainable. Parliament should begin looking at introducing business rescue for SOEs. Business rescue is one aspect introduced in the Companies Act 71 of 2008 in South Africa for financially distressed companies. Turning around operations of financially distressed companies is better than bailouts or any other form of financial injection. As companies will learn to run efficiently through implementation of their own strategies aimed at improving results. NTELAMO NTELAMO