The creation of an independent Sri Lankan association to protect small and minority shareholders in listed companies has drawn the support of more than 85 % of those who responded in a Business Times poll.
Asked whether "there is need for the formation of an association of investors protecting the rights of small and medium scale investors," 87.5% said YES with some recommending that the BT should start such a process. The poll was initiated on the back of the flawed share market transaction involving the National Savings Bank (NSB) and The Finance Co (TFC), and also suggestions from the Securities and Exchange Commission for formation of such a body.
While most were in favour of such an association, a valid point raised was whether such a body would be able to operate independently or be hijacked by vested interests.
One of the respondents said public rights advocates like Nihal Sri Ameresekere and K. Vignarajah should help put together an association to protect the rights and interest of minority shareholders against controlling interests and big, powerful investos.
Another top business leader, an advocate for governance and transparency, also agreed with the suggestion as a means of protecting the small investor. "Unfortunately the private sector of Sri Lanka is now as corrupt as the public sector. Many so called leaders in the private sector have acquired ill-gotten wealth by manipulation and insider dealing and they are at the top of the world.
They fund all the corrupt politicians from top to bottom and corrupt government officials also even at the top. The ETF/EPF purchase of dud shares which are artificially driven up in price and dumped to make vast profits at the expense of the employees of this country, is a case in point. This is a crime against which no action is being taken," he said.
He also said media reports singing the praises of companies were also misleading as "the performance has being artificially enhanced by devious manipulations within groups to achieve capital gains for such groups."
Citing one example, he said recently the market reacted by dramatically increasing the price of a group on wrong assumptions. "This inflated profit is due to a one-off transaction, which will have to be repeated next year in order to maintain profitability trends. This is not impossible as the main player has a huge portfolio of investments where cross selling is possible to artificially achieve capital gains. The person concerned is perhaps the wealthiest individual in Sri Lanka having made his money due to political patronage," the respondent said.
Among other comments were:
- Office bearers of such an organization should be elected by a secret ballot, and should not represent any vested interests
- I don't think this is a good idea. The trend in Sri Lanka is to appoint commissions to study misdeeds and form associations to protect people's interest. This is becoming a farce because with time they get politicised with little follow-up action taken.
What is needed is a robust set of policies that demonstrates fair governance on matters such as this and a good legal framework to ensure that they are practiced and the defaulters punished independent of which political party they support. Further the judiciary must have teeth to carry out their work without being influenced by politicians and businessman.
- Such a body should be independent and free of any sponsorship of the authorities.
n I am not an expert on the stock market, but have a gut sense about
what justice requires. Yes, I do believe that there must be a mechanism to protect the underdog--always. But what really matters is who controls the mechanism and internal democracy.
- How does the SEC ensure that an association's office bearers truly represent the agenda of their members? Invariably the individual motives of office bearers are to either protect their own vested interest or push their own agenda hijack the process.
- Our constitutions recognises freedom of association thus the SEC will have to recognise all associations, this becomes unmanageable
- An excellent idea and sooner the better to bring confidence among the minority share holders and small retail investors in the stock market. It may be a good idea to place an advertisement in the media requesting for those interested to join and also to seek legal advice on how best an association can be formed and also to seek the advice of the SEC on the modalities in forming such an association
- It is high time manipulators in the stock market are dealt with firmly. There should be severe punishment for those found guilty of any fraudulent transactions and to also recover all losses accrued due to it. Not resignations like what the NSB directors have conveniently done.
- Such a move will ensure that directors, at all times will, to the best of their knowledge, be answerable to all queries and concerns of small investors and minority shareholders raised at AGMs and EGMs.
- Such an organization should work with full transparency by publishing its finding against errant companies for public review.
- There is no place for a small investor in Sri Lanka as the big players are involved in insider trading. It is no secret that a major blue chip company has two directors who also have controlling interest in a number of other companies quoted in the stock market and these companies buy shares in major blue chip companies at prices dictated by these directors. In addition to such irregular trading under the guise of corporate shareholders these directors control the market.
- I hope this association would be effective in harnessing more
investment from middle income groups who will look forward to a decent return and protection of such investment.
- A good idea but the responsibility of managing the market in such a
way as to safeguard the rights of all investors normally rests with the SEC. The central authorities concerned should recognize this and entrust the SEC with the necessary powers and resources to do the needful, as with all public institutions.