Bank dividend distribution, conflict between two groups of shareholders

In the face of the situation that many commercial banks do not pay dividends to shareholders, causing conflicts of interest between small shareholders and large shareholders, Lawyer Tran Duc Hung shared a view on this issue. (Posted on Securities Investment newspaper on June 4, 2015).

Cause of Conflict

In commercial banks, in terms of share holding purposes, the shareholder structure usually consists of two groups: large shareholders (groups of shareholders together hold a share ownership rate sufficient to appoint people to the Board of Directors and the Executive Board). and small shareholders, contributing capital, buying shares just to enjoy annual dividends and trading stocks.

Recently, the operation of commercial banks has faced difficulties, bad debts have increased, banks have to restructure, bank stocks have fallen, and small shareholders can no longer find their immediate benefits. Therefore, this group of shareholders turned to the bank to question the issue of dividends and also from here, the conflict of interests between large shareholders and small shareholders began to arise.

Major shareholders believe that holding bank stocks must see long-term goals, not just focusing on immediate benefits. In a year or a few years, the bank has difficulties, is undergoing restructuring, not paying dividends or paying less dividends is a normal business story. On the contrary, small shareholders think that the dividends to be distributed must be commensurate with the capital they spend.

However, the root cause of the above conflict is that small shareholders lose confidence in the group of large shareholders. Small shareholders think that the big shareholders are the real bosses of the bank, and they are just low-income people, even if they go to the General Meeting of Shareholders, they can’t decide anything.

After a series of recent noisy events such as: banks lending or providing preferential capital to “backyard” companies, members of the Board of Directors and executive boards of some banks were caught up in a round of legal proceedings, negligent lending. leading to an increase in bad debt… the more this confidence declines.

4 groups of conflict resolution solutions

One is to change the perception of small shareholders. Retail shareholders must realize one thing that, although a bank is an enterprise with special supervisory regulations by law, bank shares are also just a commodity in the style of buying and selling. .

When buying shares of a bank, shareholders must learn and evaluate themselves to decide to buy or not to buy, but do not expect too much from the “brand” of the bank. The law only provides for the legal corridor around the purchase, sale, ownership, rights of shareholders and the operation of banks; rather than intervene deeply in the issue of dividends.

Second, the bank must restore confidence to retail shareholders. The group of large shareholders must understand that small shareholders are not directly involved in the governance and management of banking activities, the reduction of dividends or stock price decline, poor liquidity causes a lot of confusion. for them, because they don’t fully understand what’s going on.

Therefore, banks must restore confidence to shareholders by: transparent bank governance; business strategy must balance short-term goals to meet the interests of small shareholders and long-term goals; respect small shareholders by being transparent about business strategies, business plans and the situation of the bank at the General Meeting of Shareholders so that small shareholders can feel that they are respected and secure with the bank’s operational orientation row.

Third, the bank must always show the benefits to small shareholders, even in the case of not paying dividends. Small shareholders often focus on the short-term benefit of receiving dividends. But when it is not allowed to pay dividends, the bank needs to show this group of shareholders another specific benefit instead. This alternative benefit must be clearly measured.

For example, a bank is profitable, but does not pay dividends, because it saves capital for restructuring and growth. In this case, the bank should have a specific commitment to shareholders that, if the dividend is not distributed this year, how much will the bank’s total assets increase next year?

How much will the stock value increase? In the long term, banks should have a “dividend debit” as a type of borrowing money from shareholders to serve business strategies and when conditions permit, the bank must repay dividends. this debt to shareholders.

Fourth, the law needs to intervene in some specific cases. The new Enterprise Law (effective from July 1, 2015) lowers the percentage of votes to decide on the organization of the General Meeting of Shareholders, the percentage of votes, increases the number of independent members of the Board of Directors to protect small shareholders, but no matter how much regulation can not break the principle: majority has the power to decide.

Therefore, besides the current legal regulations, the State needs to create a legal corridor for small shareholders to interact with major shareholders (not only at the annual General Meeting of Shareholders).

It is possible to specify more specifically that a group of small shareholders has the right to request the bank to provide operational status, provide financial statements and financial documents of the bank during the absence of the General Meeting of Shareholders.

Even a group of small shareholders accounting for a certain percentage (eg 5%, 10%) has the right to request an extraordinary General Meeting of Shareholders if the bank has unusual business signs, or does not pay dividends in a row. in 2 years.

In the future, the law should also stipulate conditions for banks to have the right to keep dividends as working capital, but not arbitrarily keep it, if it doesn’t like it, divide it like now. This is also a regulation that directly contributes to the protection of small shareholders.

Lawyer Tran Duc Hung

(The article was published in the Securities Investment newspaper on June 4, 2015)

 

Post Author: Nguyen Thi Tam