Global average trend indicates that corporate shareholding tends to increasingly get concentrated disowning the legal rights of the general public. Hopefully, Bangladesh seems not yet so infected with that corporate behaviour. Precautions are, of course, crucial to our own protection so that we abstain from siding with the global stream. There is no scope for escaping appropriate and timely regulatory steps and vigilance with adequate rigidity.
Stock concentration is quite opposed to the inherent attribute of a public limited company ( PLCs). Seemingly, we don't have any concern about concentration or diffusion of shareholding. Arguably, concentrated ownership in corporations may fuel economic inequality. From this perspective, an insight into shareholding structure in our Public Limited Companies is imperative.
PLCs are growing in number at a snail's pace in Bangladesh. Till December 2019 as many as 3513 PLCs have been registered (according to the Office of Registrar of Joint Stock Companies and Firms). Contrarily, Private Limited Companies are proliferating at a supersonic speed. Their number is 171701.They have grown more than double over the last 10 years. Whatever be the form of company, they must have equity capital divided into the smallest units. Each unit signifies a share with uniform face value of Tk.10 as per securities rules applicable in our country.
For the purpose of analysis and discussion, 123 listed companies of Dhaka Stock Exchange (DSE) have been selected. They comprise the following:
Unlike private limited companies, public limited companies, as we all know, have no maximum limit as to the number of shareholders, though it is to be formed with a minimum of seven shareholders. Since the maximum number of shareholders is not specified, rather unlimited, it implicitly hints that a significant number of shares would be subscribed by the general public. Public ownership, at large, is implicitly emphasised upon.
The question is that a few wealthy people as entrepreneurs or sponsors influence the extent of ownership opportunity to the general public. In reality, capital raising decision is complex and very much subjective. Provision about no limit of maximum shareholders indicates the maximum possible diffusion of share ownership among the general public. It is very natural that those who initiate the cumbersome formation of a company would expect a significant stake to control the affairs of the company. Its minimum ceiling of capital subscribing is specified vide SEC rules. On the other hand, allocation percentage of the issue to the general public is also specified. SEC rules say that distribution of securities to the general public would be to the extent of 50 per cent under fixed price method, and 40 per cent under book building pricing method.
It has been observed from the data of selected companies that GP's shareholding percentage ranges from 1.49 to 77.57 per cent. Here Table 2 indicates that shareholding percentage held by GP is more than 40 in case of 39 companies including six outstanding companies showing GP's shareholding to the extent of more than 60 per cent.This trend is no doubt optimistic. But the upper rows of the table show that two-thirds of the companies (i.e. 84 companies or 68 per cent) have failed to ensure GP's 40 per cent shareholding. The percentage is even below 30 per cent in about half of the companies. Negative observations are dominating and clearly give rise to a puzzle: should the firms be labeled as Public Limited Companies or Limited Public Companies? Incomprehensibly, a strange asymmetry lies in the distribution of shares among the general public. The decisions on the issue are therefore totally subjective, and guided by dominating attitude of the few wealthy and mighty stockholders.
Public limited companies account for a significant participation in investment of the economy. They have huge equity fund. The more shareholding, the more return on equity. Capital sharing disparity is most likely to escalate economic inequality. This arena of corporate economy is a major source in which massive inequality reduction drive can be carried out. Since the formation and the operation of public limited companies are controlled by a set of laws, rules and regulations, it is very much possible for a government to safeguard the rights and opportunities of the general public to gain and sustain largest possible shareholding in each company. It is worth mentioning that the role of the government is fundamentally defined by its welfare maximising philosophy. It can muster strength and cooperation from a number of companies which, in practice (as is evident from Table 2), favour the maximum possible diffusion of ownership across the general public. There are also many intuitional investors who take a big percentage of corporate shares. Regulators and policy makers ought to reappraise and rationalise their percentage of shareholding.
The issue of capital concentration and diffusion should get due consideration by the regulators and the government for equitable economic governance towards maximisation of social wellbeing. Besides this, redefining the responsibilities of corporate governance in this regard merits consideration because of the so called argument that concentrated ownership resolves the agency problem. In fine, we believe and expect that Securities and Exchange Commission would play an effective role paying attention to the challenge of making a public limited company truly public.
Haradhan Sarker, PhD, is ex-Financial Analyst, Sonali Bank & retired Professor of Management.