The general meeting and the extent of its control over the company

Abstract

The shareholders are owners, each of their respective share in the company. Therefore in theory shareholders should manage and control the company. The general meeting, the mechanism by which shareholders operate, is therefore expected to figure largely in corporate governance. The reality, however, is different. The extensive growth in size of companies around the world has meant that shareholders are too many in number to manage and control the company they own. Shareholders have had to resort to derogating some of the powers they rightly possess, to directors. This derogation of power brings about a shift of control from the hands of the shareholders to those of directors. There is nothing intrinsically wrong with derogation of powers to directors. It is rather the automatic result of economic growth. However directors cannot be expected to watch over the company with the same anxious vigilance as an owner watches over his own property. The 'selfish' action of directors requires shareholders to monitor the management. One must ask whether the shareholder is in the right position to perform this supervisory role. The Companies Act clearly allocates more powers to directors, than to shareholders in general meeting. Shareholders are left with only a few significant powers that are very cumbersome to exercise. Shareholders must resort to other methods to maintain some kind of control over the company. The forms of achieving control are several and mechanisms of maintaining control are even more diverse. There is a tug of war within the governing structure of the company between the two contenders; the shareholders and the directors. Every contender uses the mode of control that best suites him. Shareholders have an interest in acquiring some sort of grip hold on the fate of the enterprise. The extent of success of shareholders depends on a number of factors amongst which: whether the company is a private or public company, whether the shareholders are individual shareholders or institutional shareholders, and whether the shareholding is concentrated or diversified.