News Column

DFCU Shareholders to Raise Red Flags At Annual AGM

June 24, 2014

Alon Mwesigwa

A plan by dfcu limited to issue more shares to its staff, as a way of motivating them, has rubbed some minority shareholders the wrong way, with some of them planning to vent their anger at the company's annual general meeting at Serena hotel tomorrow.

A report titled The Jubilee ESOP Independent Shareholders, which The Observer has seen, notes that issuing more shares will dilute the existing ones, with the existing stock losing value. It adds that the mere issuance of the shares to staff might not work to retain key employees.

"Will it work or be seen as just another bonus token! It's reasonable that such shares be issued when there is certainty of genuine other than a vague alignment of shareholders and employees. Dfcu staff concept of owning shares at all appears glaringly questionable if not lukewarm," reads the report to be presented to shareholders during the AGM.

Dfcu has a total of 250m shares, of which 1.4m shares are unissued. During last year's AGM, the shareholders present then became suspicious of an Employee Share Ownership Plan (ESOP) resolution where shares would be issued to staff at a discount as a way of motivating them. The intention was to retain 'critical' staff, reduce employee turnover, and recognise outstanding performers, among others.

Issuing shares to key staff is not a new thing. Many companies the world over offer shares at a discount to key staff. However, when some of dfcu's shareholders opposed the move, a committee was then formed to look into the matter. It contained three independent shareholders and company directors, all of whom were tasked to study and review the ESOP proposal.

The report, written by three independent shareholders on the committee - Augustine Sentamu, Majanja M Zaaly'embikke and Andrew Muhimbise - noted that the board usurped its powers and they were denied key information. They blame the board for remaining quiet over the number of shares to be issued.

"With no ESOP in mind, we only need a creation of a maximum 250 million new shares, but the 49th AGM is silent on the number of shares to be created for this suspicious bonus issue! Why? So the board can stealthily usurp the powers to effectively create extra shares (estimate between 10 - 30 million) for a future ESOP with an even bigger dilution," the report noted.

The report urges shareholders at tomorrow's AGM not to accept a creation of more than 250 million new shares as it creates a risk of share dilution.

Only 15 staffers out of about 600 own shares in the bank, according to the report. The shareholders say there are many ways to motivate staff other than issuing shares.

"What is absurd as noted during our 1st meeting is that this ESOP is being argued from a point of fear - the fear of losing critical staff - convenient but shallow argument without basis," the report said.

In the report, they say that instead of having expatriates from Rabo Bank, the largest shareholder, who are overpaid at dfcu's expense, the company should instead consider sending their senior officers to acquire more knowledge about the industry. Dfcu has lost some key senior employees over the last five years. These include Paul Musoke, who moved to Housing Finance Bank, Wilbrod Owor, who is at UBA, Susan Nsibirwa, now at Vision Group, Grace Kavuma, now at Tullow, and Ben Muwanga, now at CNOOC Uganda.

A top official at dfcu, who did not want to be named as he is not authorized to speak on behalf of the bank, said Netherland's Rabobank and Norfund, the majority shareholders, decide how the bank is run. On the issuance of shares, he said the suggestion had been dropped after the minority shareholders raised objections.

But he warned: "If their senior staff leave, they should not come up asking what is happening."

On the staff departures, he said "we work in a competitive environment. If you look at the staff that left, they went for greener pastures. Would you stop them?"

The shareholders said the reasons for the staff exit were far beyond the lack of incentives, but also due to unfavourable working conditions at the financial institution. They blamed the current CEO, Juma Kisaame for being hostile.

"In straight forward declaration, our current CEO is underhandedly hostile to ambitious staff in senior management (critical staff) capable of rising to the very top and covertly purges them out as a way to ward off competition," the report notes.

Efforts to reach Kisaame for a response were futile as he could not pick his known phone number. Jude Kansiime, the bank's marketing manager, said he was "aware of the report but it's not something I can comment on. It's only the MD to comment on it."

On increasing retirement assets for the employees, the report notes that shareholders already pay 10 per cent of all employees' gross salary to the NSSF, and a further 7.5 per cent of internal employees' contributions to the Dfcu Employees Provident Fund.

Shareholders say the employees should take responsibility of their retirement assets by paying for them, "as most of us shareholders our shares in Dfcu Limited are part of our very own retirement assets."

Dfcu was one of the few banks that made a profit last year. It registered a net profit of Shs 34.6bn last year, a 12 per cent increment from the Shs 30.6bn in 2012.

"We are well positioned than ever before to meet the needs of our customers and shareholder expectations," said Elly Karuhanga, the chairman board of directors, in the bank's 2013 report.

The bank has 3648 shareholders, with 89.66 per cent of the shares owned by the top 20 shareholders, according to the bank's annual report for 2013. According to African Alliance, a leading brokerage house in Uganda, buying dfcu's share at the current price of Shs 1,200 is a wise investment.

The fair value price, according to African Alliance, should be Shs 1,358. The company's market capitalisation, which is the size of the company, at the Uganda Securities Exchange is $120m, according to African Alliance.

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Source: AllAfrica

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