Good corporate governance

Is there any possibility that the chairman of the Bank of Valletta plc may be (or may have been ever since the privatisation of the bank) in a position to, directly or indirectly, constitute his board of directors in the best interest of the minority shareholder he represents and if so should such an anomaly be rectified?

The position of this company is as follows:

Bank of Valletta's chairman is nominated by the government of the day, which is a minority shareholder of the bank, with a 25.2 per cent shareholding. (This in terms of the agreement of the privatisation of the bank by the government some years back). In fact, this means that the chairman of Bank of Valletta plc is imposed on the majority shareholders by the government of the day.

There are nine members on the board of directors of the Bank of Valletta plc.

The government's 25.2 shareholdings entitles it to appoint two directors, one of them being the chairman. Banco di Sicilia's 14.56 per cent shareholding entitles it to appoint one director. The remaining six directors have to be elected at the annual general meeting.

This position can give rise to an anomalous situation and possible conflict of interest since the chairman of Bank of Valletta plc is nominated and imposed by a minority shareholder and the annual election for the remaining six directors may be governed, controlled and determined by the same chairman of the annual general meeting and his proxy votes. (These include a considerable number of proxies from parastatal entities and others in which Bank of Valletta plc has a direct or indirect interest.)

This is unacceptable in corporate democratic set-ups, where company directors (representatives of all the shareholders), either unanimously nominate or democratically elect their chairman, who then legitimately is in control of the annual director's election at the annual general meeting which he chairs.

A possible situation at Bank of Valletta plc may be such that any of the non-appointed six directors may be chosen, elected and thus controlled by the imposed chairman in the best interest of the shareholder he represents.

The fact that this situation can arise is ethically incorrect, contravenes European company legislation and blatantly defies basic corporate governance, which Bank of Valletta plc proudly declares it champions.

This would also imply that the election of directors at BOV's annual general meetings may be held as a mere fulfilment of an obligation imposed by the Companies Act 1995 and not for their intended legislative purpose.

Although the imposition of chairman in terms of the privatisation agreement may be perfectly legitimate, this, however, ought to be subject to his abdication/forced abstention from the specific powers of the chairman related to election of directors. This would ensure protection for the majority ordinary shareholders against any possible unfair prejudice under section 402(1) of the Companies Act 1995.

In such anomalous circumstances the appointment of an ad hoc independent commission/board to conduct independent elections for directors is imperative if BOV's declaration statement of compliance with the "Code of Principles of Good Corporate Governance" is to be perceived as credible by shareholders. This would, of course, also eliminate and eradicate any of the questions that have arisen.

The author is candidate for the directors' election.