Political competitors and entrepreneurs see the social democrats' mandatory dividends bill mainly as a present to the Kovalenko family that has been fighting for the rights of small shareholders of BLRT Group for years. The Kovalenkos refute claims.
Draft legislation the most prominent aim of which is to give small shareholders the right to demand payment of dividends recently merited the support of 22 MPs. According to the bill, such demands could only be countered with a 75-percent majority.
This would mean that a shareholder with 26 percent could effectively demand dividends in a situation where the majority would like to reinvest profits into expansion or maintain reserves.
MP Liisa Oviir, who introduced the bill, said that there have been situations in Estonia where majority shareholders have not only had an advantage buy where the rights of small shareholders have been severely limited.
For example, when shareholders have refused to pay dividends in a situation where it would make economic sense. Because the aim of small shareholders is to make a profit on their investment, denying them that right is neither fair nor good practice, Oviir found.
Almost all politicians and entrepreneurs who talked to Postimees said that the bill has been drafted mainly in the interests of the Kovalenko family that has been demanding dividends for shareholders in one of Estonia’s leading industrial companies BLRT Group.
The in-house conflict of BLRT has small shareholders Mihhail Gnidin, Valeri Kovalenko and Vladimir Toropov, represented by BLT Holding, on the one side and major owner Fjodor Berman and his relatives on the other. Both camps have been filing complaints against each other for years. BLRT has not been forced to pay dividends so far.
From small shareholder to majority owner
Member of the Riigikogu Legal Affairs Committee Valdo Randpere (Reform) referred to the bill as a dead cat the social democrats have been trying to drag over the committee's doorstep for some time. He said it is clearly the result of lobbying efforts by Valeri Kovalenko’s daughter, social democrat Anastassia Kovalenko, and the Estonian Small Shareholders Union.
«It all began when Anastassia Kovalenko started appearing alongside Rainer Vakra on pictures in Facebook. Next, she joined the party after which the desire to bring the small shareholders' topic to the committee intensified,» Randpere recalls. «The entire bill is pressure from the Kovalenkos and BLRT as they have found in Liisa Oviir someone to pursue it,» the politician said.
Randpere, who is fiercely opposed to the mandatory dividends idea, said that the Estonian business code works and does not need to be turned on its head. «If a small shareholder does not like where the company is headed, they can always sell their shares or buy more to be able to make decisions themselves,» he suggested.
Randpere said that the other cynical aim of the law is to collect more income tax on dividends. «We might as well tell companies we’re going to nationalize their profits on an annual basis. It is a hare-brained cast of mind in a free economy,» he concluded.
Member of the Riigikogu Finance Committee Aivar Sõerd (Reform) agrees and finds that the draft legislation is the initiative of a single family and company.
Sõerd said that while the bill might help a narrow group of small shareholders, it would be devastating for the Estonian economy.
The MP said that Estonian companies are very young on the European level and lack sufficient capital to be forced to pay dividends on an annual basis.
He gave the example of a situation where business climate takes a turn for the worse and the company would need to either invest or set aside reserves to remain competitive but cannot because 26 percent of owners are calling for dividends.
«It would destroy companies’ competitiveness, take away their ability to react quickly,» Sõerd added. He was convinced the bill would not pass. «Indrek Saar will become the new chairman of the Conservative People’s Party (EKRE) before this bill passes,» he said.
The bill is criticized by other parties as well. Legal affairs committee member Toomas Vitsut (Center) was also skeptical. He said that the state should exercise great caution in giving small shareholders gifts at the expense of major owners. «It might also scare away major investments,» he said.
Solutions not black and white
Anastassia Kovalenko refuted allegations and said she has never taken up the matter in Riigikogu committees. «I haven’t even seen that bill,» she said.
She was nevertheless glad the Riigikogu has taken the matter under advisement. She gave the examples of Sweden, Germany and Finland where the rights of small shareholders are better protected and criticized Estonia where the matter has never merited due attention from the legislation because «major shareholders are lobbying against it».
Kovalenko pointed to economic analyses that suggest people are more willing to invest and prepared to pay more for shares if the rights of small shareholders have legal backing.
«The situation in Estonia today is that if you have fewer than 51 percent of shares, you practically have no rights. The only thing that can help you is the major owner's manners and conscience,» she said.
The social democrat said that the mandatory dividends proposal needs to be weighed carefully and might not be the best solution. In her master’s thesis, Kovalenko proposes as one possible solution the obligation of major owners to buy out small shareholders if their rights have been misused over a longer period of time. The proposal has been included in the social democrats' bill.
Reacting to criticism from members of the Reform Party, Kovalenko said that there are always those who are against. She said that solutions are not black and white nor is it a matter of small shareholders making endless demands and giving orders. «There are preconditions to everything. Small shareholders would have to prove their rights have been misused and that repeated attempts to find a solution have failed due to opposition from the major owner,» she noted.
The bill was signed by individual MPs from the Social Democrat Party, Center Party, Free Party and the Conservative People’s Party.