See the response of Naspers CEO Bob van Dijk at the end of the transcript.
RYK VAN NIEKERK: South Africa’s largest company, Naspers, was in the news again this week. Shareholder activist, Theo Botha, penned an article for Moneyweb on the company, in which he criticises the group’s lack of disclosure of several corporate governance policies, most notably the group’s remuneration policy. Theo Botha is on the line. Theo, thank you for your time, Tencent has been a massive success story for Naspers and virtually every single investor in the country, why are you so concerned?
THEO BOTHA: I think Naspers has also done extremely well on the back of Tencent and a lot of people are invested in this company and I think it’s because a lot of people are invested, they want to see that their investment is well looked after. Therefore, you shouldn’t really complain at a later stage, you should say hang on, the company is doing well but we’ve got a problem with the remuneration report or we’ve got a problem with transparency. So that’s the issue and the gripe that I really have is the bad disclosure that they have in terms of their remuneration report.
RYK VAN NIEKERK: What are the gaps you are seeing, what would you like to see?
THEO BOTHA: I think the first thing you want to see is when somebody comes along and they say these are our financial objectives. For example, Naspers referred to financial objectives being group financial results and then they refer to operational and personal objectives. So they allocate 50% to each of those factors but you’d like to see the breakdown of what are the key performance indicators that drive the group financial results. So if you had to look at it they’ve basically got four divisions, they’ve got an e-commerce division, they’ve got a Mail.ru.
So if you had to look at it, they’ve basically got four divisions, they’ve got an e-commerce division, they’ve got a Mail.ru division, they’ve got a video entertainment division and they’ve got a media division, and in all of those divisions they are either making losses and the losses are increasing or the profits are decreasing. So you then ask yourself, well, if the CEO is being rewarded and he got the full maximum that he could get on group financial results, then Tencent must form part of that KPI and that’s why he shot the lights out.
But we’re left in the dark and, therefore, we must speculate. The company should not allow people to speculate, in a sense, they should actually provide you with all the information so that you can actually make up your mind to say is this a fair bonus that we are paying.
RYK VAN NIEKERK: But it comes back to that it seems as if his whole remuneration, especially his bonus, is based on the stellar performance of Tencent, which he, as the CEO of Naspers, has limited influence over. This whilst the divisions he has influence over such as the pay-TV and the e-commerce and media divisions may not have performed as well?
THEO BOTHA: Absolutely that’s the conclusion you can draw, you can also maybe say that there was a gain on acquisitions of US$2.16 billion, which could also be a factor, I don’t know. But at the end of the day it looks like Tencent is driving the remuneration policy, especially when it comes to the share options because you’re awarding share options or you are awarding shares at the market price but then if you look at the huge discount then you’re actually giving them the discount if you look at Tencent. So that’s also becoming a problem in the sense of remuneration issues.
RYK VAN NIEKERK: So you want a very transparent and clear structure of how those executives are paid?
THEO BOTHA: Absolutely, I’m surprised that a company of this stature can’t do it. There are a lot of listed companies in South Africa that produce good remuneration reports and put key performance indicators there, and allocate the percentage to the key performance indicators and then you can actually come to a conclusion. For this company not to do this is definitely a lack of transparency from their perspective and I don’t know why they are doing this.
RYK VAN NIEKERK: In your article, you also calculate that the discount of the Naspers market cap, relative to the underlying investment in Tencent, is around R435 billion and that represents a discount of around 25%. All investment holding companies trade at discounts to their underlying investments but this is a pretty big one, why do you think it’s this big?
THEO BOTHA: Look, that’s a market force and I really don’t know but I think what is happening with the discount is that the discount is getting bigger. I’m not one for saying that they should maybe sell Tencent but I don’t know if you’ll remember but quite a long time ago, Ryk, when Johnnic sat on DStv and a lot of shareholders were saying you’re sitting on this DStv asset, you’re not really controlling it and you must sell it. In the end, Johnnic was forced to sell it and Naspers bought it and issued shares. Their shareholders were saying that you’re sitting on a large asset, let’s realise value. I think a lot of overseas shareholders were starting to say that, they were saying hang on, you don’t really have much control over the asset, let’s realise some sort of value.
So there is a discount on the value and that’s for management to correct and to sort out the discount for value. But the situation is that management seems to be rewarded on this asset, which is doing extremely well overseas but the warning bells are that e-commerce, Mail.ru, video entertainment and media are just not doing well, for three years they are either making bigger losses or their profits are dwindling.
RYK VAN NIEKERK: Tencent, as we’ve said on several occasions, has been performing well, have you had a look at those results and the disclosure within their annual report?
THEO BOTHA: I did have a brief look at Tencent’s disclosure in terms of their remuneration and it’s also very weak, in fact it’s weaker than Naspers’s disclosure. I also find that quite strange because the chairman of Naspers is a committee member of Tencent in terms of the remuneration committee.
For example, you would see a disclosure where it says for the CEO it lumps the salary and the bonuses together, so you wonder what salary does he really get and you want to see better disclosure. You’d also like to know how are the bonuses made up and I couldn’t see that at all in the Tencent report. So if Naspers shareholders are concerned then what they should do is they should do their own research and they should look at active disclosure of Tencent, they should say are we happy with the governance, are we happy with the composition of the board. Naspers have got two directors on Tencent, I think it’s a total of eight directors, so it’s quite a strong representation in terms of that. People should also ask themselves how easy is the
Naspers have got two directors on Tencent, I think it’s a total of eight directors, so it’s quite a strong representation in terms of that. People should also ask themselves how easy is the tradability of Tencent. If we want to sell out is it easy to get out of, is it not easy to get out of? So they need to look at the structure of Tencent.
RYK VAN NIEKERK: The Naspers AGM is due to take place on Friday August 25 and I assume you will be attending. But at last year’s AGM you were also not the most popular attendee and Naspers chairman, Koos Bekker, at one stage even threatened to eject you from the meeting. Have you since met the board after that AGM?
THEO BOTHA: I’ve had interaction with the company secretary and they did forward to me the trustee deed that I requested, so I’ve received that and they’ve also forwarded to me the trustees for resolution number ten, which I think we should vote against.
So there has been some interaction, so maybe we can look at that in a more positive light in terms of that. But I just think that a company like this should have had better disclosure. They do have members on the committee. Koos Bekker also sits on this committee and why the lack of disclosure for how you pay your directors.
RYK VAN NIEKERK: I’m sure you are going to raise those questions at the AGM. You are known as one of the fiercest shareholder activists in South Africa, why are you doing this?
THEO BOTHA: It’s a journey that I started many years ago and Naspers was an interesting journey. My journey started with Naspers when I first asked them for the trust deeds in 2015, after the 2015 AGM. I had only bought my shares after the AGM and then they started making an argument that no, you are not allowed to have those trust deeds… only the shareholders who had shares before the AGM. That was just nonsense.
So I left it for a year and then I decided to go to the AGM and ask them that specific question about why I can’t have it. So that was my focus into Naspers.
Why do I do this, I think I shouldn’t be doing this. What we need to do is we need to see responsible asset owners and asset managers doing this. They need to ask the questions. For example, asset managers and asset owners have been voting for this remuneration policy for many years, last year I think it was 18% that voted against and the previous year was 14%. Yet I’m sure Naspers is in everybody’s portfolio.
I think there was an interview in Business Day with Anchor Capital, an asset manager that’s listed. It will be interesting to see how they vote. So in a way what I’d like to see is how asset owners and asset managers vote at this AGM and if they do vote for this remuneration report, well, they are definitely going to be found wanting.
RYK VAN NIEKERK: I’ve seen that Allan Gray has indicated that they would also oppose the remuneration policy and Allan Gray has actually been standing up in recent months, they also stood up against some directors at Group Five.
THEO BOTHA: Absolutely, it’s fantastic that they have decided that. I think they also voted against this policy last year and it’s great that they have actually come out into the public domain to say that we are also voting against this policy. I’m hoping that with Allan Gray coming out that there will be other asset owners and asset managers.
The PIC, I don’t know if they will vote for this policy but I think Sanlam is also part of that other structure where there are other shareholders involved I think in terms of the A structure shares. So they need to also sit up and say do we accept this remuneration policy as is or not or how do we go. If a lot of people vote against the remuneration policy it’s going to be for the greater good of the company because the company will then apply its mind and they will put in a policy which actually aligns itself to shareholders’ interests. This policy does not align itself to shareholders’ interest.
RYK VAN NIEKERK: But it’s a non-binding vote.
THEO BOTHA: Yes, it is a non-binding vote and that’s the weakness of Kind III and King IV because King IV carried on with this non-binding vote. We have always suggested that it be a binding vote so that you can hold the company to account.
But it becomes a reputational issue, a company with such a big brand name, a company that has been so successful on the JSE, a company that has grown so much over so many years has to have an issue over something that is quite clearly so small. Give us proper disclosure, once you get proper disclosure then you can ask proper questions and then you can hold them to account. But the question is why has this been left for so long?
We’ve had non-binding votes since King III came out, I think it came out in 2009, so where have the asset owners and asset managers been because they are the ones who need to drive the process, they are the ones who look after the normal man in the street who gets his money in a pension fund or a provident fund. They’ve got to drive governance and if they drive governance then they hold companies to account, if companies can get away with something then they will get away with it, there’s no doubt about it. Naspers has got away with it for a long time. So what we need is asset owners and asset managers acting in a responsible manner.
RYK VAN NIEKERK: Thank you, Theo. That was shareholder activist, Theo Botha.
In response to e-mailed questions, Naspers CEO Bob van Dijk stated:
“We normally receive comments and questions from shareholders around our remuneration policy after the publication of our integrated report. Comments this year mainly relate to the desire of shareholders for us to disclose more around remuneration. While we have increased our disclosure this year compared to previous years based on earlier shareholder feedback, there is always room for further improvement, which the Remuneration Committee will carefully consider before the publication of our next integrated report. The board believes our remuneration policy and practice are fit for purpose and compare well to those of many of our global peers”.
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