It looks as though things are heating up on the remuneration front. Or perhaps not.
For decades remuneration committees have churned out ever more generous remuneration packages to their (frequently poorly performing) executive colleagues in the comfort of knowing they were sheltered by the pseudo-scientific benchmarking they’d paid for as well as the expensive professional remuneration consultants they’d hired.
But now it seems the shareholders are beginning to push back.
Judging by the votes at an increasing number of AGMs it appears that significant numbers of shareholders – even those long-complicit institutional ones – have had enough.
Votes against the remuneration policy as well as the remuneration implementation report are increasingly recording 40% plus. That was unheard of a year or two ago.
Pick n Pay
The latest company to bear the brunt of this increased activism is Pick n Pay. At last week’s AGM it received a stinging rebuke from shareholders. Unfortunately, because of the existence of two classes of shares you have to look quite carefully to determine the extent of that rebuke. The Ackerman family owns all of the B ordinary shares and about 26% of the A shares.
Mike Martin of Active Shareholder, a not for profit company that advises and assists NGOs, church groups and labour groups on ethical voting, has analysed how shareholders other than the Ackermans and other ‘insider’ shareholders such as directors voted at the AGM. The figures he comes up with represent a fairly sharp rebuke.
And it’s not just the remuneration implementation report that the ‘independent’ shareholders are unhappy about.
Only 17% of these independent investors voted in favour of the remuneration policy and a mere 6% voted for the remuneration implementation report; only 23.63% voted in favour of the non-executive directors’ fees – this is a special resolution and requires 75% support for approval to pay directors’ fees.
Without the backing of the family, the proposed directors’ fees would not have been approved.
In addition, an unprecedented 76% of ‘independent’ shareholders voted against the reappointment of Hugh Herman as a director.
This is hardly surprising; Herman, who is described as an independent non-executive director, has been a PnP director since 1976.
Those 46 years included a stint as managing director of Pick n Pay. No doubt Herman is a great asset but the prolonged refusal to remove the ‘independent’ tag indicates an organisation fearful of change.
Happily the situation is not quite as extreme with regard to Jeff van Rooyen, but it is a bit troubling that after 14 years on the board not only is he still described as independent, he is the lead independent director. So it’s hardly surprising that 74% of ‘independent’ shareholders voted against Van Rooyen’s reappointment as a director.
Anyway, it seems PnP’s governance is a bit worrying and institutional shareholders have had enough.
Or have they? There’s no doubt the AGM represents a great time to engage with the board and share views and concerns. While large investors are never short of opportunities to engage with management and the board, many of the smaller and more active shareholders only have the opportunity presented by the AGM.
But there are indications that the large institutions may be using the AGM for a bit of virtue-signaling. ‘Everyone is watching so we must put our best governance foot forward,’ is perhaps what they’re thinking. And what better way to demonstrate that you really care than by voting against a non-binding advisory resolution?
It’s difficult not to be a bit cynical on the issue.
The fact is that apart from voting against the remuneration policy or its implementation report, nothing actually gets done.
Remuneration continues ever upward. Surely if these powerful players were really concerned the situation would have changed by now?
Consider that the other day AECI had to cancel its scheduled engagement with dissenting shareholders. Although 33% of AECI shareholders voted against the implementation report not one of them responded to the invitation, required by the JSE, to engage with the board. That smacks of outsourced virtue-signaling more than active investing.
It could also be that institutional investors are in a rush to show that they do care – a bit – about the issue ahead of possible changes to the Companies Act.
There are rumours of pressure to beef up the resolutions by giving them some consequences such as the board being forced to face re-election if the remuneration report is rejected by 25% or more shareholders in two consecutive years.
The Foschini Group
On a slightly different matter, it seems Sam Abrahams is finally to retire from The Foschini Group (TFG). The 81-year-old has decided not to offer himself for re-election at the upcoming AGM in September. Remarkably, after 23 years Abrahams is still categorised as an independent director.
Well done to Sasol for keeping the pending departure of its finance director under wraps until the group was in less turbulent waters. And also to minimise the disruption by making the announcement a full year before the event. Paul Victor’s plans to exit Sasol and South Africa have been the subject of speculation for the best part of a year.
Audit firm shake-up
The audit committees of Remgro, Distell and RCL Foods have each finally come to the conclusion that it is time to change their external auditors.
In each case it’s out with PwC and in with EY.
It shows just how much is at stake for the audit firms.