In the covering note to its proxy voting recommendation for the latest Naspers AGM, Active Shareholder – a not-for-profit company that helps socially responsible investors to exercise their company rights – describes the chair’s statement that the company is “committed to high standards of corporate governance” as problematic.
The problem for Active Shareholder is the control structure. A mere 0.22% of the total Naspers shares (A shares) have 1 000 votes each and thereby account for 68.8% of total votes.
In 2020 this meant that six resolutions were passed despite significant opposition from the holders of ordinary N shares.
Remarkably, one special resolution was approved despite opposition from 88% of shareholders.
“Despite this extraordinary level of opposition the board continues to present the same resolutions each year; it’s very hard to understand the chairman’s statement in light of this,” said Active Shareholder.
At the 2021 AGM (on Wednesday) the same resolutions were presented with largely the same high level of opposition from the ordinary shareholders.
The offending special resolution, to place unissued shares under the control of directors, was opposed by 86% of shareholders this year.
All the resolutions were passed thanks to the 100% backing from the A shareholders.
Ownership of the A shares vests in a complex and opaque structure that includes three key entities – Nasbel, Wheatfields and Keeromstraat. In turn, control of these three entities appears to vest, to a substantial degree, with Naspers chair Koos Bekker, Naspers director Cobus Stofberg, and Sanlam.
A spokesperson for Sanlam confirmed to Moneyweb that Sanlam Capital holds an equity stake in Wheatfields, with underlying holdings in Naspers A shares held directly or via Keeromstraat and Nasbel.
Confidential agreement …
“Wheatfields has a confidential shareholders’ agreement in place, which regulates the shareholder relationship between the shareholders of Wheatfields; this stake is managed on behalf of Sanlam Capital by Sanlam Investments,” said the spokesperson.
She added that when Sanlam Investments votes on decisions to be taken by Wheatfields the investment merits are considered alongside input from the corporate governance unit at Sanlam Investments.
The 100% backing from A shareholders on every resolution suggests Sanlam supported all of them, including the two remuneration-related resolutions.
In this it is at odds with the majority of Naspers investors, which includes most of the large South African institutions, given that only 34% of ordinary shareholders voted in favour of the remuneration-related resolutions.
Active Shareholder’s Mike Martin said Sanlam is not only sheltering Naspers’s extremely unpopular remuneration policy, it is also enabling the Naspers board to ignore its ordinary shareholders.
‘No conflict’, says Sanlam
Sanlam Investments is satisfied there are no conflicts of interest influencing its voting decisions; it does not currently manage assets on behalf of the Naspers Group.
“Sanlam Investments takes decisions solely based on investment merits and good governance and the Sanlam Group is fully satisfied that there are no conflicts of interest associated with the manner in which Sanlam Investments has voted in this instance,” the spokesperson told Moneyweb.
Nasbel’s considerable influence on Naspers also raises questions about the independence of three directors on the Naspers board tagged as independent – Rachel Jafta, Ben van der Ross and Debra Meyer.
“It’s incomprehensible that these directors can be called independent when they serve on the board of the controlling shareholder,” said Martin.
There is the additional fact that Van der Ross has been on the Naspers board for 22 years and Jafta for 18.
At Wednesday’s AGM Jafta, who is chair of the group’s nominations committee, assured the meeting that the board “had rigorous processes in place to manage actual or potential conflicts of interest should they arise”.
She was responding to questions about potential conflicts of interest that Naspers’s lead independent director Hendrik du Toit might have as a result of his position as CEO of asset manager Ninety One, which is invested in Naspers.
“The nominations committee and board regularly review the independence of our directors,” said Jafta, adding that they had no concerns regarding the lead independent director.
With control of Naspers resting securely in the hands of the A shareholders, there is little hope the remuneration committee will respond to the sustained criticisms of the ordinary shareholders about the inappropriate and excessive levels of executive pay.
Light on the horizon?
However, a question at Wednesday’s AGM from non-profit shareholder activism organisation Just Share raises the spectre of a far more effective source of restraint, namely the Chinese government.
The Chinese government’s recent aggressive regulatory approach to its powerful and wealthy tech companies has, in part, been motivated by a desire to “crack down” on wealth inequality and excessive executive pay.
President Xi Jinping has recently placed considerable emphasis on the country securing moderate wealth for all rather than just a few. Planned measures for his ‘common prosperity programme’ include curbs on “excessive” incomes and encouraging the wealthy to give back more to society.
Just Share told the AGM that Tencent’s prompt response has been to set aside $7.7 billion – subsequently increased to $15 billion (R223.5 billion) – for its own “common prosperity program”.
Just Share wanted to know, given Naspers’s record-breaking pay levels, would the Chinese government’s tougher new approach be taken into consideration by Naspers’s remuneration committee in future deliberations.
All inputs ‘considered’ says Naspers Remco
Remuneration committee chair Craig Enenstein replied: “We take a very wide array of inputs into thinking through the totality of the remuneration structure, the way we design our incentives, the way we think about our metrics trying to make sure that we are creating relevant and challenging obligations for management to drive value ultimately for shareholders and tie that back and create alignment and transparency for you the shareholder. We will continue to take all inputs into consideration.”
“I’m not sure if that was a ‘yes’ or ‘no’,” Martin said after the meeting, describing the remuneration committee as out-of-date and out-of-touch.
The Chinese government’s common prosperity programme might be the only hope ordinary shareholders have for some moderation on the Naspers pay front.