Evidently Michael Lewis, chairman of The Foschini Group (TFG), is not one bit pleased with his shareholders.
At the annual general meeting, held last week, he expressed considerable disappointment that a large chunk of them continued to “misunderstand” the group’s remuneration policy.
The disappointment was triggered by the voting results showing that 36% of shareholders voted against the group’s remuneration policy and 44% voted against the remuneration report.
Although this was the third year in a row that the remuneration policy failed to get the all-clear from shareholders, the board faces no consequences other than having to ‘engage’ with the dissenting shareholders.
The TFG board may have to come up with a different approach to its engagement strategy given its evident failure to date.
“It was anticipated that this ongoing, deep and transparent engagement process would yield the desired results of minimising the risk of any misunderstanding and surprises by shareholders,” Lewis told shareholders at last week’s meeting, according to a report in Business Day.
The following day TFG released the voting results with a lengthy narrative essentially describing how the shareholders just don’t get it.
“The responsibility of shareholders is to act as a responsible investor and vote at the AGM on an informed basis on the remuneration policy and its implementation,” said TFG, adding that the same was expected for other resolutions.
So, the board must also have been put out by the 42.44% vote against the re-election of Ronnie Stein as a member of the audit committee.
Membership of that committee is reserved for independent directors. TFG classifies Stein as ‘independent’ although he is the former CFO and has served on the board for 22 years.
But getting back to the remuneration challenge, it seems the remuneration committee, accompanied by the company secretary and a remuneration specialist, held multiple separate formal engagements with the group’s largest shareholders during the year.
The process was designed to pro-actively discuss all key features presented in the remuneration report “and elicit their guidance and input into the design of all proposed significant changes to the remuneration policy, prior to implementation of any such changes.”
According to the board, none of these engagements highlighted areas of disagreement that weren’t adequately addressed.
Nevertheless, a hefty chunk of opposition was recorded.
It is remarkable that despite 7 of TFG’s “top 8 shareholders” voting in favour of the remuneration policy, such a large block of shareholders ended up opposing it.
And although six of those “top eight” voted in favour of the remuneration implementation report, it was opposed by 44% of shareholders.
This suggests that shareholders outside that clique of “top shareholders” represent a relatively large and activist force, which is encouraging news for governance although apparently frustrating for the TFG board. But it also suggests TFG is engaging with too selective a group. It may be talking to a club of like-minded individuals.
Perhaps it should open up to the outspoken shareholders on the fringe.
And perhaps the remuneration team could have persuaded these shareholders of the need for a “bold and competitive” (this is usually code for generous) remuneration policy to deal with the poaching of their skilled employees.
They might have told these shareholders how many employees are involved? What do their exit interviews reveal? What is the company doing to develop management talent amongst the thousands of employees it has? Who are the companies doing the poaching?
But Lewis is right to highlight the serious and seemingly intractable problems around the issue of executive remuneration and the central role that institutional shareholders play as enablers.
There are no adverse consequences for making excessive rewards; the addition of ‘malus and clawback’ provisions in recent years is a hoax used to encourage acceptance of ever-larger awards.
Has there ever been an attempt to clawback remuneration, other than from Steinhoff’s Markus Jooste and Ben la Grange?
Perhaps institutional shareholders should consider imposing penalties on companies that poach executive talent instead of developing their own.
On the issue of institutional behavior vis-à-vis executive pay, it’s puzzling that Old Mutual waited three months before inviting its shareholders to engage with the remuneration committee about their concerns.
At the AGM on May 21 only 54.45% of shareholders voted in favour of the remuneration policy and only 67.5% voted for the remuneration implementation report.
Old Mutual is generally alert to ESG matters but seems to struggle with remuneration.
This is the fifth consecutive year it has not had its remuneration approved – two years as Plc, when it still had its primary listing in London and three as Ltd back in SA.
And the quality of engagement being offered looks rather mean-spirited – concerned shareholders must make written submissions to the company secretary.
And having waited a full three months, Old Mutual has the temerity to instruct shareholders that those submissions must be received by next Friday.
Again, it seems the lucky large shareholders will be given opportunities to engage with the board during subsequent presentations, leaving the smaller players on the sidelines hoping their submissions won’t just be binned.
At Prosus and Ayo …
Prosus appears to be rushing to top up its portfolio of non-Tencent holdings before much more of the air escapes from the Chinese tech bubble. The prospect of a future without the Tencent golden goose, or one that is significantly less able to pump oodles of money to foreign investors, does heighten the need for a more substantial alternative portfolio that generates some profit.
Iqbal Survé-controlled Ayo has joined the club of the rich and powerful companies that believe the market is underestimating their value or believe there’s nothing better to do than spend their cash buying back their shares.
It does actually look more like a winning strategy for Ayo than for say, Anglo, Prosus or Naspers.
Ayo’s share price is flatlining at R3.50 with investors evidently far too nervous to heed the fact that its stated net asset value is R1 119.42.
Of course, that bloated NAV figure is entirely thanks to the R4.3 billion that the Public Investment Corporation pumped into the company back in 2017.
That cash is being slowly drained out of the company; using it to fund a share buyback should soak up a large chunk of it to the benefit of the remaining shareholders.
Finally, what do you suppose Shoprite is planning with the establishment of a new board sub-committee to be called Investco?
Christo Wiese will be chairman of the new committee; additional members are Wendy Lucas-Bull, Peter Cooper, Johan Basson and relative newcomer to the Shoprite board, Linda de Beer. This could be really interesting.