For a company that seems to thrive in the world of fashion, its approach to governance seems remarkably old-fashioned – the boardroom profile of The Foschini Group (TFG) is more like something out of the 1980s than the 21st Century.
Even the name TFG is tediously fashionable: a nod to the forced trendy casualness of the internet world.
Fellow reasonably successful clothing retailer Truworths is also struggling to shake off its dependence on oldish white males. Its very long-serving CEO Michael Marks recently announced he would be holding on to his job for another two years – making it 32 in total.
No doubt TFG is coping well with the challenges of the 21st Century, not least of which is the current pandemic. It also did well to avoid the costly overseas misadventures suffered by many other SA retailers.
It might have remarkably mistimed and mispriced the largest rights issue it’s had in years, but that hasn’t been too disastrous in the greater scheme of things. As a result, the group’s balance sheet is stronger; it has funds to see it through more lockdown challenges, and it’s better placed to fund necessary investment into developing its e-commerce. Investors are evidently encouraged by its handling of the current crisis.
Just two months after it issued 94 million more shares at R41.90 a share, the share price is now trading at R91.
And kudos to the group for its commitment to local sourcing, with SA-manufactured units up 31.5% to 11.7 million units as well as increasing the number of Africa-based employees.
So it’s a shame that it can’t drag its boardroom into the 21st Century.
In its proxy voting note ahead of Wednesday’s AGM, non-government organisation Active Shareholder points out that not only has the board been dominated by white males for decades but that during financial 2020 the two additions to the board were both white and male.
Talk vs action
“Although the social and ethics committee report talks of transformation, it makes no mention of the fact that the board is not transformed and that the only new appointments were older white men,” says Active Shareholder. “These appointments may have been justified, but the social and ethics committee should have engaged with the issue.”
Former high-profile banker Colin Coleman and former CEO Doug Murray were the two new appointments.
Active Shareholder, which advises labour and community-based investors on voting at shareholder meetings, isn’t overly concerned about the two new appointments. Where it sees things getting totally out of hand is the board’s remarkably loose definition of ‘independent’. On TFG’s own interpretation, the only director who is described as not independent is the former CEO.
Tagged as ‘independent’ in the group’s latest integrated annual report are Michael Lewis, Graham Davin, Sam Abrahams, Fatima Abrahams, David Friedland, Eddy Oblowitz, Nomahlubi Simamane and Ronnie Stein.
Assessing director independence
The King IV code says the independence of a member who has served for longer than nine years should be assessed each year in order to ensure they are still independent. That assessment appears to involve nothing more than asking the director if they have applied their mind honestly on all matters presented to the board and have made decisions in the best interests of the company.
Only such a pointlessly lax assessment could regard Lewis as independent. He was appointed to the board, which his father previously controlled, back in 1989. Sam Abrahams has been on the board for 22 years and Fatima Abrahams for 17. Simamane has been a TFG director for 11 years and Oblowitz for 10.
For some reason the 2020 integrated annual report describes Stein as being appointed to the board in 2015 and therefore as being independent. However Active Shareholder points out that the group’s 2014 annual report states that Stein was appointed to the board in 1999. This means Coleman, Friedland and Tumi Makgabo-Fiskerstrand are the only directors of unquestionable independence.
As Active Shareholder points out: “The assurance by the board that the others are still considered by the board to be independent is not of great comfort.”
Active Shareholder’s opposition may not achieve much given that as far back as 2015, the Public Investment Corporation (PIC), then with a 16.5% stake in the company, voted against the re-election of Sam Abrahams because of his lack of independence. But at least investors can’t say they weren’t warned.
More question marks
Adding to the proxy advisor’s concerns about a possible clubby atmosphere in the boardroom, Active Shareholder points out that three of the directors – Sam Abrahams, Friedland and Obolowitz – were all previously partners in the same audit firm.
The predominance of long-serving board members also raises issues with regards to continuity. “There have been insufficient new appointees to the board for some years and this will create a longer-term problem with continuity,” warns Active Shareholder.
The lack of independence also crops up as a problem on the remuneration committee, at whose meetings the CEO attends seemingly by standing invitation. “Recommended practice is that executives should only be invited as and when required,” says Active Shareholder, pointing out that nearly 50% of shareholders voted against the remuneration policy at last year’s AGM.
In its Proxy Insights, financial services provider Peresec raises a similar concern. “Although we recognise that circumstances exist whereby executives can add rigour to Remco [remuneration committee] discussions, we prefer that this is managed through periodic rather than standing invitations.”
It also recommends voting against TFG’s remuneration policy.