CAPE TOWN – The drama around African Bank (Abil) over the last week has raised many questions. Perhaps the biggest of them is whether we should have seen this coming.
In particular, investors who have been exposed to the company’s decline in one way or another want to know whether big institutional shareholders acted responsibly. Were they asking the right questions, engaging thoroughly with management and playing a role in making sure the business was sustainable?
Certainly there has been some reputational damage to those asset managers who held Abil stock or Abil debt. And no doubt some serious internal examination is taking place around the decisions that led to those exposures.
But that is not the only criticism that has been levelled at the likes of Coronation, Liberty and the Public Investment Corporation (PIC) who we know hold big equity positions on behalf of investors. Many are asking whether they shouldn’t have made better use of their influence to change the way Abil was doing things.
It is, however, not that simple. For a start, shareholders are not a static entity and those who have significant ownership now may only have held that status over a relatively short period.
“In a publicly listed company, shareholders are a dynamic body and they change in their relative size of ownership and in name,” says the chief investment officer at Cannon Asset Managers, Adrian Saville. “If you look at Abil’s shareholder register five years ago, it’s different to how it looks today.”
So it’s not necessarily fair to argue that these big institutional investors should have acted sooner. Their influence may be more recently acquired.
And perhaps there is also a wider lesson to be learnt.
“I don’t think its just the fund managers who need to take responsibility,” says Adrian Saville, chief investment officer at Cannon Asset Management. “Its all shareholders, regardless of whether they are institutional or private. Every shareholder has the right to attend shareholder meetings, ask questions at annual general meetings and exercise votes.”
Of course large institutional shareholders are likely to wield more influence, but that doesn’t mean that the other shareholders can be apathetic. In general there is a need for shareholders to be more active in South Africa and hold management teams to account for the decisions they take.
“You don’t have to have a million shares, you can do it with one share and a big voice,” Saville says. “In a number of instances, as a relatively small shareholder, we have not understood decisions made by a company, and just engaging with them has led to an explanation or some recognition that contributes to a much healthier relationship and much healthier company.”
That is certainly the position taken by shareholder activist Theo Botha. He argues that shareholders don’t insist on high enough levels of accountability from boards and management teams.
However, in the case of Abil, he does believe that the big shareholders must have been playing some sort of role. They had already stepped in last year to support a big rights issue and that implies that they were engaged with the business.
“The shareholders did stand in and put down R5.5 billion to support the company,” Botha says. “And after that, some shareholders increased their shareholding and only would have done so if Abil was saying the right things to them.”
His inclination is therefore to ask whether Abil’s management was being candid in their dealings with these asset managers.
“I wouldn’t blame the likes of Coronation for what they did,” Botha explains. “Once your investment goes up to levels like 20% it’s difficult to undo it. There’s no way they could have sold down their holding without drawing drawing attention. But what was management saying to them that made them increase their holding?”
He points out that the big shareholder must have been scrutinising the business and still got the sense that the company was going to correct.
“I have no doubt that the large shareholders would have engaged with Abil and tried to understand what was going on and asked important questions,” says Cannon’s Saville. “It may be the case that management simply wasn’t forthright.”
This is the more critical question for both Saville and Botha. While one might question whether shareholders did enough, ultimately the responsibility lies with the people running the company.
“The directors need to be held to account,” Botha says. “That is critical.”