CAPE TOWN – Omnia Holdings on Friday became the latest of a growing number of listed companies needing to engage directly with shareholders who voted against the remuneration policy resolution at the annual general meeting.
Shareholders representing 75percent or more of the shares in listed groups need to approve remuneration policy and implementation report resolutions, before the resolutions are carried, but increasing shareholder activism has seen a number of these resolutions fail.
On Thursday, 31percent of Tsogo Sun shareholders voted against the non-binding remuneration policy and implementation report, and Tsogo management invited shareholders who voted against the resolution to engage with them by November 12. Similar resolutions also failed to be carried at Shoprite, Absa Group and Old Mutual’s last annual meetings.
A partner at an auditing firm, who wished to remain anonymous, said on Friday that while these fees were usually performance based, it was not always the high value of the director’s remuneration that shareholders objected to.
Other factors played a role, such as how closely the shares were held; the fairness of the directors’ remuneration, given the high income disparities in South Africa; what contribution the directors could reasonably be expected to make at the firm in those circumstances; and the alignment of management with shareholder interests.
He said shareholders were becoming increasingly active at annual general meetings of groups where executives typically received “high packages”, such as in financial services, banks and mining, and also in companies where there was a high level of trade union involvement. “At present there is also a lot of noise in the media about directors’ remuneration, and this plays a role, because it becomes foremost in the minds of the shareholders at these meetings,” he said.
SA Institute of Business Accountants chief executive Nicolaas van Wyk said failed resolutions were a reflection of loss of confidence among shareholders, particularly foreign shareholders, in the auditors and chief executive’s ability to protect shareholder interests. This had been driven by a large number of corporate scandals.
He said he had read a report recently that stated that one of the main reasons foreign investors had become net sellers of JSE equities was that they no longer trusted the financial statements.
He said there were “smarter” financial and auditing solutions available that allowed one to “plug in” to the financial positions of companies in an instant, but an outdated Companies Act specified that auditors needed to be appointed and that results had to be produced annually.
“Our Companies Act was written during the time of the Industrial Revolution, when companies were mainly bricks and mortar structures. Perhaps it is time to bring this Act in line with our age,” he said.
Another problem was that chief financial officers were not recognised with the same governance powers as company secretaries and auditors, and were thus open to being manipulated by errant managements.
He said, for example, the financial officers should be trained in the psychological aspects of being able to detect predatory management styles.