Thungela vs shareholders: The thorny issue of investor rights

Fifteen years on and there are only two known instances of shareholders successfully filing resolutions at a shareholder meeting of a JSE-listed company. This despite the fact the Companies Act of 2008, which came into effect in 2011, has a chunky section describing how shareholders are entitled to do just that. 

Now, shareholder activist Just Share, Aeon Investment Management and Fossil Free SA have launched legal action against coal group Thungela which should clear up precisely the extent of rights shareholders were granted by the 2008 Act. Ahead of that court action it looks like almost none, which can hardly have been the intention of the drafters. 

It was the first comprehensive overhaul of the Companies Act since the 1970s, and extending rights to shareholders seemed in keeping with the not-so-new era of corporate governance. Recall the first King Code of Corporate Governance had been rolled out all the way back in 1994. There was also the Bill of Rights to be considered. And as the preamble to the Act makes clear: it is intended to encourage transparency and high standards of corporate governance. 

So, Section 65 of the Companies Act seemed in step with 21^st century corporate life. Here’s what it says: “Any two shareholders of a company may propose a resolution concerning any matter in respect of which they are each entitled to exercise voting rights…”  

Still, the drafters of the Act evidently didn’t intend to make it easy for these newly empowered shareholders. Section 65 then goes on to outline a fairly comprehensive list of hoops they have to jump through before their resolution is deemed legally acceptable. 

A tough and thankless task  

For the past several years shareholder activist Just Share – and before it the Raith Foundation – have been pushing hard to use Section 65 to encourage companies to make more effective disclosure on climate-change related issues. It’s been a tough and generally thankless task. 

Inevitably, the initial focus was on Sasol. It is, by a very long shot, the largest emitter of greenhouse gases (GHG) listed on the JSE. The first resolution was presented in time for Sasol’s 2017 annual general meeting in November that year. The Sasol board refused to table the resolution claiming the Raith Foundation had missed out on a few of the hoops. There was much discussion between the parties and before you know it, the AGM had come and gone with no shareholder resolution. 

Next time Raith wasn’t taking any chances. So, in early 2018 it started engaging with Sasol in a bid to table a resolution at that year’s AGM. After much discussion the Sasol board informed Raith it had a legal opinion stating it would not be permissible for Sasol to table Raith’s resolution because the issue was climate-related and that fell under the authority of the board. Neither Raith nor Just Share has ever seen the legal opinion that Sasol continues to rely on to reject their resolutions. 

Meanwhile Raith had also approached Standard Bank and FirstRand – as funders of some of the largest GHG emitters – in an effort to table resolutions at their AGMs.  

The Standard Bank case  

After some tortuous discussions with Standard Bank, a shareholder resolution was finally accepted and, in modified form, was presented to investors at the bank’s 2019 AGM. Fifty-five percent of shareholders voted to require the bank to adopt and publicly disclose its policy on lending to coal-fired power projects and coal mining operations. The bank’s board had recommended shareholders vote against the resolution. 

Things seemed to go a lot more smoothly over at FirstRand where Just Share’s disclosure resolution was accepted by the board and tabled at the 2019 AGM. 

In 2021 Just Share, with co-filers Aeon, Abax Investment and Visio Fund Management filed a resolution with Standard again addressing climate-related disclosure. After extensive discussions the bank agreed to do what was required by the resolution and so the resolution was withdrawn. However, the ‘Climate Policy’ published by Standard fell far short of what Just Share and Aeon had been looking for. So, after much discussion with the bank and negotiation about the wording, they tabled another resolution at the 2022 AGM. It was backed by 99.7% of the shareholders. 

Did this mean the tide was turning on shareholder resolutions?  

The answer is a resounding ‘no’.  

Or at least, not in the way Just Share and Aeon would have hoped. 

Since 2022 Standard has refused to table any shareholder resolutions from Just Share/Aeon as have Sasol, Thungela and Exxaro. 

Not only have they refused, but they have also ignored the obligation to approach the court for approval to set aside the resolution. 

Not playing nice  

Thungela is not even pretending to play nice. Ahead of its AGMs in 2023, 2024 and 2025 the coal miner refused to circulate and table the resolutions proposed by Just Share. It says JS and Aeon have no rights to propose the resolutions and furthermore it will refuse all such resolutions in the future. It also says JS and Aeon have no right to vote on the resolutions they were proposing and therefore had no right to propose them in the first place. 

As far as the Thungela board is concerned it believes it has unilateral discretion to determine what resolutions are circulated and tabled at its AGM, despite the Companies Act stating the only way to refuse to table a resolution is by obtaining a court order to that effect. 

Sasol and Thungela are right: the business of the company must be managed by the board. That is precisely what the very next section of the Companies Act (Section 66) says: “The business and affairs of a company must be managed by or under the direction of the board, which has the authority to exercise all of the powers and perform any of the functions of the company…”  

This is reasonable given that the board carries the final fiduciary responsibility if anything goes awry. (That’s the theory; in practice directors are rarely held to account.) 

So, it’s clear that shareholders cannot usurp the board’s powers.  

And usurping their authority is evidently what Thungela, Standard and Sasol believe Just Share and Aeon are doing.  

Sasol told Currency it declined to include the proposed shareholder resolutions in its AGM notices on the basis that they contravene established principles of South African company law.  

‘Under no obligation’ 

“In terms of section 66(1) of the Companies Act and Sasol’s Memorandum of Incorporation, the management of the company’s business and affairs rests exclusively with the Board, and shareholders are not entitled to direct or instruct the Board on operational matters. The proposed resolutions, even if non-binding, would amount to such instructions and therefore fall outside the scope of permissible shareholder resolutions,” said a Sasol spokesperson.  

What’s more, it says the requests involve forward-looking information that it is under no obligation to provide. 

That said, the spokesperson assured Currency that Sasol was committed to climate-related transparency and constructive engagement with shareholders. 

As for Thungela, which is opposing the legal action, it says the case is based on a misinterpretation and misapplication of the law. It has extended invitations to the parties “to engage meaningfully and directly on these issues” but says it has been rebuffed. 

Yet Just Share’s Tracey Davies says that far from rejecting engagement, Just Share and Aeon have repeatedly engaged with Thungela and spent well over a year trying to resolve the dispute through the processes outlined by the Companies and Intellectual Properties Commission, as well as the Companies Tribunal. Eventually, with no agreement reached, the Tribunal recommended Just Share and Aeon approach the High Court. 

Standard Bank did not respond to a request for comment. 

So are Just Share and Aeon trying to usurp the board’s authority? Davies says they are very aware of the directors’ fiduciary duties which is why they are only submitting non-binding resolutions that do not attempt to instruct the board what to do. “In Thungela’s case every resolution has been about the board disclosing its approach to climate risk,” Davies tells Currency. “It’s all about disclosure, which can in no way interfere with management.” 

Usurping the board? 

The resolutions are a mechanism for shareholders to present their views on matters of crucial importance for the company; they don’t instruct the board or usurp the board’s powers in any way, she argues. 

Similarly with Sasol and Standard Bank, Just Share and Aeon’s objective is to encourage the disclosure of useful information on climate-related matters. Information that would enable shareholders to make better judgements of the companies’ long-term exposure. 

That seems reasonable enough given the current strained environment. If Section 65 can’t accommodate these seemingly reasonable proposals, what could it allow? And should it be removed from the Act? 

The court will let us know. 

_{Top image: Photo by Per-Anders Pettersson/Getty Images}