Ann CrottyIt wasn’t quite the Paris Olympics, but Naspers set a few records of its own at its AGM in August. Record levels of opposition to the reappointment of directors, to the remuneration policy, to the remuneration implementation report, to the request for authority to place unissued shares under the control of directors and to the approval of the general issue of shares for cash were notched up at the event.
Any hopes that the departure of former CEO Bob van Dijk might have led to an improvement in the apparently strained relations between the Naspers board and its N shareholders will have been dashed by the voting results. Of course, the great news for the Naspers board, which is loaded with long-serving cronies, is that all these records are pointless. The voting power of the ordinary N shareholders is overwhelmed by the massive voting power of the A shares, which are held by a handful of individuals.
This might help to explain why, despite the enormous wealth accumulated over the years, Naspers’s N shareholders have tended to be a grumpy bunch, more than usually keen to use their pointless AGM votes to express their displeasure. To date, the focus of most of that displeasure has been the remuneration policy, with shareholders growing increasingly angry about the top-level executives being paid eye-watering sums of money while destroying shareholder value.
At this year’s AGM the animosity reached a peak with a record-breaking 75.7% of N shareholders voting against the re-election of Craig Enenstein, the chair of the remuneration committee. This is not just a record for Naspers, it is a record for a JSE-listed company. Indeed, it must surely be a global record. Last time Enenstein was up for re-election, he was supported by 74.9% of N shareholders. That was in 2021.
A lot has happened in the few short years since. At first, the share price plummeted, but after touching a recent-year low of R1,500 in May 2022 it began to recover strongly, thanks to a complex restructuring combined with an expensive share buyback programme – and, of course, Tencent.
Understandably, few N shareholders were crediting Van Dijk and his team for the share price improvement, given that it was helped by the fact that his team made no acquisitions. Here, it seemed, was evidence that Naspers’s shareholders would have been considerably better off all along if the board had never backed an expensive value-destroying acquisition strategy. Inevitably, even as the share price surged, shareholders remained angry about what they regarded as inappropriately generous remuneration for their value-slashing top executives.
Keeping schtum
The vote against Enenstein seemed appropriate enough. Since 2014 the Naspers remuneration committee had dished out untold billions of rands to Van Dijk. For much of that period Enenstein chaired the committee, taking over from Rachel Jafta in 2017. Each year shareholders have had to listen to Enenstein banging on about the extremely expensive “global pool for talent” that Naspers is forced to fish in for its senior executives. “That market is very expensive … if you want to buy talent worthy of managing our global business, there’s a price,” said the remuneration committee chair again at this year’s AGM – seemingly unaware of the proof that paying these eye-watering “market-related” packages didn’t actually guarantee even a half-way decent performance.
Enenstein’s lack of awareness was all the more surprising given Van Dijk’s abrupt departure from the group last September. (According to some reports, there wasn’t much sign of him in the office in the months leading up to the September announcement.) Shareholders might have been expecting some sort of explanation; nothing was forthcoming. Van Dijk hardly got a mention; it was as if he was being air-brushed out of Naspers’s history.
Neither did anyone from the nominations committee explain why it took six months to find a replacement CEO. Isn’t the nominations committee supposed to be constantly on the watch for top talent inside and outside the company?
It wasn’t just Enenstein the N shareholders were targeting: 46% of them also voted against remuneration committee member Roberto Oliveira de Lima. And 54% of N shareholders voted against the re-election of Naspers veteran Steve Pacak to the audit committee. Pacak, who served as group finance director for years, is not on the remuneration committee but is, contrary to good governance recommendations, chair of the audit and risk committees.
Things got worse. Signs that the departure of Van Dijk didn’t mean the end of concerns about remuneration came in the form of an 84.5% vote against the remuneration policy. Analysts agree this year’s basic remuneration policy looks better but, well, this is Naspers so there’s a sting. There’s a $100m “moonshot” award that new CEO Fabricio Bloisi stands to win in four years’ time, and some N shareholders are not happy about it.
To win the $100m Bloisi will have to oversee a doubling of Naspers’s market capitalisation from $84bn to $168bn over the four years. In addition, Naspers’s total shareholder return must beat at least 50% of its peers over that period.
The board might have hoped that in the wake of the approximately $46bn potential windfall for Tesla’s Elon Musk, the $100m on the cards for Bloisi would go unremarked. Not a chance. Many of the questions at both the Prosus and Naspers AGMs were about the “excessive and disproportionate” moonshot award.
The ‘moonshot’
In engagements ahead of the AGM, Protea Capital Management CEO Jean Pierre Verster told Naspers that, overall, the remuneration package seemed reasonable, however he had concerns about the moonshot. “Using market capitalisation rather than share price for the moonshot award is nonsensical,” wrote Verster, who doesn’t believe a doubling of the share price is that much of a stretch, given Tencent’s role in the Prosus/Naspers share price. He tells Currency that remuneration metrics tied to shareholder value accretion should always be done on a per-share basis and never just market capitalisation.
Verster has welcomed some of the adjustments (allowing for buybacks and rights issues) that the board made subsequent to its engagements with shareholders. The adjustments were noted in an annexure to the annual report released a few weeks ahead of the AGM, but he says the plan was still inappropriate given that Naspers/Prosus are investment holding companies. And there’s still the inescapable fact that the market capitalisation figure will largely be determined by Tencent, over which Bloisi has no control.
Aeon Investment Management CIO Asief Mohamed has welcomed the strong pushback by Naspers’s N shareholders, saying it indicates that institutional shareholders are finally waking up to governance concerns at the company. But he fears the apparent robustness might have been motivated by the realisation it would have no consequences.
That’s because Naspers’s governance is dominated by the fact that a handful of investors – including Koos Bekker, Cobus Stofberg and Sanlam – hold the Naspers A shares, each of which has 1,000 votes. The A shares control 86% of the votes which means it matters not a jot how the ordinary N shareholders vote.
But as one long-term Naspers investor points out, this has been the reality since Naspers listed. Difficult, then, to feel aggrieved when the A shareholders do exactly as they please.
Top image: Animated Naspers icon. Currency.
