It’s sad to see that Shoprite has joined the ranks of JSE-listed companies that are prohibiting their shareholders from pitching up in person to attend their AGM. This year, Africa’s largest grocery retailer will be holding virtual-only meetings.
Sad, because it marks the demise of the important role AGMs should play in corporate life. As legal academics Blackman, Jooste and Everingham wrote in Commentary on the Companies Act back in the late 1980s, that role has unlimited potential: “[It] provides a significant safeguard to members as it is the one opportunity when they can be sure of meeting the directors and cross-examining them on the company’s accounts, their report and the prospects of the company.”
As the academics pointed out, the willingness of the directors to be cross-examined was in part down to the fact that they retire and are up for re-election at the AGM, “so it is then that they (the shareholders) can exercise their real power over the board, namely, dismissal”.
Have you ever tried cross-examining someone over the phone or on a Zoom call? Suddenly the line drops or gets fuzzy or the video connection crashes.
Make no mistake, there are huge advantages to being able to provide virtual access to meetings. For shareholders not interested in anything like cross-examination, it allows a sort of bare-bones communication. And for company boards, who invariably don’t like anything that smacks of cross-examination, it allows for a tamer, more controllable affair. These boards will also point to the cost savings, while the more egregious greenwashers among them will, as they step into their private jets, note the environmental benefits of fewer shareholders traversing the land.
Though it won’t matter much to the large institutional investors, the prohibition on in-person attendance has significant impact on the smaller investors who don’t have the same easy access to executive management and the board as the large institutions but would like to have opportunity for active engagement.
In a way, the electronic-only AGM represents the pinnacle of a sort of symbiotic relationship that frequently exists between company boards and their institutional shareholders. Both parties accept the legal requirement to hold an AGM, but both are uncomfortable about questioning the board in a public forum, particularly given that the questions can be probing and often seem to challenge the board’s authority.
The board members are uncomfortable because, remarkably, despite their elevated status and the presumption that they are savvy, quick-witted and knowledgeable, they dread being quizzed in a public forum where they don’t have total control over the process.
For their part, the institutional shareholders are keen to avoid causing boards any public embarrassment. This is because of the dual nature of the relationship between them. The institutions are not only investors in the company but frequently they manage (or hope to manage) the pensions and savings held by the company. So, the pressure is on to keep the relationship friendly and polite. A question-riddled AGM runs the risk of being neither friendly nor polite, so the large institutions avoid them and engage with boards behind firmly closed doors.
The Covid effect
Anyone who doubts the sensitivity of the relationship should consider what happened in mid-2018 when one of Investec’s top analysts, Anthony Geard, wrote that long-serving Tongaat Hulett CEO Peter Staude should resign because of the latest set of “appalling” financial results. Within hours Investec had issued a public apology. “To the extent that it has caused embarrassment to Mr Peter Staude, with whom we have had a long and fruitful relationship, we apologise,” said Investec. That was just a few months before the entire world became aware of just how appalling Staude’s management of South Africa’s largest sugar group had really been. So much for long and fruitful relationships.
More recently of course there was Old Mutual Investment Managers’ public announcement that it would be voting against a number of resolutions at Sasol’s 2023 AGM because of the petrochemical company’s poor performance on climate targets. Sasol had a bit of a meltdown and did much scurrying around behind the scenes while senior figures at Old Mutual Investment Managers tried to tone down their public stance.
So what a win Covid turned out to be for these publicity-shy corporates and fund managers. Despite frequent technology collapses, the electronic-only AGM was an excellent response to the social isolation required by Covid-related measures
And boards began to realise that electronic-only AGMs not only dealt with Covid restrictions, but resulted in a fundamental change in the power dynamics of the meetings. What little power shareholders enjoyed in an open public forum was lost; it was usurped by the board with the assistance of the company secretary, who now held sway over which shareholders could or could not ask questions, and how effectively those questions would be asked. Inevitably, difficult questions were lost to technological mishaps, while follow-up questions dropped in the mists of the ethernet.
Boards brazenly ignored the Companies Act obligation that virtual AGMs were permissible only as long “as the electronic communication employed ordinarily enables all persons participating in that meeting to communicate concurrently with each other without an intermediary, and to participate reasonably effectively in the meeting”. The Covid crisis bred a toleration of widescale contravention of the act.
It’s been open season since for JSE boards and their biggest investors. Apart from a few commendable companies, that combined the new virtual technology with the old in-person meeting to provide a hybrid event, most JSE-listed entities have opted to stick with virtual-only meetings. How easily companies can now feign a commitment to transparency while holding onto the power to shut down troublesome shareholders. So attached have they become to no longer having to operate in a truly public AGM forum that many have refused to resume in-person AGMs after Covid abated. And despite increasing familiarity with the technology, a dispiritingly large number of companies have not done what’s needed to ensure that the quality of communication demanded by the Companies Act is available to shareholders.
It’s difficult to see how things might improve. Judging by its recent response to Just Share’s complaint about the appalling quality of Ninety One’s latest AGM, the Companies and Intellectual Properties Commission isn’t prepared to do what’s necessary to ensure compliance with the act. It seemed to happily accept Ninety-One’s excuse that “human error” (on technology platform Lumi’s side, apparently) was responsible for the failure of the meeting to adhere to the requirements of the act and refused to investigate the matter.
Just hours before publication Currency received encouraging news from the CIPC. It has released its own guidelines for electronic AGMS. Companies have to ensure “reasonably effective” participation; during the meeting, shareholders should be able to see and know who else is attending online and be able to interact with each other without an intermediary; and all participating board and executive members are to be visible in real time.
As for the Ninety-One, it wasn’t the first time it had held a spaza-standard AGM. Strangely its former stablemate Investec manages to hold flawless, hybrid AGMs.
Rating the AGMs
Of course, it could be that few, besides a handful of journalists and the odd activist shareholder, are that bothered about the quality of AGM engagement. Fortunately, that possibility is not going to discourage Currency from interfering. And we justify that interference on the grounds that, through savings and pensions, tens of millions of South Africans are the beneficial shareholders – indeed, owners – of these listed entities managed by passive institutional fund managers. On their behalf we’re going to monitor and rate as many AGMs as we can access.
(Research by Lumi UK encourages Currency in this stance. It found that 92% of shareholders are interested in attending an AGM, but 53% of shareholders have never been invited to an investor relations event. The number one reason people attend AGMs is to ask the board questions, and 42% want to make their voices heard on issues they are passionate about.)
The rating will be based on the following criteria:
- Is the meeting electronic only, in-person only or hybrid? The availability of a hybrid option earns 15 points, otherwise zero points. Nedbank, JSE, Mr Price and Investec would be among the shrinking number of companies to score 15 points.
- How easy is it for guests (including journalists) to attend? Maximum of five points for easy access. Two points will be deducted in cases where journalists are specifically excluded. In recent years Ninety One has blocked journalists. (It is beyond Currency’s capacity to address the complex matter of shareholders being able to get access to the AGM.)
- In a virtual meeting, is a live video feed of the proceedings provided, or are attendees forced to look at a static photo of the company chair cropped from an annual report? Is it possible to see all the board members in attendance? Is it possible to determine how many other shareholders/guests are attending the AGM? Twenty points for a fluid, glitch-free video feed. At Lewis’s recent virtual-only AGM, which took all of 16 minutes, chair Hilton Saven was the only person videoed. Dis-Chem was even worse: there was no live video feed, instead shareholders and guests had to look at poorly cropped photos of the chair and CEO.
- Are shareholders allowed to choose to ask their questions either via written format or verbally? Ten points if both written and verbal questions are allowed; zero points if only written questions are allowed.
- Issues relating specifically to section 63(2) of the Companies Act; were all members participating in the meeting able to communicate concurrently with each other, without an intermediary, and also able to participate reasonably effectively in the meeting? There is some duplication here, but it goes to the essence and purpose of AGMs which is why a maximum of 20 points can be earned.
- Does the company publish minutes of its AGMs, which include the questions asked by shareholders and responses received? If so, the company gets five points.
Currency will also consider publishing questions from shareholders who felt they were not given the opportunity to communicate effectively.
These are your companies: let’s make them better.
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