How ‘new’ Companies Act is no aid to shareholder activists
Shareholder-initiated resolutions knocked back by Sasol and Trencor
Two recent failed attempts by minority shareholders to use an ostensibly powerful new shareholder right to table resolutions at annual general meetings suggest the "new" Companies Act 2008 is not as progressive as some legal experts have claimed.
Separate legal teams acting for Sasol and Trencor used precisely the same language to dismiss shareholder attempts to table resolutions at their upcoming AGMs. At the end of June, Sasol informed shareholder activist Theo Botha and the Raith Foundation, a nonprofit campaigning for social justice issues in SA, that their bid, launched in April, to submit a resolution for consideration at the AGM to be held in November was denied.
Sasol said it received legal opinion that "the matters included within the draft resolution are within the authority of the board and management and do not constitute matters that shareholders are entitled to exercise voting rights on within the meaning of section 65(3)(a) of the Companies Act".
In mid-July Trencor shareholders Chris Logan and Elizabeth Corbett were informed by the Trencor board that their proposed resolutions did not meet the requirements of section 65(3) of the act and so the company was not required to table the resolutions at the August 14 AGM. "The resolutions you have proposed do not relate to matters on which shareholders are entitled to vote," said Trencor.
Botha and Raith had wanted Sasol shareholders to vote on the proposal that the company should prepare an annual report detailing how it is assessing and ensuring it is able to deal with climate-related transition risks. Sasol emits 67.6-million tonnes of greenhouse gas a year and faces regulatory pressure to cut this. Dealing with transition risk seems the very essence of what shareholders should be entitled to vote on.
'Lack of precedent'
Tracey Davies, executive director of shareholder activism and responsible investment NGO Just Share, which supported Raith and Botha, described Sasol’s response as problematic as nowhere is there a list of what "issues" shareholders can vote on. "In SA there is little precedent for what we’re trying to do and the act does not deal with this issue definitively; Sasol told us it fears that if it allows us to submit the resolution this could open it up to legal action," said Davies.
One corporate lawyer suggested the parties get a court order to enforce their rights. This would protect the Sasol board from legal action, but Davies believes it would be a protracted and antagonistic process. "That is an option but it shouldn’t be necessary. We would much prefer large institutional shareholders to join us in pressing Sasol on the issue," said Davies.
Shareholder-initiated climate resolutions have been presented for consideration at most of the world’s largest fossil fuel companies. Institutional shareholders and company law in SA seem out of touch.
Logan is also loath to go the court order route and after investing much time on the matter is now considering taking the only option available to small shareholders, which is to sell his Trencor shares.
Trencor’s major asset is a 48% stake in New York Stock Exchange-listed Textainer, once the largest lessor of shipping containers. In addition, Trencor has a stake in marine container specialist TAC and R1.1bn cash.
Logan had hoped his section 65(3) action would encourage the Trencor board to use its "substantial influence" to remove Textainer’s anti-takeover by-laws. Logan believes the by-laws protect underperforming executives in 48%-held Textainer. He says the by-laws — which shelter management from legal action by shareholders and require board approval for any takeover, thus preventing hostile takeovers — explain Textainer’s poor results since 2013.
In 2017 its 3% return on equity was less than the 13% earned by industry leader Triton. The by-laws conflict with directors’ fiduciary duties and shareholder rights in SA.
"But the situation is complicated because Textainer is registered in Bermuda," said the corporate lawyer, noting that Steinhoff’s Dutch registration also complicated matters for its shareholders.
"The Trencor board, having done nothing visible about Textainer’s underperformance, are now preventing shareholders from doing anything," Logan said in response to the board’s rejection.
Like Botha and Raith, Logan is hoping to get support from institutional shareholders, many of whom seemed unaware of the "poison pill" by-laws until last year’s AGM.
There is pressure to address the offending by-laws before Trencor moves ahead with its plan to get a secondary listing for Textainer on the JSE and unbundle the 48% Textainer stake to Trencor shareholders. The plan is expected to unfold within the next 12 to 15 months. Logan is concerned that once the shares are distributed it will be more difficult to organise opposition. But, he says, it’s also possible the JSE will not accommodate the by-laws.