How the PIC is taking a more active line
Auditor rotation, flawed remuneration policies and director independence continue to be the corporate governance issues most likely to incur the ire of the Public Investment Corporation (PIC), which voted against 11.5% of the resolutions put to it at shareholder meetings held during the nine months to end-December 2017.
The PIC’s recently released voting record reveals that the rate at which the PIC, the single most powerful investor on the JSE, is voting against resolutions has increased significantly.
In the 12 months to end-March 2017 the PIC voted against just 8.9% of resolutions presented at shareholder meetings. However, despite its clout the PIC’s voting seems unable to change the corporate behaviour it has targeted.
Voting against the re-appointment of auditors that have served for more than 10 years is the reason for the increase in "no" votes.
Barclays Africa, Standard Bank and Nedbank, which are all required to have two external auditors, were particularly affected as the PIC, which is headed by Dan Matjila, voted against resolutions relating to the reappointment of both audit firms. Despite the PIC’s opposition, in no case did the resolution on auditors fail to secure the necessary 50% support.
The December 2016 quarter was the first time that auditor reappointment featured as an issue for the PIC, although at the time it was not part of the PIC’s proxy voting policy.
However, in its 2017 annual report the PIC said that it supports external auditor rotation every 10 years in order to ensure independence.
It said it "is of the view that there is a need to replace the external auditors to uphold the principle of independence".
The PIC’s stance appears to have been influenced by the Independent Regulatory Board for Auditors (Irba), which announced in September 2016 that it intended to implement mandatory audit firm rotation in a bid to strengthen auditors’ independence from clients.
Initial strong opposition to Irba’s stance has flagged in the wake of a series of scandals involving audit firms.
Voting against a company’s remuneration policy tended to be based on poor levels of disclosure, such as in the case of Santam, where the PIC said the policy seemed to be inconsistent with best practice.
"The detail relating to the awarding of the STI [short-term incentive] and LTI [long-term incentive] is insufficient as it lacks disclosure of performance indicators and distribution weightings."
However, in Old Mutual’s case the PIC had specific concerns with the implementation of the managed separation incentive plan, which related to Old Mutual’s return to SA. The PIC said it was concerned by the magnitude of the rewards and the impact it would have on executive remuneration. It saw the reward size as unjustified.