PIC struggles to improve quality of corporate governance

More than half of the companies in which the PIC has a substantial investment ignore its views on the need for independent auditors.

Almost half of them also ignore its view on what is, or is not, an acceptable remuneration policy, and a substantial portion of the PIC’s investee companies pay no attention to its definition of independence when it comes to directors.

This is evidenced by the proxy voting results released recently by the country’s largest fund manager.

As the PIC battles to protect its reputation from allegations of dubious and improper investments before the Mpati commission of inquiry, the PIC’s latest proxy voting results indicate it is also struggling to improve the quality of corporate governance in SA. Most of the companies that ignore the PIC's views on key issues have been doing so for years.

Some corporate governance activists say the PIC, which manages about R2-trillion on behalf of government employees and other social funds, has lost interest in what was regarded as one of its primary objectives at the time of its so-called re-launch in 2005. The delay in posting the voting results — the latest for the June 2018 quarter are between six and nine  months after the shareholders’ meeting — is seen as indicative of this loss of interest.

At the launch function in 2005, then president Thabo Mbeki made it clear that the job of the PIC was no longer just to get steady returns for state pensioners. “I think it would be useful for our fund management industry as well as trustees of our pension funds, to begin to take a more active role in discharging their responsibilities as shareholders on our behalf in transforming these companies …. Perhaps what is required is some form of alliance of shareholders among institutional investors so that common standards and rules of engagement can be set,” Mbeki said.

Shareholder activist Theo Botha said the re-launched PIC, which took on the mantle of engaged investor, was one of the most exciting developments of the past two decades. Botha said the fund manager had some major successes in the early years and was key in persuading other fund managers to become more active and disclose how they voted at shareholder meetings.

“One of their stand-out successes was changing the Barloworld board,” said Botha who said that early on the focus did seem to be on transforming board membership rather than corporate governance habits.

One fund manager said it made sense for the PIC, which is the single largest investor on the JSE, to become more active. “When you’re holding 10% of a company’s shares you can’t easily just sell the shares and run when you’re unhappy with a company’s strategy or governance; you have to engage and try and make changes,” said the fund manager, who wanted to remain anonymous.

Reverend Jo Seoka who chairs Active Shareholder, which advises nongovernmental organisations (NGOs) on how to vote their shares, said it was appropriate for the PIC to play an active role in overseeing the governance of the largest and most powerful companies in the country.

“The PIC is handling public funds, that always warrants close inspection,” said Seoka adding that Active Shareholder’s own experience was that the level of engagement between fund managers and their investee companies was cursory at best.

“As an NGO, we have limited resources but we still manage to come across glaring corporate governance contraventions that the large players seem not to have noticed.”

Seoka said the PIC is ideally placed to play an influential role but for some reason has opted not to. He said it was ironic that flouting governance standards had played a major role in the problems at the centre of the Mpati inquiry. “The PIC needs to be made more accountable to the public.”

Botha believes the PIC should invest more to develop the skills required to have a sustained impact. “It’s no exaggeration to say that governance on the JSE rests in the PIC’s hands, but to play that role effectively it needs more resources.”

The PIC did not immediately respond to requests for comment.