GEORGE NEL AND SUZETTE VIVIERS: AGM not enough for shareholders to engage with companies

Investment guru Warren Buffett once said: “If every company were well managed, there would be no reason for activists. The truth is, at some companies, managers forget who they are working for.”

A cursory review of news headlines confirms Buffett’s claim that boardroom decisions often leave shareholders concerned and frustrated. For example, when the 167-year-old Swiss bank Credit Suisse collapsed in 2023 shareholders told the media they felt “failed” and “cheated”.

Whereas most shareholder activists have historically engaged with investee companies to improve financial performance, a sharp increase is being observed in environmental, social and governance (ESG) issues activism. For example, a coalition of shareholders is calling on Nestlé to reduce its reliance on food products containing high levels of salt, sugar and fats.

While dissatisfied shareholders of JSE-listed companies mostly raise their concerns with management behind closed doors, public expressions of discontent are also on the rise. Not only are shareholders casting more “no” votes — particularly on remuneration-related resolutions — they are also asking more probing questions at shareholder meetings and in the media.

Local shareholder activists such as Just Share have been particularly critical of the progress JSE-listed companies have made to combat climate change and reduce inequality.

Some JSE-listed companies have responded to rising public activism by silencing shareholders who attended meetings virtually. Companies that force online attendees to SMS their questions to the company secretary for screening purposes risk noncompliance with the Companies Act.

The act stipulates that participants in a shareholder meeting should be able to communicate concurrently without an intermediary and should be able to participate reasonably effectively. By adhering to legislation, maintaining transparency and promoting shareholder engagement, companies can build stronger relationships with shareholders of all sizes.

We believe shareholders should be better informed of their rights and should be able to engage with investee companies throughout the year, not only at the AGM. Companies should consider the creation of forums on their websites and other social media platforms to enhance the flow of information, both in terms of quantity and regularity.

Rather than being one-directional sources of information, these forums could enable shareholders and other stakeholders to ask questions and raise concerns directly and timeously.

Better insight into what scholars refer to as “shareholder intelligence” could assist boards in preparing for shareholder meetings, whether these take place in private or public. Collaborative engagements might even lead to more innovative solutions to burning financial and ESG issues.   

Despite calls for proactive engagement and the equal treatment of shareholders in King IV, individual (retail) investors seem to be low on the priority list for investor relations executives in SA. One reason could be that these investors contribute to less than 10% of trade volumes on the JSE.

Compared to larger, more influential institutional shareholders, individual shareholders are often disadvantaged when trying to access information. The use of technology-driven communication channels such as X and corporate websites may improve communication with all shareholders, and cost-effectively. As these channels also reach a wide audience, they can potentially transform adversaries into partners in the pursuit of sustainable value creation. 

Despite empirical evidence supporting the value of using such communication channels, they are not fully used, specifically by smaller JSE-listed companies. As smaller companies are often followed by fewer analysts and attract less media attention than their larger counterparts, the role of investor relations is arguably more important for such companies.

However, a study shows that only half of smaller JSE-listed companies (53%) responded to an email request from an unknown retail investor seeking information about investing in the company. That finding corresponds to international studies on the topic.

While a lack of resources and the outsourcing of the investor-relations function might explain poor communication with retail investors, companies should realise that this group of investors is becoming more vocal and demanding. As a collective, their effect on a company’s reputation could be detrimental.

A tarnished reputation could adversely affect customer loyalty, profitability and the company’s ability to raise additional capital at competitive rates in future. By professionalising the investor-relations function, JSE-listed companies could enhance transparency, communication and stakeholder relationships. In doing so, they will also be in a better position to anticipate and deal with potentially damaging public shareholder activism.

However, much work remains to be done to elevate this function to the level enjoyed by its counterparts in countries such as the US, UK and Australia. 

• Nel is a senior lecturer at the school of accountancy, and Viviers a professor in the department of business management at Stellenbosch University. They write in their personal capacity.