Picture: BLOOMBERG / WALDO SWIEGERS
Picture: BLOOMBERG / WALDO SWIEGERS

Given institutional shareholders’ preference for engaging behind closed doors with the board and management of their investee companies, it was hardly surprising there was no sign of any of the big hitters at last year’s Sasol annual general meeting (AGM). It was left to two small activist fund managers and a clutch of environmentalists to use the single most important date on the shareholder calendar to raise concerns with Sasol’s board.

Things may be a little different this year. The AGM has been pushed out by two weeks to accommodate the two-month delay in the release of the annual results. This means the end-November AGM might be the first opportunity even the large shareholders get to interrogate the board on what has been a truly horrendous year for the petrochemical giant. Hopefully, they will avail themselves of the opportunity; by now they must realise their “behind closed doors” engagement strategy isn’t working.

While cost overruns and delays at the Lake Charles Chemicals Project (LCCP) are the most urgent issues that need to be addressed, the grim reality is that Sasol’s problems predate the recent LCCP challenges by years.

Key vital signs such as gearing, return on equity and return on invested capital, which does not include assets under construction such as LCCP, have been heading in the wrong direction since 2013.

As one of the lone fund managers pointed out at the AGM, the only thing moving steadily upwards has been remuneration. And it is not just the executives who are generously remunerated, come what may. Sasol’s nonexecutive directors are also big winners, with five of them picking up more than R2m for what is essentially a part-time job. Mandla Gantsho, who will be chairing his last AGM in November, benefited from a 19% hike to R5.8m in financial 2018. Being large and complex should justify generous remuneration only if that size and complexity underpin good profit growth. It is not.

And as for doubling up on the CEOs, Gantsho explained to the shareholders at last year’s AGM that such was the diversity of Sasol’s operating environment it would be impossible to find a single individual with the energy, time, skill, experience and knowledge needed to run the group. Why a second CEO was needed rather than a divisional head was not explained.

In the wake of growing speculation that the double CEO act will be trimmed to just one, Sasol would only say it has not received a resignation notice from Stephen Cornell, the “LCCP CEO”.

Eight years after then newly appointed CEO David Constable, a former Fluor executive, led the board in approving a feasibility study for a world-scale ethane cracker it is apparent the Lake Charles project was a desperate attempt to camouflage the fact the board had pretty much given up on SA as a source of growth. That has an all too familiar ring to it.

Also chillingly familiar was the announcement that independent external experts had been appointed to review the problems at Lake Charles. That announcement was followed by news, also eerily familiar, that the release of the financial results would be delayed. Then shareholders were told the scope of the independent review had been significantly extended and the results further delayed. A complete and thorough investigation is now being undertaken.

By rights that investigation should trawl back to November 2011 when the board gave the green light for the feasibility study and it should aim to remove all lingering concerns about Fluor’s involvement. That’s just for starters. It must also investigate whether the management problems behind LCCP’s costly overruns are specific to the US or endemic to Sasol. Plans to disclose only “key learnings” from the report should be reconsidered unless the board is contemplating using the findings to pursue legal action.

Shareholders have lost faith in this board and are unlikely to be comforted by access only to what the directors consider to be “key learnings”.

There’s also the need for a radical review of the group’s remuneration policy, including reversing earlier decisions to reduce the vesting period for long-term incentives from nine to five years and ensuring no executives benefit from the rumoured sale of the group’s coal assets, which would enhance returns by reducing the asset base. Also, consideration should be given to clawing back previously paid bonuses.

You know things have become frighteningly bad when the prospect of a globally disruptive conflagration in the Middle East looks to be the only thing that could rescue Sasol shareholders from massive losses in their investment.