Theo Botha. Picture: Waldo Swiegers
Theo Botha. Picture: Waldo Swiegers

Nampak’s institutional shareholders, who hold a combined 75% of the packaging group, are evidently a very forgiving bunch.

Not only have they not received a dividend for three years, but the share price is currently less than one-third of what it was at the end of calendar 2014 — and yet each year they line up to approve every resolution presented to them. Every resolution, that is, except the ones relating to remuneration, which as we all know are nonbinding.

In their defence, given the lack of liquidity, dumping the shares and running isn’t much of an option for the big shareholders.

Andrew Lapping, head of investments at Allan Gray, which holds 28.78% of the group on behalf of its clients, sounds almost upbeat about the company’s chronic underperformance.

"We think the management team is doing a good job running the business in what have been trying times. The current situation and debt mismatch has been very difficult in three of their biggest markets (Angola, Nigeria and Zimbabwe) while competition in SA has increased."

Last year 37% of the shareholders voted against the remuneration policy and the accompanying remuneration implementation report, but of course nothing came of it.

Nothing apart from an engagement between members of the remuneration committee and "a number of shareholders and proxy advisers". "The discussions were positive and well received," says the remuneration committee, which was satisfied that the "no" vote was down to a controversial retention payment made to key executives in 2017 without any authorisation from shareholders. This is evidently why the remuneration policy for financial 2019 was "largely unchanged".

Large shareholders may be inclined to take this in their stride, but not the activists who prefer to see some evidence, or at least the promise, of value creation.

Theo Botha, who has been attending Nampak AGMs for years, intends returning this year to challenge some of the more egregious issues, including that the "largely unchanged" remuneration policy has again lowered the targets for bonus payouts.

"In each of the past three years the remuneration committee has lowered the targets used to calculate executive bonuses," Botha tells the FM.

He does not accept that the reduced targets are justified by tougher trading conditions. "That makes no sense; executive pay is supposed to align executive interests with those of shareholders, but for three years my interests have been significantly eroded while the executives’ interests have been enhanced."

It’s difficult not to sympathise with Botha. Over the past three years CEO André de Ruyter has been awarded R51m, which means he has done considerably better than the shareholders.

Botha is also irked by the accounting sleight of hand that allows management to park underperforming assets put up for sale in a box called "discontinued operations", where they are ignored for purposes of measuring key performances.

In 2018 Nampak Glass was dropped into this box and so the remuneration committee was able to overlook the hefty R599.2m loss it notched up during the year.

"Only in the surreal world of executive remuneration would this sort of logic be tolerated," says Botha, who has some sympathy with De Ruyter for the failure of Nampak Glass, which was acquired in 2013 before he joined the company.

But strategic decisions under his watch didn’t help.

Amazingly, huge losses from discontinued operations aren’t as rare as you might think. In 2017 there was an equally eye-watering R548.9m loss.

Though the remuneration committee can ignore these losses, as Botha points out they take their toll on shareholder value.

Mike Martin of Active Shareholder, which advises NGOs on how to vote their shares, is also concerned about the "largely unchanged" remuneration policy and is recommending voting against it and the implementation report.

He points to the lack of information around performance conditions.

"Without this it is impossible to know the appropriateness or otherwise of the increases," says Martin.

On broader boardroom issues he is concerned about the board’s seeming lack of concern about the departure of three of the nine nonexecutive directors — Tito Mboweni, Roy Andersen and Phinda Madi.

The report makes no mention of plans to replace the directors though they must have known at least two would not be standing for re-election, says Martin. He points out the loss of two long-standing nonexecutive directors should be seen "in light of the fact that all three of the executive directors have average board experience of just three years and nine months".

While Martin is concerned about remuneration and the board profile, he "deplores" Nampak’s decision not to allow shareholders a vote on the reappointment of auditing firm Deloitte, which has served the company for 50 years. "Shareholders have one chance a year to express their opinion and that is the AGM.

"Given the number of scandals surrounding auditors in recent times, there is understandably a heightened interest in the appointment of the auditors," says Martin, who describes the move as all the more puzzling given that no JSE company has ever blocked the reappointment of auditors.

Last year just 3.6% of shareholders voted against Deloitte’s reappointment. Martin urges shareholders to respond the only way they are allowed, by voting against the reappointment of members of the audit committee.