PIC: Giving due credit in bad times
Release of report is commendable, given distraction of the Mpati commission and the fact the PIC doesn’t have a board
The good news is that the PIC has not allowed its seemingly endless reputational woes to distract it from its corporate governance commitments.
Indeed, in considerably faster time than at any stage in the previous several years the country’s largest fund manager has released its proxy voting report for the three months ended September 2018.
It comes just weeks after the release of the end-June voting results and takes the PIC back towards its 2005 relaunch commitment which, as then president Thabo Mbeki said, was "to take a more active role in discharging their [fund management industry] responsibilities as shareholders".
It’s all the more commendable an achievement given the huge distraction of the Mpati commission of inquiry and the fact that the PIC currently doesn’t have a board, which itself is probably a contravention of all sorts of governance codes.
But if ever there was a time the PIC could have argued it was too busy or distracted to bother releasing the results of its proxy voting, now would have been it.
So, well done to it for making a special effort to demonstrate that it is about more than the odd dodgy investment deal and that it does take its oversight role seriously.
Unfortunately, and here’s the bad news, the report reads like something that was generated by an automatic formula rather than a team of highly skilled corporate governance analysts.
After reading years of PIC voting reports it’s impossible not to see a pattern: it is the fine art of box-ticking, enabled by the industry that runs our corporate governance regime.
During the three months to end-September, the PIC voted against several remuneration policies that appear "inconsistent with best practice".
For example, it was one of the many shareholders that voted against Naspers’s remuneration policy despite the considerable effort the group’s remuneration committee put into engagement with shareholders last year on its controversial multibillion-rand policy.
However, it’s the PIC’s comment on the decision to vote against the appointment of Rachel Jafta to Naspers’s audit committee that hints at resource constraints.
"The PIC questions the independence of the director since he has been on the board for more than 12 years," says the PIC’s report. Yes, Jafta’s a woman and the PIC doesn’t seem to know it.
The PIC’s 12.37% stake in Naspers is worth around R166bn and has helped to shelter the fund manager’s performance figures from the full impact of its many ill-considered investments. At the very least this surely justifies better knowledge of long-serving directors.
It’s also impossible not to notice that SA’s most powerful fund manager is dealing with a slew of repeat offenders. Time and again it votes against the same resolutions at AGMs: directors allotting shares, nonindependent directors, inadequate remuneration policies and reappointment of long-serving auditors. Nobody seems to pay a blind bit of notice. And why would they? There appears to be little or no follow-up.
Shareholder activist Theo Botha, who works for proxy voting service Proxy View, says there’s not much point in voting at AGMs unless the shareholder follows up with engagement on issues of concern.
"It’s pointless to vote against a resolution at an AGM and leave it at that," says Botha, who suggests companies can be forgiven for not knowing who to engage with because of the anonymity of the voting process.
This means it’s down to the shareholder to initiate the engagement.
The vote on remuneration remains the stand-out issue for fund managers keen to demonstrate they are concerned about high-profile matters that might be troubling their investing clients.
It is also the vote that has done most to raise concerns that much of the JSE proxy voting is being outsourced to robots.
After last year’s PSG AGM, a frustrated Piet Mouton, the CEO, said the remuneration committee did a lot of preparation for the teleconference when 32% of shareholders voted against the remuneration policy.
"Only four shareholders participated [in the teleconference] and they didn’t represent many shareholders," said Mouton.
He suspects voting decisions are often made by somebody who doesn’t understand the nuance of the business and often hasn’t read the report.
Even PwC has hinted at the involvement of an automated process when it comes to shareholder voting.
"Investors need to take ownership of their decisions and realise that unthinkingly following voting recommendations does not amount to fulfilling their stewardship responsibilities," said PwC in its 2018 remuneration report.
The stand-out offender of the three months to end-September was Trencor, which picked up six votes against 12 of the resolutions put to shareholders at the AGM in August. The six included all three resolutions the PIC voted against in 2017.
But when it comes to paying not a blind bit of notice to its large shareholders the prize must go to Pick n Pay, where the PIC has voted consistently against Hugh Herman’s appointment to the audit committee on the grounds that he is not independent.
Herman, who was appointed to the Pick n Pay board 42 years ago, is still described as independent by the group.
The PIC voted against Herman’s re-election as a director and member of the audit committee because it questions his independence "since he has been on the board for more than 12 years".
The PIC did not respond to the FM’s requests for comment.