Share­holder voices in SA be­come more stri­dent

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - ETI­ENNE SWANEPOEL

LARGE share­hold­ers are in­creas­ingly set­ting per­for­mance in­di­ca­tors for the boards of com­pa­nies they in­vest in as share­holder ac­tivism takes off in SA.

It is a sign of the tough eco­nomic times that ma­jor share­hold­ers want to pro­tect and squeeze as much as pos­si­ble out of their in­vest­ments and we’ve no­ticed a surge of share­hold­ers en­gag­ing with man­age­ment to set down what they see as key per­for­mance met­rics.

This sort of ac­tiv­ity has been sparse and largely un­der the radar in the last few years but now it is more preva­lent. They’re no longer happy to sit back and let man­age­ment get on with it.

In the same way as man­age­ment typ­i­cally set what are com­monly called Key Per­for­mance Ar­eas (KPAs) for staff, large share­hold­ers, which are of­ten in­sti­tu­tional share­hold­ers, set per­for­mance met­rics such as oper­at­ing mar­gins, sales growth tar­gets and div­i­dend pol­icy. This is the start of what I ex­pect to be even greater ef­forts to put the mes­sage across to boards about what they want and ex­pect.

It’s prob­a­bly fair to say that share­holder ac­tivism in SA is about 20 years be­hind the leader in the field, the US. But we are rapidly catch­ing up as share­hold­ers are in­creas­ingly more vo­cal and proac­tive. This is likely to

The key chal­lenge is to struc­ture those re­la­tion­ships out­side the tra­di­tional ap­proach of mak­ing board ap­point­ments

have a great influence on man­age­ment de­ci­sion mak­ers and should be of ben­e­fit to all share­hold­ers.

It is likely in­sti­tu­tional share­hold­ers and those with strate­gic hold­ings in listed com­pa­nies would adopt pri­vate eq­uity met­rics and per­for­mance ob­jec­tives in an ef­fort to drive value. It is well known that pri­vate eq­uity in­vestors are par­tic­u­larly adept at ex­tract­ing per­for­mance and re­turns through a very de­mand­ing, tightly man­aged ap­proach. If this be­came a norm among those with strate­gic hold­ings, this may of it­self at­tract tra­di­tional pri­vate eq­uity in­vestors to take up strate­gic share­hold­ings in listed com­pa­nies for the same rea­sons.

The re­la­tion­ship struc­tures to be adopted by ac­tivist share­hold­ers in the listed en­vi­ron­ment will, how­ever, be chal­leng­ing in view of the level of trans­parency in that en­vi­ron­ment. It will be all im­por­tant to struc­ture that in­volve­ment ap­pro­pri­ately, tak­ing ac­count of the new Com­pa­nies Act and King III.

The key chal­lenge is to struc­ture those re­la­tion­ships out­side the tra­di­tional ap­proach of mak­ing board ap­point­ments mainly in view of the sec­tion 75 con­flict is­sues in the new Com­pa­nies Act. Some views have even been ex­pressed about struc­tur­ing the pri­vate eq­uity type ac­tivist share­holder model in the listed en­vi­ron­ment on a joint in­vest­ment or co-in­vest­ment ba­sis with the tar­get com­pany and to influence be­hav­iour in that man­ner.

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