Coronation targets rotation of directors
The manner in which Coronation plans to select directors to retire by rotation has raised eyebrows after the fund manager published proposed amendments to its memorandum of incorporation.
On Monday, Coronation said it had changed its founding document, which it planned to put to the vote at its annual meeting next week, to include the generally accepted practice of retiring a third of its directors each year. Shareholders could then re-elect the directors, if they were eligible.
Coronation’s old memorandum of incorporation offered a third of its nonexecutive directors retirement by rotation, with executives and other staff who also act as directors shielded from this requirement. In terms of the new memorandum, all of the longest-serving directors would be up for retirement at each annual meeting, but if these directors were all elected on the same day, those to retire would be “determined by lot” unless otherwise agreed.
Coronation did not respond to questions, but told the market that it had made the amendments after “extensive engagement with shareholders and in the interests of good corporate governance”. The new rules apply to both executive and nonexecutive directors.
Last week, property group Redefine introduced the onethird rule for executive directors, saying its memorandum of incorporation already allowed the rotation of nonexecutives.
Coronation’s move had shareholder activist Theo Botha at a loss. “I don’t know why they are doing this, but there must be one shareholder pushing this issue,” he said, adding that it was a majority shareholder in Coronation and Redefine.
Coronation does not publish a list of its major shareholders, but its amended memorandum does follow years of activism from shareholders, who had pushed for both executive and nonexecutive directors to retire by rotation.
In 2013, the Institute of Directors published a practice note stating there was no legal or regulatory requirement to retire executives by rotation. The King 3 rules on corporate governance also did not require companies to implement this. The institute’s report on King 4 reiterated this, again focusing on the rotation of nonexecutive directors.
“The board needs to ensure that nonexecutive directors are rotated on a regular basis so as to maintain objectivity, which is one of the nonexecutive director’s primary contributions,” the institute said.
“At the same time, care must be taken to protect the required institutional knowledge.”