Days are numbered for board delays
Leaving aside some gaffes in the notice to shareholders dealing with the coming extraordinary general meeting, Group Five’s handling of Allan Gray’s demand meeting reflects a slight improvement on previous practice by JSE companies.
The meeting is scheduled to take place in 50 working days after the fund manager requested it, which seems unnecessarily and valued est roy ingly long, but is still an improvement on what has happened previously to shareholders who resorted to exercising their rights to call a shareholders’ meeting.
In 2014, Foord Asset Managers got very little for its three-month, high-profile battle with the PPC board.
But even that was better than what happened to ConvergeNet shareholders back in 2012. They issued a section 61 meeting demand and then had to follow it up with letters and threats of legal action before a meeting was held four months later.
Section 61 of the Companies Act provides for shareholders with at least 10% of the voting rights to call for a meeting. But neither the Companies Act nor the JSE’s listings requirements specify any time limit within which the meeting must be held. The only reference to time is the requirement that a shareholders’ meeting cannot be held within 15 days of sending the notice of that meeting. This means the company being challenged can sit indefinitely with a demand before even sending out a notice of a meeting. And when it eventually does send out a notice, it does not actually have to set a date for the meeting.
The good news is that this is about to change. The JSE is proposing to fill the legislative gap by imposing time limits. The proposed amendment to the JSE listings requirements will oblige a company to issue a notice of meeting within 10 business days of receipt of the request from shareholders. And the meeting will have to be held within 15 to 25 days of sending that notice. This means the maximum time between a shareholder submitting a meeting request and the meeting being held will be seven weeks.
Andre Visser, GM of issuer services at the JSE, said the amendment was intended to enhance shareholders’ rights.
One corporate governance analyst described it as essential if shareholders were to make effective use of section 61. “Considering that shareholders will usually only demand a meeting when things have really gone south, time is critical. And the board in most cases has a strong incentive to delay proceedings in order to retain their positions.”
Ahead of any change, the lack of a time limit severely undermines the potential power of this shareholder right. It has probably discouraged many shareholders from even bothering. Even well-resourced challenges can be thwarted. As the PPC and ConvergeNet cases showed, the targeted boards will use everything at their disposal to stymie what is invariably deemed an assault on their authority.
Foord may have earned some corporate governance stripes for attempting to resolve a worrying situation, but at the end of an acrimonious three months, it had nothing to show for its efforts. The PPC share price, which was R35 when the boardroom battle broke out into the open in September 2014, is now at R5.
In the row between Allan Gray and Group Five, the company waited almost a week before informing shareholders. At that stage, it said it had received a request from an unidentified shareholder who wanted to reconstitute the board of directors “following a disagreement with the board on the future direction of the company”. There was no mention of when the meeting would be held. A week later, Group Five announced the appointment of a new CEO as well as a new executive director. Another week went by and Group Five issued a voluntary announcement providing a few details on “progress being made on various aspects of the business”.
Almost two weeks later, another announcement went out, informing shareholders that engagements with Allan Gray aimed at tackling its concerns had been unsuccessful.
Group Five said an extraordinary general meeting was scheduled for July 24 and the relevant notice and proxy form was to be issued by June 23.
That means there will be a total of 50 working days from the time Allan Gray made the initial demand for a meeting on May 11 until the actual date of the meeting. That’s a long period of uncertainty for a company that appears to be facing critical management issues. If the proposed amendments had been in place, the meeting would have been held by the end of June and Group Five would now be getting on with its business. But instead, we can look forward to another month of uncertainty.