Brace for shareholder activism, top law firm warns
Senior partners at law firm Bowmans say companies should prepare to address a rise in shareholder activism in SA.
Ezra Davids, Bowmans’ chair and senior partner, and Ryan Kitcat, a partner at the firm, wrote in the eighth edition of The Shareholder Rights and Activism Review that companies should continually and carefully monitor their shareholder portfolios for activists, assess potential vulnerabilities, and anticipate and prepare for campaigns on a case-by-case basis.
“Boards and companies that can demonstrate value creation over time and adherence to principles of good governance, including careful stakeholder engagement and responsible corporate citizenship, are less likely to find themselves vulnerable to activism,” they wrote.
“They are also more likely to have anticipated and planned for activism and to be able to successfully communicate a wellarticulated, carefully prepared and strategic response to particular instances of activism.”
Davids and Kitcat said it was important to note that there was a difference between economic activists and governance activists.
They said economic activists in SA were primarily institutional investors (such as asset managers, collective investment schemes, hedge funds, insurers, and retirement and pension funds) whose activism was often event-driven and was generally directed at extracting greater shareholder value.
Governance activists, on the other hand, typically sought to influence board composition and company policy and to improve corporate governance.
Shareholder activism in SA has over the past few years morphed from executive pay and governance to issues of climate change and matters that, broadly, have to do with environmental and social issues.
Davids and Kitcat particularly noted the emergence of groupings such as Just Share, the Raith Foundation and the Centre for Environmental Rights as entities that had actively pursued environmental, social and corporate governance (ESG) agendas.
Just Share in 2023 stared down energy major Sasol, accusing it of showing signs of reneging on its target to cut emissions 30% by 2030. The entity accused Sasol management of not disclosing adequate details to its investors. Among listed companies in SA, Sasol is the single biggest carbon emitter.
Pressure from Just Share and other groups saw Sasol’s AGM abandoned in December after environmentalists stormed the stage, bringing proceedings to a halt. The meeting, which was to vote for the group’s climate change report, reconvened virtually in January, when the resolution on the report passed with 77% support from shareholders.
Just Share has also pushed banks to disclose or report to shareholders on climate risk, plans to address climate-related transition risks, assessments of greenhouse gas emissions in financing portfolios, and policies on lending to carbon-intensive activities and projects.
Davids and Kitcat said institutional investors had played the dual role of economic and governance activism.
They said examples of this included Allan Gray, Value Capital Partners, Foord Asset Management and the Public Investment Corporation (PIC). The PIC holds significant stakes in a number of JSE-listed companies and exercises considerable influence as a shareholder, particularly in the context of mergers & acquisitions (M&A).
“We expect institutional investors — in particular, pension funds, mutual funds and insurers — to play an increasingly active and pivotal role in influencing corporate strategy and M&A with reference to sustainability and ESG factors,” Davids and Kitcat said.
“Careful consideration of the above issues has become essential to corporate strategy and governance. Companies that pay inadequate attention to these issues are increasingly likely to become exposed to business, credit, market, reputational, legal and other risks, which could have a material adverse effect on their businesses over the medium to long term.”
BOWMANS PARTNERS URGE COMPANIES TO MONITOR SHAREHOLDER PORTFOLIOS AND PREPARE FOR CAMPAIGNS