The timid giant
The PIC has less influence on boards than it should have, and this in spite of it carrying an immense, R1.8 trillion stick
So much for speaking softly and carrying a big stick. The strategy doesn’t seem to be working particularly well for SA’s biggest investor, the Public Investment Corp. The problem is presumably not with the size of the stick. The PIC carries a very big one in the form of R1.8 trillion worth of funds under management. Perhaps it’s speaking too softly. How else can you explain the remarkable fact that 63% of the companies in which it is invested continue to ignore the PIC’s modest requirements on executive remuneration policies?
By and large, all the PIC wants to see on this front are the key performance indicators used to determine if executives should be getting the large sums they are being paid. The PIC rarely squirms at the actual size of the sums involved.
The long list of refuseniks is particularly troubling because it includes high-profile frequent offenders. These companies know exactly what it is that one of their largest shareholders wants, but apparently they just couldn’t be bothered.
Frequently, when the media bangs on about a particular corporate governance issue and the apparent lack of engagement by fund managers (who manage the public’s savings), we’re told of all the constructive engagements going on behind closed doors. Judging by the known response to the PIC’s quiet diplomacy, this no longer seems plausible.
It’s not only remuneration policies that stir up the PIC. It also seems concerned about signs of cronyism on boards. On the basis of exaggerated claims of skills shortages, directors are being re-appointed to boards and put on audit committees way beyond the 10 years regarded as the limit of independence.
There’s nothing quite like having a few long-serving nonexecutive directors to ensure a cozy, non-threatening environment for the executive directors on any board; particularly in the context of a close-knit investment community and nearabsence of shareholder activism.
How is it possible that the Shoprite board could think JA Louw and JJ Fouché are appropriately independent appointees to the audit & risk committee? Both directors have been on the board for 22 years.
Over at Aveng, the PIC balked at re-electing Angus Band as a director because he has been on the board for nine years and has served as chairman. It’s not just that Aveng’s performance “has been unsatisfactory” under Band’s leadership, but that the PIC is concerned he might interfere with the performance of the incoming chairman.
At Distell the PIC voted against the election of David Nurek to the audit & risk committee because he’s been on the board for 15 years. Donald Masson has been on the Cashbuild board for 27 years, including a stint as chairman; the PIC thinks it’s time for him to go.
It is ridiculous that companies have to be told, year after year, that they need to shake up their board compositions and be more vigorous about the term “independent”.
Yes, it is possible the PIC is speaking too softly. After great initial fanfare (made louder by the exuberant Brian Molefe) this institution seems to have shied away from public engagement.
It even seems hesitant to release the record of its proxy voting. This provides useful insight into corporate governance in action and should be trumpeted from the hilltops; but the institution has to be cajoled into releasing it.
As a result of its reticence, the PIC probably has less influence on boards than shareholder activist Theo Botha, who carries a small stick but speaks very loudly indeed.
It is a great shame the PIC doesn’t make better use of its position. Perhaps it fears if it plays too prominent a public role it might be called to account for one or other of its embarrassingly political investments. As a fund manager not in the business of managing corporate pension and provident funds, it is better placed to take a firm stand on governance than most institutional investors in SA.