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.

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