Minority shareholders heard
THE PROVISION for class action in South Africa’s new Companies Act that came into effect at the start of this month is a welcome opportunity to give a voice to minority shareholders, who tend to remain largely silent when it comes to disputed actions by directors. However, its success in easing minority shareholder apathy will depend on the practical application of its class action clause.
Independent shareholder activist Theo Botha says the exorbitant expenses that are part and parcel of legal action in SA will remain a major deterrent to shareholders, even when acting as a group. He says corporate lawyers should adopt a pro bono approach, where there’s no charge if the case is lost. Legal action against a company can be taken by anyone suffering the consequences of its actions, including communities and private individuals.
Another hopeful positive of the Act is that it will provide shareholders with more background information on the decisions made by the company’s directors. Deloitte regulation analyst Johan Erasmus says directors will have to publish a “short document” – in reality, around 30 pages – separate from their annual report that outlines the risks and opportunities in the environment the company occupies. “The idea is that it will mitigate the risks, as shareholders will have a better understanding of the context of the decisions taken by management,” Erasmus says.