Not cool, Mr Bekker

GOOD GOVERNANCE: SHAREHOLDERS HAVE A RIGHT TO EXPECT ACCOUNTABILITY

Good governance is a nice-to-have when things are rosy, but when the wheel turns, it’s critical.

SA has a leadership problem. The president and many members of his cabinet are so deeply compromised, they’re unable to be effective. This problem has festered because nobody has held these members to account.

The impact Jacob Zuma’s presidency’s had on the local economy is so severe it would be extraordinary if any senior SA business executive (Guptas aside) disagreed with the above assessment.

Hence the scrutiny of Naspers chairperson Koos Bekker’s response to corporate governance questions at its AGM last week. He had little time for shareholders voicing their concerns about accountability issues.

Bekker was clear that corporate governance might “sound wonderful” but isn’t core to a company’s success. He suggested as long as a company is doing well, the state of its corporate governance doesn’t matter.

Naspers is doing extraordinarily well. Shareholders have been hugely rewarded. On the face of it, this supports Bekker’s argument. The directors have delivered outstanding returns.

But here’s the problem

When African Bank was performing strongly, few raised concerns about its essentially dysfunctional board. When things started going wrong, it was too late.

A noteworthy international case was the $1.7-billion fraud at Japanese camera maker Olympus. It was able to hide losses for 13 years as its president colluded with fellow executives and there was no independent oversight of what they were up to.

It would be silly to suggest Naspers is doomed to go the same way, but the lessons shouldn’t be ignored.

When Naspers shareholders call for greater accountability, it’s because they want greater comfort about the sustainability of its performance. They want directors to be rewarded for producing results in areas they actually have control over, and greater confidence about who really controls Naspers.

A question of control

Naspers has a dual-class share structure. Each of its A shares carries 1 000 votes per share. The company’s N shares, which trade on the JSE, carry one vote each.

As such, the remuneration policy wasn’t the only resolution shareholders voted against in noticeable numbers at the AGM. Five other controversial resolutions also drew resistance – two involving the potential issuing of additional A shares, and another about repurchasing A shares that could result in conflicts of interest (Naspers didn’t specify how the price of those shares would be determined).

A-share holders effectively control the company, and Bekker himself is a significant indirect holder.

The challenge is that 68% of Naspers voting rights vest with A-share holders. As they tend to vote as a block, it’s impossible for N shareholders to vote a resolution down.

A significant majority of N shareholders voted against the two most controversial resolutions at the company’s AGM.

Shareholders have every right to expect accountability because if things go wrong you’re dead in the water without it.