Wiese looms large over board
Shoprite CEO Pieter Engelbrecht is doing remarkably well with the difficult situation facing the group. It’s not just that the SA economy is struggling through the toughest conditions in decades, trading in the rest of Africa has been hit by the consequences of weak commodity prices, forcing management to implement tough cost-cutting measures.
Engelbrecht and his management team might have hoped the board would provide some support. Unfortunately for management, the board seems to be suffering its own challenges and is likely to present distraction instead of support.
You don’t have to be a conspiracy theorist to suspect things might not be going too well with the Shoprite board when the lead independent director announces her resignation, with immediate effect, hours after a post-annual general meeting board meeting. Particularly as that annual general meeting hosted the first “rebellious” shareholder nomination to the board.
The nomination by a minority shareholder of former Pepkor CEO Jan le Roux secured the support of 26% of minority shareholders, which fell way short of the 50% needed. But more significantly, given that Le Roux’s nomination had been announced a mere four days earlier, it was just a little short of the 28% support chair Christo Wiese managed to get from minority shareholders.
Ahead of the annual general meeting Shirley Zinn, who was appointed to the hot seat just six months ago, had assured minority shareholders she took her role seriously. In the context of Shoprite’s control structure this is a significant commitment. The retail giant is obliged to have a lead independent director because Wiese, chair for almost four decades, controls 42% of the votes. This means, as was apparent at this week’s annual general meeting, that Wiese essentially gets to decide who does or does not get appointed to the board.
Wiese has just 10.07% ordinary shares but exercises effective control through deferred shares awarded to him as part of a restructuring of his Pepkor and Shoprite interests in 2000. The deferred shares have no economic value and get little attention from shareholders unless a major transaction or a contentious vote is on the table. Then shareholders quickly realise that Wiese, who has been instrumental in growing a small Cape-based retail operation into the largest grocery retailer in Africa, is the dominant player in the group.
Before this week’s annual general meeting, shareholders would have noticed the deferred shares when Wiese proposed a mega-merger between Shoprite and Steinhoff’s African operation, Steinhoff Africa Retail (STAR), since renamed Pepkor.
The deal, which had been opposed by former Shoprite CEO Whitey Basson in 2016, is understood to have been behind Basson’s retirement that year. That transaction, in which Wiese would have sold his deferred shares to STAR for R4bn, appeared to self-destruct when news broke of “accounting irregularities” at Steinhoff. Earlier in 2019, in an unusually defiant stance, minority shareholders blocked a bid by Wiese, who suffered a R59bn hit from the Steinhoff collapse, to sell his deferred shares to the company for R3.4bn on the grounds they had zero economic value.
Against this background, the role of Shoprite’s lead independent director takes on powerful significance. Le Roux on the board would not only have added retail expertise but provided a counter to Wiese’s dominance. His failure to secure a directorship, and Zinn’s departure, raise concerns about protection of minority rights. The possibility that Wiese will relinquish the chair’s position in favour of Iaan van Heerden, who is in the process of being appointed to the board, should provide absolutely no comfort to the minorities.
Remarkably, though those minorities make up almost 90% of the ordinary shareholders, there seems little that can be done to shelter them from whatever plans Wiese might hatch. Meanwhile, the enormous challenges facing Engelbrecht and his team have become a little more overwhelming.
WIESE ESSENTIALLY GETS TO DECIDE WHO DOES OR DOES NOT GET APPOINTED TO THE BOARD