GAG ORDER: SILENCING THE SHAREHOLDERS
More and more listed companies are banning shareholders from speaking at their AGMs, insisting instead on text-based communication. It’s a slap in the face for engagement and corporate accountability
If you were planning to hold a meeting with friends or colleagues and wanted to ensure “reasonably effective” participation by everyone while also ensuring communication was concurrent, would you insist that they relied entirely on texting? And that they did so despite being able to communicate easily through the spoken word?
Probably not, unless you were up to something.
So, you have to wonder why an increasing number of JSE-listed companies are refusing to give shareholders the opportunity to speak at AGMs.
In the past few weeks, three significant companies — Astral Foods, Nampak and Spar — refused to let shareholders speak. Instead, they had to endure the bizarre tedium of texting questions to the company secretary, who read them out.
At Nampak, which is facing existential challenges, things took a predictable turn for the worse. Opportune Investments’ Chris Logan, a long-suffering shareholder, texted his first question and received an unsatisfactory answer. He quickly sent another text, asking that the meeting pause while he sent his follow-up question.
Not much sign of “effective participation”, reasonable or otherwise, and certainly no concurrency.
At Spar things were a little less tense, but still not much sign of reasonably effective communication. As for Astral, Logan tells the FM that one of his two questions wasn’t put to the meeting. And, for reasons left unexplained, the chair shut down analyst Anthony Clark after three questions.
The ban on speaking isn’t limited to under-pressure industrial shares.
Spur, WBHO and Super Group also banned the spoken word, as did Standard Bank and Absa. Nedbank and NinetyOne are also in on the act, but they’ve given it a bit of a twist. Questions can be asked by phone, but not on the platform hosting the meeting.
These are just a few of the scores of companies wanting to ban speech at shareholders’ meetings.
How did we get here? How did we go from having to physically pitch up at an AGM but, once there and with just one share, being allowed to ask questions to your heart’s content?
The role of the AGM in that era was captured well by M Blackman, R Jooste and GK Everingham’s Commentary on the [old] Companies Act.
“The annual general meeting provides a significant safeguard to members as it is the one opportunity when they can be sure of meeting the directors and cross-examining them on the company’s accounts, their report and the prospects of the company,” the authors write.
It’s safe to assume they weren’t contemplating cross-examination by text message.
Now, four governance codes later, shareholders face a substantial whittling down of their most important rights. That’s not just the right to “cross-examine” directors, but the right to speak at an AGM at all.
A lot of the blame lies at Covid’s doorstep. Lockdowns prompted an innovative and speedy response from listed companies to ensure continued contact with shareholders. Online meetings, which had already been on the cards, flourished almost overnight.
By May 2020, Old Mutual’s AGM showed how the new system could enhance shareholder access. SibanyeStillwater also set an early outstanding example. At both virtual meetings,
shareholders could ask questions in a technologically flawless environment.
There was no sign of Old Mutual’s board being tempted to subdue shareholder engagement, which was commendable since it was in the midst of a high-profile and acrimonious battle with its former CEO, Peter Moyo.
Sadly, many companies decided not to take the Old Mutual/Sibanye high road, though few were as brazen as Zeder Investments. At its AGM in 2020, the chair told shareholders that the writtenonly questions would be moderated and those deemed “not that appropriate” would not be aired.
Asked about the ban on speech, directors generally resort to one of two explanations: “the chosen platform did not have the necessary technology” or “our lawyers and sponsor advised us we complied with the law”.
The FM contacted the three major platform providers — Computershare, TMS and Lumi — and received more or less the same answer from each. “Our platform caters for both verbal and written questions, we provide the facilities as requested by the company.”
And in case you’re wondering why the video connection is nonexistent, blurred or postage-stamp sized, that too is down to the company holding the
AGM. So, no room for a cop-out there.
The interpretation of the law should be equally clear but, for a variety of reasons, isn’t. First, the law was drawn up before texting was commonplace. It’s instructive, though, that a suggestion made during the drafting process, that meetings could be held by SMS, was emphatically and quickly shut down.
And so, until Covid, the Companies
Act (implemented in 2011) seemed clear. Section 63(2) provides for shareholder meetings to be held virtually, “as long as the electronic communication employed ordinarily enables all persons participating in that meeting to communicate concurrently with each other without an intermediary, and to participate reasonably effectively” (FM’s emphasis).
Piet Delport, retired corporate law professor at Pretoria University and author of Henochsberg on the Companies Act, says it’s straightforward. “Concurrently means ... ‘simultaneously’. A chat function or communication through a secretary or whoever isn’t simultaneous. In addition, it is required that persons must communicate reasonably effectively and simultaneously, so if there’s a technical problem involving a time lag, then communication isn’t effective.”
Juta & Co’s commentary on the Companies Act is equally clear: “All shareholders have the right to attend a shareholders’ meeting and to speak.”
As for Logan’s frustration about restrictions on questions, Delport refers to section 61(8)(d) of the act, which requires companies to deal with “any matters raised by shareholders, with or without advance notice to the company”.
Astral’s response is much in line with the thinking of most companies wanting to ban shareholder speech at AGMs. The chicken group tells the FM it required typed questions because that’s what it’s done for two years and it’s the same format used for results presentations.
Certainly, companies were cut some slack in the past three years. The hope was that familiarity with the online option would open opportunities for improved engagement with shareholders. Few saw the speech ban coming.
As for results presentations, they’re not covered by legislation so companies can do whatever suits them.
Astral then tells the FM there were only seven “participants” at its AGM and Logan was the only one to ask questions.
This disappointing lack of public engagement is something of a tradition in South Africa. Indeed, institutional shareholders tend to brag about their ability to engage directly and privately with the listed companies they’re invested in. (That the JSE appears to have no worries about the potential for insider trading created by this is another matter.)
Logan and other engaged shareholders such as Just Share and Aeon Investments rightly reckon this preferential access is all the more reason for encouraging their sort of activism, which benefits public interests rather than private ones.
Back at the Astral AGM, one of Logan’s two questions was deemed not relevant, so it wasn’t read out. However, he tells the FM it was very relevant and, if he’d been allowed to speak, he would have made that clear. The second question was read out by Astral’s investor relations head but the company doesn’t believe this means it acted as an intermediary.
Finally, says Astral, “we confirmed with both our sponsor, Nedbank, and our lawyers, ENS, that our AGM complied with both the Companies Act as well as the JSE listings requirements and therefore Astral has no further comment”.
The JSE, however, says the matter has nothing to do with its listing requirements, as it falls under the Companies Act. This means it’s down to the Companies & Intellectual Properties Commission (CIPC).
CIPC commissioner Rory Voller acknowledges the risk of infringement of shareholders’ rights posed by virtualonly meetings. He says: “If a company holds virtual-only AGMs and does not allow shareholders to ask questions in ‘real time’ without moderation or requires all questions to be submitted in advance, that meeting will not constitute an AGM for the purposes of the Companies Act.”
The Institute of Directors in South Africa is encouragingly unequivocal. CEO Parmi Natesan tells the FM that while section 63(2) doesn’t specifically state that verbal communication is required, she believes “the spirit of the section is to allow sufficient engagement at the meeting, as would have been allowed had the meeting taken place physically”.
Natesan refers to the King 4 code, which encourages proactive engagement with shareholders and ensuring they are equitably treated. “Therefore, despite having engaged with large institutional investors prior to the AGM, the meeting should still allow effective communication with all shareholders, including minorities,” she says.
King Committee chair Ansie
Ramalho adds that the tone of an
AGM speaks to a board’s willingness to be held to account for its actions. “Failing to create the optimal conditions for engagement and challenge points to an unwillingness to be held to account,” she says.
Perhaps it’s time for the CIPC to issue a compliance notice or for a frustrated shareholder to go to court and have a meeting declared void for not complying with the law.