PICK ENOCH OR US: INSIDE CORONATION’S SPEAK-NO-EVIL AGM
Not only did the fund manager schedule its virtual AGM at exactly the same time as the budget speech, but shareholders were limited to submitting questions by text only. The meeting, they say, fell short of the requirements of the Companies Act
If you’re a company whose share price is less than a third of where it was seven years ago and you’re facing a R900m tax bill, you’d welcome the opportunity to speak to shareholders at your AGM, right?
And yet Coronation Fund Managers — the third-largest fund manager in the country, which manages the pensions of thousands of South Africans and knows a thing or two about markets — scheduled its annual meeting for 2pm on Wednesday February 22. To most people in the financial community, this would have triggered a few bells, as it was precisely the time that finance minister Enoch Godongwana stood up to present his annual budget.
Company chair Alex Watson, when quizzed about this odd timing at the AGM by shareholders, said she had no idea of this clash. “The notice of AGM was sent to shareholders before the parliamentary calendar was released,” she said.
Investors were unconvinced. Doesn’t Coronation know that the last Wednesday of February is always budget day, one asked.
“Surely somebody else at Coronation noticed,” Opportune Investments’ Chris Logan told the FM afterwards. Especially since, as a large financial institution, you’d think Coronation could hardly afford to miss the budget.
In the end, this was just one of many exasperating elements to Coronation’s AGM. If, at some point, a frustrated shareholder goes to court to demand the right to speak at an AGM, Exhibit A might very well be a recording of Coronation’s 2023 AGM.
Overall, it was a grim display of governance: shareholders were banned from speaking and told to submit written questions instead, but the questions were then haltingly read out and the answers were disjointed. For the most part, the Q&A was mangled and difficult to follow.
Shareholders who spoke to the FM after attending the online-only meeting were incensed. In particular, they believe it fell short of the requirements of the Companies Act, which stipulates that such electronic communication “enables all persons participating in that meeting to communicate concurrently with each other, without an intermediary and to participate reasonably effectively in the meeting”.
Perhaps unsurprisingly, Coronation’s board sees it entirely differently.
Watson told the FM afterwards: “We are satisfied that we complied with the letter of the law and the spirit.”
She said it is “well accepted” that fully electronic meetings satisfy the requirements of the law, without specifying precisely who is doing the accepting. “Shareholders are given sufficient notice regarding the manner in which the meeting will be conducted and are provided with the tools to all participate concurrently and effectively,” she added.
But Asief Mohamed, CIO of Aeon Investment Management, says the socalled sufficient notice was simply a “take it or leave it” instruction. As for the
“tools”, he points out that this was nothing more than access to the Lumi platform hosting the meeting.
He was so frustrated, in fact, that within minutes of the AGM commencing, he called for an adjournment until the speech ban was resolved. Watson, however, promptly dismissed his request, saying only that the meeting had been properly constituted.
At times, it seemed farcical. At one point during the Q&A session with investors, Watson herself struggled to read the text in front of her because the font was so small. It was the text-equivalent of whispering, prompting suspicions that one of the silenced shareholders was trying to make a point.
Later, one Coronation director said he was unable to respond to a question because “he didn’t have sight of the screen with the questions”.
In fact, during much of the Q&A, Watson seemed to be paraphrasing the text questions that had been sent, telling shareholders: “I don’t think I need to read through all the detail.”
This, one shareholder pointed out, in itself flies in the face of the Companies Act.
Yet speaking to the FM later, Watson seemed to have no appreciation of how the AGM had irked investors. “Shareholders were able to submit as many questions as they liked on any matter,” she told the FM. “We answered every question that was raised and follow-up ques
tions were indeed submitted and were addressed.”
This was a depressing outcome because Coronation isn’t just any JSE-listed entity. It is one of the largest fund managers, charged with enforcing governance at the companies in which it invests. It should be setting an example for these companies on how to engage with shareholders not an example of how to get away with an aggressive interpretation of the Companies Act.
Clawing back bonuses
It’s not as if there wasn’t plenty to discuss. The grim market conditions that have hit all local fund managers knocked 25% off Coronation’s headline earnings for the year to September, which ensured that assets under management remained at R602bn by the end of December slightly below where they were at the end of 2015.
When the year-end results were released last November, CEO Anton
Pillay said that “fund management companies are cyclical businesses that are heavily impacted by market movements”.
While this may have helped to comfort many shareholders, at least one who attended the AGM tells the FM he would have liked an opportunity to engage more effectively about why Coronation executives are getting paid so generously if there’s not much they can do to counter this cyclicality.
Then there’s the disturbing matter of the tax battle with the South African Revenue Service (Sars), which meant no half-year dividend for shareholders who have tolerated volatile earnings and a weak share price because of the guaranteed dividend flow. At the current R32.45,
Coronation’s share price isn’t much higher than its 10-year low of R28 in March 2020. It topped out at R112 in December 2015.
Watson and her co-directors won no friends in the virtual audience. Things got off to a rocky start with her introductory “housekeeping” message that defended the board’s decision to stick with its speech ban. “This is the third year we’ve held the AGM as a purely virtual event and it has been well received by the majority of our shareholders as it increases participation and provides a platform where all shareholders can raise questions,” she said.
Coronation’s service provider, she told one attendee before the meeting, was unable to provide audible access. Which is curious, as all three major service providers confirmed to the FM that they can provide audible access at meetings. (Watson later apologised to the meeting for getting that wrong.)
Mohamed tells the FM that while major shareholders probably welcomed having virtual access, this did not mean speech could not be accommodated. “She [Watson] has rather purposely conflated the issues. I’m not sure the major shareholders intended to support an unnecessary speech ban,” he says.
Inevitably, the issue of inappropriately generous pay for executives came up. One shareholder asked: “Apart from the tough external factors affecting wealth growth, Coronation is lagging behind its peers for a few years now and disturbingly this doesn’t seem to bother the management. Are remuneration packages too generous and goals too low?”
Pillay addressed the general issue without answering the specific question. “All asset managers are experiencing outflows. In South Africa we are a large fund manager and we do experience an outsized … [outflow] relative to the market but it’s certainly not the case that management is not trying to grow the business or deliver value.”
Watson quickly added that Coronation has highly skilled employees “who are globally transportable”.
Equally inevitably the issue arose of whether the executives should bear the cost of the Sars battle, rather than shareholders.
Mohamed asked whether the employee bonus pool — which comprises 30% of Coronation’s pretax net profit and is skewed in favour of the top executives — would pick up the tab for the interest charge and the legal costs incurred by its tax structuring of its Irish unit.
Mehluli Mncube of ESG Insight wanted to know if there would be a clawback of executives’ remuneration if they were deemed to have erred on this tax structure.
Hugo Nelson, the chair of Coronation’s remuneration committee, replied that the bonus pool will not be penalised any more than all the shareholders — even if the dividend has been scrapped while bonuses haven’t.
The company also vetoed any talk of a clawback: “Clawback provisions don’t apply where the law has been followed,” Pillay said.
He said the fact that the initial tax court had found in Coronation’s favour, while a higher court had found differently, meant “the case was arguable and there was no wilful misrepresentation of reality”.
While Coronation’s board evidently prefers to keep its shareholders quiet, it did acknowledge the advantages of inperson contact. Watson told them: “The burden of yet another demanding year was somewhat easier to bear given that employees were all back together in the office and the in-person connection and support proved invaluable.”
And for those who take Coronation’s role as an active investor seriously, it turns out that the 395 investee engagements during 2022 all involved audible communication — even if Coronation’s investee companies would have preferred a text message instead.
Watson did attempt to placate shareholders, however, pointing out that Coronation top brass have never declined to meet with shareholders, “no matter how small” a stake they hold.
She later told the FM that regular shareholder engagements are a key aspect of running the business. “Our approach is to engage with all shareholders as they require throughout the year via the most efficient platforms to keep them informed and address their questions. If we were only to allow shareholders to engage with executives and nonexecutives at the AGM, it would be counter to common industry practice and reduce transparency,” she said.
Mohamed isn’t buying it. It isn’t only an uncommercial use of executive time, he says; the behind-closed-doors nature of the meetings also means there is little that’s truly transparent about it.
As for next year, Watson is encouragingly open about what should change. “We will take into account the feedback we receive from all our shareholders when we make a final decision relating to the format of the next AGM.”
And she assures the FM the event will not overlap with the budget next time around.