derek abdinor

Electronic communication to shareholders is a philosophy as much as a practice – where possible collect email and mobile addresses of your shareholders to communicate directly, and cut down the costs associated with being a listed company, eg on the JSE.

Polar Bear

1. Because there is an argument for and against, there is doubt. Which means there is no consensus, so policy shouldn’t change. If the water is muddied enough, no-one can tell if there is or isn’t something in the water.
2. The signs are there for climate change and for electronic comms, it is a visible thesis. This is the reason that both phenomena have legs, because we witness climate change and we witness greater use of electronic delivery.
3. The toothpaste can not be put back in the tube. We can set a level of sustainability of life, but all the seas of plastic and remnants of carbon will be here for a long time to come. In the same way, the internet and email can not be stopped.
4. Change will come from below. Our generation and those before had different mandates, so the kids will have to fix this mess. Ergo, the Digital Natives wrote school assignments on computers and with the internet. They are now administering your pension fund and don’t know what a masthead is…
5. These problems come at the right time to create a perfect storm, which means the problem will either be faced and solved or not. Environmental issues (ironically!), shareholder activism, financial crisis et al have demanded that we look at electronic comms.
6. The world expects instant information and instant fixes. The battles between bank queues and online banking, tax returns and e-filing,  memos and email have been won.
7. It is an obligation to be fulfilled – looking after the environment is a legacy issue for generations to come; communicating to shareholders, to those who fund your growth, in their preferred manner is a duty.

In discussion the other day we were puzzled as to why the majority of companies on the JSE do not take advantage of Schedule 23 for their regulatory communications to the market and shareholders.

For issuing companies to embark on an electronic consent program, the following benefits accrue to company and shareholder:

1. Email addresses of shareholders for direct communication
2. Mobile numbers and landline numbers if proffered
3. Reduced printing and mailing costs
4. More cash in the kitty for dividends or retained earnings
5. Saving the planet
6. Training your shareholders to come to your official website as the #1 source of fact, news and comment

There are even more reasons to clean up one’s share register, embark on an asset reunification project  (tidying up unclaimed dividends) and ALL of them do credit to your brand. How you choose to spin it, be it by planting a tree for every shareholder converted or a reporting unit in your sustainability report, is up to you.

In South Africa, where public monies are involved, its always only a matter of time before the issue becomes politicised.

<pause for effect>

It follows that employing good shareholder communication governance NOW is better than having industrial action in a few months or years, at your AGM or outside your glass doors.

I thought I’d capture all the links as they appear in Google news – to represent the news as and where it comes out.

Microsoft shareholders to get ‘say on pay‘

Microsoft’s board says it will hold a non-binding, advisory shareholder vote on the salaries of the company’s executives every three years, starting with …

Microsoft OKs Shareholder Advisory ‘Say On Pay‘ Wall Street Journal

Microsoft’s Board Enacts Say-On-Pay Advisory Vote Bloomberg

Microsoft approves ‘say on pay‘ shareholder vote Seattle Post Intelligencer

Reuters

all 88 news articles »

MSFT - HKG:4338

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Microsoft Board Authorizes “Say-on-Pay” Advisory Vote on Executive …

From an article in the Economist:

One reason why Germany’s biggest firms have not cut many jobs is its cherished model of stakeholder capitalism, which took root after the second world war and contributed to its rapid economic growth until the 1980s. Under this model, workers’ representatives fill half the seats on firms’ supervisory boards. A separate management board is responsible for running the business day to day. Companies are also required to act in the interest of all “stakeholders”, not just of shareholders.

That creates a tension between profits and jobs. A seminal, if dated, study is illustrative. It found that 83% of German managers surveyed in 1995 considered that the companies they worked for belonged to stakeholders rather than shareholders. Some 60% said that saving jobs was more important than paying dividends. In America and Britain, by contrast, almost 90% of managers said that paying dividends was more important than preserving jobs and 75% of managers felt that firms belonged to their shareholders.

From the ever-current BNet, comes this article from Richard Northedge (July 20th, 2009 @ 2:31 am).

The RSPCA ordered the removal of the dozen lemmings brought to British Airways’ shareholders’ meeting but they had done their job of illustrating the fate the trade unions think their members face.

Boards have become used to meetings being hijacked for publicity stunts, but the practice will increase, thanks to the UK’s interpretation of the EU directive on shareholder rights.

The directive takes effect on 3 August 2009 andBritain’s Department for Business plans to make it much easier for dissident shareholders to place hostile resolutions at companies’ meetings. The current requirement to submit resolutions six weeks before the meeting will be cut to just 14 days.

That means resolutions can be added after the annual report has been sent to shareholders, requiring the company to post a new notice of meeting to all investors. Companies that dispatch the new documents promptly and then receive another resolution would have to circulate new voting papers again.

And who pays for these extra mailings? Not the disgruntled investors. The proposal is that the company foots the bill. Marks & Spencer calculates it would cost £150,000. Doing another mailing would double that figure.

There is thus no downside for the dissidents. Their resolution can be as frivolous or publicity-seeking as desired so long as the thresholds for adding it are met.

And Pirc, the long-established activist investor advisory group, has solved the quantum difficulty by forming 100 separate companies, each to hold a single share in its target. That ensures sufficient “different” shareholders support its moves and its friends at a local authority pension fund will provide the stock to meet the total holding test.

Having used this tactic to add a resolution to M&S’s annual meeting calling for the chairman’s early resignation Pirc now has a ready-made portfolio of shell companies to attack its next targets.

Activists gain whether or not their resolution receives support because it generates headlines and sows dissent ahead of the meeting. If the resolution is actually passed, that is a bonus.

But the loser is democracy. Dispatching voting papers so late disenfranchises many institutional investors because they have insufficient time to meet advisers or trustees before voting.

And the fault is not with Brussels. The EU does not say resolutions can be submitted until 14 days before a shareholders’ meeting, simply that a deadline must be specified. Whitehall has gold-plated the European Commission’s directive.

There is much wrong with shareholders’ meetings, not least because investors and directors have different views of their purpose. But banners, placards, lemmings and pigs do not dignify the occasions. There are plenty of companies that deserve to be criticised but facilitating frivolous resolutions lowers the level of debate when it should needs to be raised.

I think the best practice would be to allow shareholders to submit alternate resolutions after the annual financials come out, and before the annual report. These can be collated by the auditors or a public body, and introduced to shareholders and the company. Surely all our online experience makes this an issue that can circumvent the stupid mailing of paper, and will allow for a more efficient audit trail?

A propos nothing, I’m doing a course in which it describes the introduction of a pig (Cedric) at a British Gas meeting.

Two codes of corporate governance have ruled informed public companies in the last 15 years in South Africa – the King codes.

The third code was launched in Johannesburg last week for public review – you can view it here.

Some interesting points:

• shareholders ought to approve remuneration, and an annual remuneration report needs to be published
• the audit committee to be appointed by shareholders
• a Chief Risk Officer to be mooted
• Sustainability reporting should be an ongoing process
• the majority of the board should be non-executive; the majority of that being independent.

I must observe with unjaundiced eye that South African companies, notably the blue-chips, do adhere to the King recommendations. As it is a widely used benchmark, it is expected to come across in the company’s annual report. No self-respecting company secretary could pretend not to know about King and the recommendations.

It seems some of the proposals in the draft review are to be found between what is happening in the developed world and the new South African Companies Act, also fermenting in legal and regulatory circles.

The King II Code of Corporate Governance, which  recommends good practices for listed entities in South Africa, has always been in favour of companies having non-executive representation on the boards as well as the committees of listed companies. The reasoning behind these recommendation went as follows:

• non-executives are relatively impartial
• they bring different expertise and strategic input, being seperate from the operational running of the company
• they should be in the majority on the remuneration and audit committees in order to represent shareholder interests 

PWC brought out the Non-Executive Directors Best Practices and Fees Report which was of far more pertinence in 2009 than in any other time.  Amid bailouts in developed countries and exorbitant remuneration, non-executives are either being looked to highlight problems or to shape up their own accountability.  That aside, in this country a professional non-executive director is a full-time career.

As an afterthought, why do boards get ‘remunerated’ and ‘compensated’ for their time, whilst workers get ‘wages’ or a ‘salary’?

Risk Metrics Group provides risk management services and information in many countries around the world. They are also a client of my organisation, in a convulted and irrelevant way.

They recently released their policies around proxy voting: meaning how they will vote or advise voters in any given situation. Not only does it provide rational guidelines as well as promote transparency, it also serves to highlight underlying sentiment amongst professional investors.

The methodology in drawing such guidelines up includes polling the investment community, and the issues that they see as most pertinent are included in the document. Amongst others, they are:

• executive compensation practices
• board accountability and oversight
• the quality of financial reporting

The first point is becoming a part of an amplified chorus; the second is interesting in that it alludes to board members not fully aware of the financial (not business and operational) risks of their enterprises and the lack of accountability to shareholders they therefore exercise; but the third seems to be news. Poor accounting practices? Can that be resolved?

Sasol’s empowerment transaction earlier this year was worth over R25 billion and added about 200 000 new shareholders to the Sasol share register. The impact at the AGM was apparently marked, with new members wanting materials in different languages and different formats. 

From Fin24:

 ”Why are the presentations only in English, when you have many black shareholders represented in the room?” asked another shareholder.

“You ask us to vote for or against directors but you fail to even provide us with a picture or introduce the directors we are voting on,” commented another.

Many black representatives appointed through BEE deals have been criticised for being token representatives to boards of listed companies.

Despite the description of “empowered” companies, people point out that the white directors and CEOs who still represent many of these businesses do all the talking at presentations.

The Sasol AGM took a step to dispel that impression when Benny Mokaba, executive director of Sasol, was pressed into a new role as translator.

Mokaba took responsibility for translating shareholder questions for Sasol chairperson Pieter Cox and Davies. Shareholders who had been frustrated by not having the opportunity to voice their questions in a mother tongue suddenly became confident enough to ask the questions they had sought answers for. 

 

The news du jour is that BHP Billiton has declined to pursue its offer for Rio Tinto. Whilst on the one hand the story has flummoxed the investor community, the back channel is that millions of pounds were spent consulting with the professionals who were drafting up the paperwork, dotting the i’s and twisting the fountain pen nibs. I quote heavily from The Times:

BHP infuriated its shareholders by revealing that it had spent $450 million (£291 million) on the failed deal, running up vast bills for the arrangement of financing and advice from investment banks, lawyers, accountants and public relations firms.

Rio Tinto, meanwhile, is estimated to have spent about £120 million on the six investment banks, two law firms, one accountant and one public relations company that it used to help to fend off the unwanted suitor.

With few sizeable global mergers and acquisitions mandates on the horizon, the collapse of the bid is a bitter blow to the many advisers.

Of the BHP fees, it is understood that about $75 million is for the $55 billion committed lending facility involving Goldman Sachs, Barclays, HSBC and others that the miner secured to help to fund the prospective $147.8 billion takeover bid last year.

Of BHP’s other fees, it is believed that the bulk will go to legal and tax advisers who charge by the hour and billed for thousands of hours worked, particularly on regulatory clearance. Goldman Sachs pocketed a significant success fee in February, when BHP initiated a formal bid, but since then will have been paid only relatively modest sums. Rio will reveal the cost of its defence next year.

This is the year when investors have begun rallying around executive compensation, dithering CEOs, slack risk management and financial oversight. I’m sure we’re headed for an age of corporate reform driven by the shareholders, although if it came chiefly from investment banks it would be a severely ironic age.

*disclaimer: I think BHP Billiton has the most attractive investor relations website, and has been for the last 4 years. I also admit to laughing out loud at the Rio Tinto url the first time it was sent to me without knowing it was a company.