I am relieved that corporate governance faux pas have been averted through the concessions that have been reached between the PPC Board and the minority shareholders; Foord Asset Management, Visio Capital Management and Nedbank Private Wealth that has resulted in the cancellation of the special general meeting that was to be 8 December. Critical good corporate governance practices would have been compromised if some of the proposed actions that were attributed to the minority shareholders had received favour and were approved.
One of the contributing factors to the global financial crisis is blamed on the lack of shareholder engagement in holding boards and management accountable for their actions. Shareholder activism is definitely indispensable to providing constructive oversight and for the investors to share their concerns, expectations and priorities with the companies in which they are invested. However, we must also appreciate that over the last few decades, ownership structures of companies have radically changed with the emergence of the asset management and pension fund industry. This has resulted in different performance metrics for boards and management influenced by the mind sets of ‘trading’ versus ‘owning’ shares and the reward structures that are agreed upon with the share owners. Thus we cannot always conclude that shareholder interests under such stewardships are closely aligned with those of companies as separate legal entities. There are decisions that should be taken in the long-term interest of a company such as developing, retaining talent (a strategy used to also achieve transformation) and investing in technology which in the short-term are costly and thus not profitable for the shareholders who have a short-sighted view of financial gains which, however in the long run, are beneficial for the sustainability of the company. The assessment of the boards’ and managements’ judgements in such instances for incurring these costs depends on the balance between short-term pressures which influence investment horizons and evaluation of financial performance. Decisions made by institutional shareholders should therefore receive as much scrutiny as those by CEOs and boards.
It bodes well for continued good corporate governance practices in South Africa that the minority shareholders have agreed that the new board “shall not include any current or former permanent executive directors of PPC who have served as such within the 10 year period immediately preceding the date of the annual general meeting” which is taking place in January 2015. A corporate governance pitfall has, thankfully, been prevented in eliminating the former CEO from the list of board members to be proposed for appointment. One of the cardinal rules of good corporate governance is that an outgoing CEO, regardless of their exit method, whether through retirement or resignation, should never remain on the board. The energy of the board would be diverted to safe-guarding that the former CEO is navigating the gray area between active involvement and micro-managing. The new CEO would not be able to truly take leadership when their predecessor continues to sit on the board, especially when they left acrimoniously. The predecessor could inhibit the new CEO from making necessary shifts in strategy and organisational structure, especially if they diverge from what they would do. This slows down decision making because of the continuous challenge to the new CEO’s competence.
In theory, because Gordhan had sway with the some of the shareholders and some of the staff, there was a risk, whether perceived or real, that he could have, indirectly or directly, used to influence against, attack or undermine the new CEO. If this proposal had come to fruition, the shareholder activism that was intended to correct a perceived dysfunction at PPC would have resulted in another in a different form. The elegant resolution of this acrimonious situation reached by the PPC Board, under the leadership of Bheki Sibiya, as the Chairman, and the three minority shareholders has demonstrated maturity and established a positive precedent on constructive communication in the true interest of the company.
Over the past few years, South African organisations, both state-owned and private sector, have demonstrated the challenges of regulating and managing companies. It is important that all of us care and have an interest in corporate governance because most of our wealth as South Africans is in pension and retirement funds and other types of saving instruments and our taxes provide the capital that ensure the survival of these organisations. Thus the behaviour and decisions of institutional shareholders, boards and CEOs, both in the private and public sector, impact on every individual in profound and significant ways.