SHAREHOLDER ACTIVISM

Forget Anglo. Think Old Mutual.

By appointing Sir John Parker rather than a black South African to the chairmanship, Anglo American has shown the SA government the finger. It’s done so because it can. With its primary stock-exchange listing in London, Anglo is a multinational resources conglomerate that has outgrown its origins on the Witwatersrand goldfields as much as it has outmanoeuvred the pressures from Pretoria.

When mines minister Susan Shabangu says government regrets having allowed Anglo to list in London, she’s crying too late. Anglo’s corporate behaviour is outside her jurisdiction and there’s nothing she can do about it. For practical purposes, her lament – that Anglo had said it was listing in London to take advantage of world markets, not to disinvest from SA – is spilled milk.

It takes no genius to read between the lines that government is mightily peeved. It feels it had been misled. Even so, it would be untenable for government to coerce board appointments in companies where it has no shareholder status.

From a policy perspective, nevertheless, the flareup that’s happened over Anglo is a flare-up waiting to happen over London-listed Old Mutual.

Like Anglo, the board of Old Mutual (chaired by Christopher Collins, an Englishman, and to be chaired by Patrick O’Sullivan, an Irishman) is dominated by non-South Africans. Like Anglo, Old Mutual is weighted amongst the top 40 shares on the JSE which demands its inclusion in serious South African investment portfolios. Like Anglo, Old Mutual shocked the investment community by the passing of its dividend.

Unlike Anglo, however:

• Old Mutual had no need to expand offshore, embarking on a strategy that has wreaked huge damage to shareholder value. In its May publication, South African fund manager RE:CM estimated the damage at R50bn over the past 10 years;
• Earlier this year, the bond market was pricing Old Mutual for default and the share market for disaster. Let it not be forgotten, as overall market sentiment can quickly reverse, how recently the once-unimaginable was seen to beckon;
• All the profits of the Old Mutual group are derived from SA. The offshore strategy has demonstrably failed, not least by the closure and abandonment of various offshore ventures;
• Old Mutual is in financial services. It has millions of individual South African clients and policyholders whose savings and future financial welfare rely directly on the group’s profit distributions. Ditto its local black-empowerment shareholders, in Old Mutual SA and Nedbank, who depend on dividends to service the interest on loans raised to finance their share purchases at prices uncomfortably above current levels;
• As SA’s largest financial services organisation, which includes control over one of SA’s largest banking groups, Old Mutual is the custodian of savings that provide the backbone of investment for the advancement and stability of South African society. Instead, because the strong South African operation has subsidised the ill-conceived overseas operations, there has been less for investment in SA;
• Old Mutual is an icon of South African business and substantially dependent on SA for its business. As such, it should be managed as a South African business in the interests of SA and South Africans. Instead, its board recently welcomed interaction with a Scandanavian “activist shareholder” which is unlikely to have South African priorities;
• Assets managed by, and under the control of, Old Mutual are national assets belonging to South Africans. If ever there were a case for a main board to be representative of South Africans, this is it.

Anglo’s Parker; Mutual’s Collins and O’Sullivan . . . foreigners all

The frustration that government has shown with Anglo might be mild when its attention turns to Old Mutual, as it should. But how?

The proper route is surely through the Government Employees Pension Fund (GEPF). Now in the process of registering into its own name the shares held on its behalf by the Public Investment Corporation, the GEPF is one of the largest single shareholders in Old Mutual.

Obviously, the GEPF is entitled to exercise its rights not only to vote at shareholder meetings of Old Mutual but also to engage with it on the appointment of directors. Arguably, in the Old Mutual circumstances, it has the responsibility too: firstly, in the interests of the fund itself; secondly, in the interests of government and consequently the taxpayer.

This is because the GEPF is a defined-benefit fund. Shortfalls in its pensions promise, due to inadequate investment performance, must be made up by government as the employer of the fund’s members. And because it is the employer, half of the GEPF board members are government nominees.

More than this, the GEPF is a founding signatory of the United Nations Principles for Responsible Investment. The principles oblige institutional signatories to be “active owners” of companies in which they invest.

So how it engages with Old Mutual might prove an early test for the commitment that the GEPF it has taken upon itself. To the extent that the GEPF’s lead is followed by other South African asset managers, also signatories to the UN principles, the stronger the case.

This is not a matter of political intervention, which government dare not be seen to entertain. It’s a matter of shareholder involvement, quite rightly.