A fine line
To what extent is collaboration permitted between asset managers,
representing such asset owners as pension funds, without
contravening the companies and competition regulations?
Financial journalist Ann Crotty attempts to find out.
If you set out to design a system that would allow inept corporate executives to function unchecked by the owners of those companies, it would look a lot like the system we have. It wasn’t intended to be this way.
On paper, major legislative changes over the past 20 years looked certain to enhance oversight and ensure better governance in the corporate sector. Those changes included the fundamental rewrite of the Companies Act, improved disclosures and a tougher competition regime. They pointed to a much more vigorous investment environment.
Yet practice has fallen short of promise. Powerful institutional shareholders appear to have sat on their hands while generously-paid executives weren’t up their jobs at such erstwhile JSE stars as Barloworld and Edcon, Ellerines and JD Group. Even the once-great Woolworths is these days looking less great.
There are recent occasions when institutional shareholders acted to stop the slides, for example at PPC and Group 5. And a chastened Allan Gray moved adroitly to rein in the feral management at Net1 when things got really out of hand.
But by-and-large the institutions tend to prefer private one-on-one engagements to public confrontations. They’re also nervous of being seen to assert their cumulative authority because of competition constraints. A block of like-minded shareholders with say 30% of a company, when knocking at the door of its board, would carry more clout acting together than each having small percentages acting individually.
A vigorous approach is all the more necessary given that the lack of liquidity in many companies’ shares makes it difficult for institutions to offload large parcels when they’re unhappy with the business or its management. They’re essentially trapped. Of course, at a price, they could dump the shares and run as Coronation did quite spectacularly from African Bank in 2014.