Reflecting on the changing landscape of shareholder activism in South Africa

Abstract

Loop, Bromilow and Malone (2018) remarked that 'activism is about driving change'. Shareholder activists could accordingly use their ownership position to influence the policies and practices of Background: Investors around the globe are increasingly focusing on investing in a responsible manner by accounting for environmental, social and corporate governance aspects alongside financial performance. Shareholder activism is a prevalent responsible investment strategy that is gradually gaining traction among South African investors.Aim: The primary objective was to gauge the views of selected local institutional investors on the nature of shareholder activism endeavours in South Africa. The secondary objective was to offer suggestions on the way forward for shareholder activism considering rapid technological development and the COVID-19 pandemic.Setting: South Africa offers a well-developed framework for responsible investors. Given their substantial shareholding, institutional investors in particular have considerable power to influence the practices and policies of investee companies.Method: Semi-structured interviews were conducted with 13 representatives of local institutional investor organisations. Thematic analysis was conducted to analyse the primary data.Results: Interviewees mostly engaged in private with investee companies on corporate governance issues. They explained that more information is required to meaningfully engage on social and environmental considerations. Participants indicated that they consider and employ public activism mechanisms if private engagements are deemed unsuccessful. Conclusion:Technology will play an increasingly important role to enhance shareholder activism in future, but also offers various challenges. Although social media might be a valuable avenue to disclose information, it should be cautiously managed. Selective engagement details could be published on institutional investors' and companies' websites to enhance transparency regarding the nature and outcomes of engagements. Virtual and hybrid annual general meetings are likely to enable more shareholders to become active owners in future.

Monitoring Intensity, Institutional Shareholders, and Earnings Manipulation Engendered Accounting Scandal: The South African Perspective

“…Furthermore, the corporate governance guidelines documented in the King Report in South Africa, specifically principle 17 in the recent King IV report indicate that institutional shareholders must ensure that firm operations vis-a-vis business decisions should reflect good corporate governance and the creation of firm value (Governance and King, 2016;Mans-Kemp and Zyl, 2021). But, the majority of South African institutional shareholders openly support responsible investment but in fact, their responses to changes to corporate policies that have implications on the firm's value are often perfunctory (Feront and Bertels, 2021;Mans-Kemp and Zyl, 2021). Therefore, it will be expected that, with an incentive to monitor and sound corporate governance framework, institutional shareholders should effectively ensure the alignment of executive decisions with firm value.…”

Active ownership reporting among South African asset managers, and why it matters

“…Asset owners in South Africa (SA), on the other hand, are also increasingly demanding asset managers to provide information about their ESG screening and analysis (Mans-Kemp & Van Zyl 2021;Viviers & Theron 2019). More specifically, a recent PwC report (PwC 2022) predicts that the share of ESG assets over total Assets under Management (AUM) would increase from 14.4% in 2021 to 21.5% in 2026.…”

The impact of ownership structures on the financial performance and corporate governance of JSE-listed firms.

“…South Africa is recognised as the first emerging market to establish a code of good corporate governance practices (Mangena and Chamisa, 2008;Ntim, 2009;Mans-Kemp and van Zyl, 2021). This commenced in 1992, when South Africa founded the King Committee on Corporate Governance in an effort to enhance the manner in which JSE-listed firms were governed (Rossouw, Van der Watt and Rossouw, 2002).…”

“…This is evident in the South African environment, where the ownership structures of JSE-listed firms reflect high concentrations of institutional ownership and foreign ownership (Ntim, 2011;National Treasury, 2017). Due to their substantial shareholding, institutional investors have considerable power over the practices and policies of their investee companies (Mans-Kemp and van Zyl, 2021). For this reason, the Code for Responsible Investment in South Africa (CRISA) was released in 2011 to guide institutional shareholders on ways of executing their investments, using their rights to improve governance, and integrating ESG issues into their investment decisions (Pillay, 2021).…”

“…Under the South African context, the recent corporate demise of companies such as Steinhoff, VBS Bank, Tongaat Hulett, Eskom and South African Airways (SAA) have raised considerable concerns about the appropriateness of the ownership structures and corporate governance practices within South African businesses. The corporate governance of South African firms is guided by the King Code of Good Corporate Governance 2 , which provides voluntary guidelines and principles for effective corporate governance practices (Ntim et al, 2012;Mans-Kemp and van Zyl, 2021). Since 2017, the JSE Listing Requirements made it mandatory for companies to comply with certain King provisions to retain their listing (Giles, 2017).…”