Nampak AGM 2019 – Resolution to amend the MoI….

The notice of the 2019 AGM to be held on 5 February contains a special resolution asking the shareholders to approve a proposed amendment to clause 29.1 of the Nampak MoI.

We outline below some of our concerns, but have also requested a response from the company secretary, which we include below.

Non-executive directors

Firstly, shareholders need to carefully consider the implications of the proposed amendment briefly outlined below:

  1. Non-executive directors will only be required to retire after a maximum period of 9 (nine) years.  This is ostensibly “to align the company’s governance practices to
    international best practice and generally accepted good corporate governance…“.
  2. In our view this is heading in the wrong direction, as issuers listed in the UK and Europe often put the entire board up for re-election.  Even for most JSE-listed issuers the accepted standard is to retire one-third of the board each year.
  3. No director will hereafter have to retire after only 3 years on the board, preventing shareholders from re-assessing the role, contribution made and the benefit to the company of re-electing a particular director. The directors will now be “untouchable” by the shareholders, irrespective of their individual contributions, or lack thereof, to the company, unless a shareholders’ resolution to remove a director is tabled in terms of the MoI and the Companies Act.
  4. It appears as if the option to extend the tenure from 3 to 9 years is associated with a general guideline as to the ability of a director to maintain his independence.
  5.  We certainly do not consider a director serving on a board for more than 9 years to be independent, but this is missing the point. This arrangement eliminates the need for succession planning and the opportunity to refresh the board with new skills, experience and diversity.  All at the long term cost of shareholders.
  6. Only if a non-executive director dies or resigns form the board, will the shareholders have an opportunity at the next AGM to vote on the replacement then appointed, as provided for in Section 68(1) of the Companies Act.  This means that the board is allowed to fill such a vacancy, but only till the next AGM.

Nampak response: “…the current MOI also requires that any director who has held office in excess of 3 years since his/her last election or appointment, shall retire at an AGM, either as one of the directors to retire by rotation or additionally thereto. This provision, when combined with the un amended retirement by rotation provision results in all directors being required to retire at least every 2 years. This is not an efficient mechanism to ensure the requisite knowledge and experience of the company is retained on the Board for a meaningful period, hence the proposal to amend this requirement from 3 to 9 years.”

“…investors’ increasing consideration of board composition includes focus on whether boards are continuing to refresh and recruit new directors in line with the company’s changing strategic goals and risk profile.  The challenge is however, not only to find new directors with the right skill sets and diversity, but also knowing when to ask long-serving directors to leave the board, whilst still protecting the collective knowledge and experience of the board and its relationships.”

Executive directors

Secondly – and this aspect is not up for the shareholders to vote upon – shareholders should also carefully consider the implications of the current provision contained in clause 29.1 of the Nampak MoI, namely:

  1. The CEO, CFO and any other executive directors of the company need not retire at an AGM.  The board believes that “by virtue of executive directors being employed by the company and being subject to open ended employment contracts. This is inconsistent with the requirement for executive directors to retire by rotation together with non-executive directors.”
  2. Again, shareholders have the option to table a resolution at an AGM to remove such a director, but again, why make it difficult for shareholders to exercise their rights by creating another procedural layer?
  3.  UK and European companies and most JSE-listed issuers follow this procedure, namely to enable the shareholders to reconsider the continued board involvement of its executives every few years, notwithstanding that they are also employed by the company. If shareholders could vote on the re-election of an executive and should it happen that an executive is not re-elected as a director, the board has the option to retrench such an executive.
  4. Imagine the shareholder frustration when the board of Nampak resolves to again write off enormous amounts expended on another “Glass” division as was done last year, and shareholders are unable to hold the CEO responsible, other than via a shareholders’ resolution, as he is “untouchable”.

The Companies Act in Section 65 makes provision for shareholders who feel strongly about this, to propose a resolution to be submitted to shareholders which would amend this section of the MoI.

Nampak response: “Notwithstanding any employment agreement, the performance of any director is subject to the requirements of the Companies Act and the MOI.  This means that all directors have specific fiduciary duties in line with the Companies Act and may be removed from office, as indicated above, for, amongst others, transgressing any of their duties.”

Click here for the full response from Nampak.