Spotlight On Boards And Shareholder Activism

Comprehensive, interesting analysis of shareholder activism by Werksmans Attorneys as published in GoLegal

Corporate activism places public pressure on boards to improve both financial and non-financial performance of companies.  Non-financial performance would include corporate governance, ethics, executive remuneration and environmental practices.

Historically, in South Africa corporate activism has taken different forms. In certain instances, one faction of management may fight with another faction for control of an asset or of the company. In other instances, minority shareholders may band together to block actions by the board and to seek greater control of the company for their own benefit.  For example, hedge funds may help to drive outcomes in favour of minority shareholders.

In recent times we have seen another form of activism, namely short activism, in which high-profile attacks on companies are launched.  For example, Dave Woollam’s brawl with the Lewis Group (where he published a lengthy critique of Lewis’ accounting practices and the lack of due process by Lewis’s sales agents in July 2015) resulted in a 40% fall in the share price that month.


Shareholders, as the owners of companies, are best placed to control and ultimately hold directors accountable by attending annual general meetings and exercising their rights to appoint and remove directors of the company.  Shareholders are encouraged to actively participate in companies and exercise their rights.

For instance, the King III report notes that retirement funds have become the largest category of shareholders in JSE-listed companies and recommends that these funds exercise their rights.  In addition, the Financial Services Board circular PF130 insists that retirement funds compile investment-policy statements, inclusive of mandates to asset managers.  Principle 5.2 of the draft King IV report now also provides that the governing body of an institutional investor (such as a retirement fund, insurance company, or the custodians, nominees and service providers who act under mandate in respect of any investment decision and investment activities exercised in relation to these securities) should ensure that that it responsibly exercises its rights, obligations, legitimate and reasonable needs, interest and expectations, as holder of beneficial interest in the securities of a company.

However other stakeholders must not be overlooked.  The Companies Act 71 of 2008 (“the Act”) has adopted the “enlightened shareholder value approach”, as an acceptable standard of conduct for all companies.  It requires boards to promote the success of companies in the collective best interest of their shareholders and to take into account the legitimate interests of other stakeholders including the community, employees, customers and suppliers.

In essence, all companies must develop a social conscience and behave like responsible corporate citizens.

Read the full article here