The upcoming AGM of The Bidvest Group raises an important issue.
Resolution 3 to be voted on by shareholders deals with the appointment of PwC as auditor
s, and carries a note to the effect that its re-appointment as auditor each year would in future be automatic.
Shareholders will not be asked to vote on the matter, unless the limiting provisions of Section 90(6) of the Companies Act apply.
The Section certainly allows for the automatic re-appointment of auditors, but is seldom used by listed issuers.
In our opinion this approach by the board avoids the right of shareholders to consider and vote on this important matter, and could be considered inappropriate, especially since the auditor is ostensibly performing a service for the benefit of the shareholders and stakeholders.
It’s important to note that the board may elect not to apply Section 90(6), or to stop applying it after a year or more, and will not be in contravention of the Act.
Can shareholders stop the decision?
Can shareholders prevent or stop the board from electing to apply the provisions of this section?
The answer seems to be that they cannot, and the only option available is for shareholders to submit a resolution to elect another auditor. Alternatively, the decision of the board can be challenged by shareholders on the basis of a resolution submitted in terms of Section 65.
Perhaps shareholders can, and should, apply pressure on the board not to elect to apply the section, by voting against the election or re-election of directors at the AGM.
If the board elects to implement the provisions of Section 90(6), shareholders would be unable to consider the following matters, amongst others:
- Continued re-appointment where the auditor has been the company auditor for an uninterrupted period of 10 years or more;
- The board could be avoiding a tender process, although this is scheduled to change in 2023;
- Excessive non-audit fees charged compared to audit-related fees;
- Unacceptable quality of audit work, or a too-close relationship with directors or management;
- Questions about diversity and/or BBBEE in auditor selection;
- Adverse comments in the press potentially impacting on the good standing of the auditor.
These are important matters and the only way in which shareholders could counter this approach, is to propose a shareholders’ resolution at the AGM.
Shareholder resolutions at AGMs
However, this might not be easy, if the experience of the RAITH Foundation is anything to go by: the Sasol board declined to accept their proposed resolution dealing with reporting on climate change at its AGM recently.
It might also not be practicable since the audit committee is tasked with the selection of an audit firm, and could baulk at a proposal that it finds objectionable.