S. Africa’s Top Investor Pledges Vigorous Governance PushFranz Wild and Janice Kew
South Africa’s Public Investment Corp., which holds shares worth 13 percent of the stocks traded in Johannesburg, plans to use its influence to curb executive pay, appoint chairmen and promote better governance.
South African companies suffer because board members sometimes grow too close to management and aren’t scrutinizing their performance sufficiently, Chief Investment Officer Dan Matjila, 52, said in an Aug. 27 interview at Bloomberg’s offices in Johannesburg.
“Those are some of the issues that have allowed people to get away with murder,” he said. “We’ve taken a conscious decision that we’ll try and engage. We’d like to be aggressive behind the scenes.”
The Pretoria-based PIC invests about 80 percent of the 1.6 trillion rand ($150 billion) it manages in companies on the Johannesburg Stock Exchange, ranging from Naspers Ltd., Africa’s largest media company, to Sasol Ltd., the world’s biggest motor fuel-from-coal producer.
The board at African Bank Investments Ltd. failed to spot what Matjila described as “reckless lending,” practices which resulted in the lender disclosing on Aug. 6 that it would post a record loss and needed to raise at least 8.5 billion rand to survive. The stock fell more than 95 percent over three days before it was taken over by the central bank, which will divide some of its loans among bigger financial-services companies.
The PIC, which manages the pension funds of South African government workers, owned 12 percent of African Bank, according to data compiled by Bloomberg.
The PIC is working out a strategy allowing it more influence over executives in instances where board members are not being accountable, Matjila said.
Ecobank Transnational Inc’s board replaced its chief executive officer Thierry Tanoh in March after regulators probed allegations of management fraud and poor corporate governance at the pan-African lender. The PIC, which is a shareholder, had said on March 1 that it wanted Tanoh to resign immediately. In a letter to the bank’s interim chairman Matjila said Tanoh had been using Ecobank to pursue “his own political and personal interests.” The stock has climbed 16 percent to 16.8 naira since Tanoh was replaced.
“This idea of shareholders appointing a chairperson, is not yet out there,” he said. “This is something we are thinking about. That’s an area that shareholders have left to all and sundry. We need to find a way as shareholders to at least take control over who sits there, who will be best to look after our interests.”
Negative reports about company executives, such as one regarding a police investigation into Telkom SA SOC LTD.’s Chief Executive Officer Sipho Maseko will affect the PIC’s investment decisions, Matjila said. The money manager will appoint a board member to represent its 11.4 percent stake in Africa’s biggest fixed-line operator soon, he said.
Johannesburg’s Star newspaper reported last month that Maseko is accused of running up about 30,000 rand in traffic fines using a cloned license plate. A police investigation is under way, according to Wayne Minnaar, spokesman for the Johannesburg traffic police.
Maseko became the first South African CEO to be ordered to attend a director-duties course earlier this year after the award of a loan to then Chief Financial Officer Jacques Schindehutte that was found to have breached the Companies Act.
“These kinds of reports, don’t sit well with us,” Matjila said. “We have engaged with them before and we continue to engage with them so the board can address this.”
The PIC aims to boost economic growth and invest in education and health as well as seeking to reduce unemployment in one of the most unequal societies in the world.
This year more than 70,000 platinum miners participated in a five-month strike at operations owned by the world’s three biggest producers, demanding basic annual pay of about 150,000 rand.
Anglo American Platinum Ltd., the largest of those, paid CEO Chris Griffith a basic salary of 6.7 million rand. Including benefits he earned almost three times that much.
The PIC is working on a formula to determine a fair level of executive pay, Matjila said, without referring to any companies by name.
“It’s too high,” he said. “The inequality is just too high in this sort of environment. It’s very problematic for shareholders, where shareholder value is not created, but somebody walks away with lots of money.”