Naspers’ N shareholders very unhappy with remuneration policy

The voting at Naspers’ AGM last week highlighted the concerns that many shareholders have over certain issues of corporate governance at the media giant. And calculations by Moneyweb suggest that the number of N shareholders that voted against the two most controversial resolutions may be even higher than other estimates suggest.

Moneyweb’s analysis found that just under 66% of N shareholders voted against the company’s executive remuneration policy. Almost 74% voted against the resolution to give directors control of unissued shares. This represents significant shareholder disquiet.

These resolutions still however passed comfortably because of the company’s dual-class share structure. The tightly-held A shares control 68% of the voting rights, and mostly these shareholders, who are closely linked to the company’s directors, vote as a block. So even when a majority of the remaining 32% show disapproval, it hardly matters.

It would however be remarkable if Naspers ignored what is clearly overwhelming shareholder sentiment. Particularly because these issues are not new.

Allan Gray went public with its intention to vote against the company’s remuneration policy before this year’s AGM, but this wasn’t because it was adopting a new position. Proxy voting records published on its website show that Allan Gray voted against Naspers’ remuneration policy in both 2015 and 2016. It has also consistently voted against resolutions to place unissued ordinary shares under the control of directors.

It is also far from alone amongst the country’s asset managers. The Old Mutual Investment Group makes its voting records publicly available immediately after any AGM, and it voted against both resolutions this year and last year. Prudential has also confirmed to Moneyweb that it voted against both resolutions at the 2017 AGM, as has Mergence.

Coronation unfortunately did not respond to Moneyweb’s request regarding its 2017 voting by the time of publishing, but last year it voted against giving Naspers’ directors control of unissued shares. It did however endorse the remuneration policy.

While this is far from an exhaustive list, it gives a picture of the sentiment. A range of asset managers representing large numbers of N shareholders have been voting consistently over a number of years against certain company policies that nevertheless continue to be approved.

The questions around executive remuneration have probably raised the most interest this year, but the issue of directors taking control of unissued shares is possibly the more important. As Mergence’s Peter Takaendesa explains:

“The placement of authorised but unissued shares under the control of management is designed and intended to give management unrestrained ability to issue shares for acquisitions or to fend off being acquired. The practice of issuing shares to acquire or avoid being acquired ultimately dilutes existing shareholders and in practice can result in significant wealth destruction.

“Mergence should thus oppose all unsubstantiated requests to place unissued shares under the control of directors,” Takaendesa said. “ Instead Mergence requests that they be entitled to vote on a case-by-case basis on specific resolutions requiring the allocation of shares under control of the directors such that the motivation for the issue of shares can be thoroughly assessed.”

Other asset managers expressed similar reasoning.

This and the remuneration issue raise real questions about the company’s share structure and what, if any, influence N shareholders are able to bring to bear. It would be extraordinary if any of these managers had not also engaged privately with the Naspers board on the issues it voted against. Yet it’s difficult to see what impact this has had.

How much of this is because Naspers’ dual-class share structure means that the board is actually only accountable to its A shareholders, many of whom are conflicted? That is a big question, and one that N shareholders are increasingly going to have to grapple with.

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