PIC struggles to improve quality of corporate governance

South Africa’s PIC pension fund adjusts its corporate governance priorities (emphasis added):

More than half of the companies in which the PIC has a substantial investment ignore its views on the need for independent auditors.

Almost half of them also ignore its view on what is, or is not, an acceptable remuneration policy, and a substantial portion of the PIC’s investee companies pay no attention to its definition of independence when it comes to directors.

This is evidenced by the proxy voting results released recently by the country’s largest fund manager.

As the PIC battles to protect its reputation from allegations of dubious and improper investments before the Mpati commission of inquiry, the PIC’s latest proxy voting results indicate it is also struggling to improve the quality of corporate governance in SA. Most of the companies that ignore the PIC’s views on key issues have been doing so for years.

Some corporate governance activists say the PIC, which manages about R2-trillion on behalf of government employees and other social funds, has lost interest in what was regarded as one of its primary objectives at the time of its so-called re-launch in 2005. The delay in posting the voting results — the latest for the June 2018 quarter are between six and nine  months after the shareholders’ meeting — is seen as indicative of this loss of interest.

At the launch function in 2005, then president Thabo Mbeki made it clear that the job of the PIC was no longer just to get steady returns for state pensioners. “I think it would be useful for our fund management industry as well as trustees of our pension funds, to begin to take a more active role in discharging their responsibilities as shareholders on our behalf in transforming these companies …. Perhaps what is required is some form of alliance of shareholders among institutional investors so that common standards and rules of engagement can be set,” Mbeki said.Shareholder activist Theo Botha said the re-launched PIC, which took on the mantle of engaged investor, was one of the most exciting developments of the past two decades. Botha said the fund manager had some major successes in the early years and was key in persuading other fund managers to become more active and disclose how they voted at shareholder meetings.

“One of their stand-out successes was changing the Barloworld board,” said Botha who said that early on the focus did seem to be on transforming board membership rather than corporate governance habits.

One fund manager said it made sense for the PIC, which is the single largest investor on the JSE, to become more active. “When you’re holding 10% of a company’s shares you can’t easily just sell the shares and run when you’re unhappy with a company’s strategy or governance; you have to engage and try and make changes,” said the fund manager, who wanted to remain anonymous.

Reverend Jo Seoka who chairs Active Shareholder, which advises nongovernmental organisations (NGOs) on how to vote their shares, said it was appropriate for the PIC to play an active role in overseeing the governance of the largest and most powerful companies in the country.

Source: PIC struggles to improve quality of corporate governance

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