Ann Crotty

Shareholder activist Theo Botha is calling for institutional shareholders to disclose the number of shares they vote at shareholder meetings and how they vote those shares.

“Anything less will leave stakeholders in the dark because some institutional investors outsource the management of funds to service providers and may or may not have mandates, which means that nobody is really sure who is voting with how many shares,” he said.

Botha was commenting after the release of the first practice note issued by the committee responsible for drafting the Code for Responsible Investing in South Africa (Crisa). Botha is a member of the committee and was also involved in developing the code, which is voluntary and came into effect last February, and the practice note.

Although the practice note does not require disclosure of the numbers of shares being voted it does place considerable emphasis on the disclosure of voting records and is expected to put increasing pressure on institutional investors such as Coronation Fund Managers, which still does not disclose how it votes.

The practice note deals with the code’s fifth principle, which requires institutional investors to disclose how they apply their governance policies and is considered the most controversial of the code’s five principles.

It states: “Institutional investors should be transparent about the content of their policies, how the policies are implemented and how Crisa is applied to enable stakeholders to make informed assessments.”

Element Investment Managers investment analyst David Couldridge said a particularly sensitive aspect of the principle was the recommendation that institutional investors and service providers disclose how they vote at shareholder meetings.

Such disclosure allows for more accountability between the institutional investor and the investee company as well as the ultimate beneficial shareholder.

While the major institutional investors and service providers have made statements in support of Crisa, not all are prepared to publicly disclose their voting record.

“Disclosure is vital to a voluntary compliance regime,” said Ansie Ramalho, the chief executive of the Institute of Directors, a member of the Crisa committee and also its secretariat. “In order for self-regulation by the market to be effective, stakeholders need to be informed about what institutional investors are doing, which also helps to build engagement and constructive relationships between them.”

The Crisa committee is adamant that without adequate disclosure stakeholders are unable to hold institutional shareholders and service providers to account.

“Shareholder activism is a force that could be applied for good or bad and just as companies are held to account, institutional investors should also be accountable, which is the whole notion that underpins Crisa,” said John Oliphant, the head of the Government Employees Pension Fund, which is the largest pension fund in the country with funds of more than R1 trillion. Oliphant is the chairman of the committee.

The practice note recommends that institutional investors should disclose how they voted on each resolution at a shareholders’ meeting and provide an explanation of the reasons where it abstained or voted against a resolution.

It should also disclose whether the meeting was attended by the institutional investor or whether voting took place by proxy.

Crisa also recommends that institutional investors disclose a “summary of engagement activity in a manner consistent with the institutional investor’s responsible ownership policy with details of the nature and number of engagements and otherwise, including the substance of the engagement and progress made.”