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SOUTH Africa has undoubtedly undergone some remarkable political change since 1994. While most JSE-listed companies have undertaken measures to promote social equality and sustainability, some remain unresponsive to stakeholders’ calls for transformation.
An increasing body of academic literature highlights the role shareholder activists can play in changing corporate policies and practices. For example, post-2008 shareholders in the United Kingdom have become particularly vocal about issues such as executive remuneration and environmental sustainability.
Although most asset owners and managers in the UK prefer to engage investee companies in private, more disgruntled investors are using proxy voting and the media to raise their concerns in public.
It has long been argued that shareholder activism can be a lightning rod to accelerate socio-economic transformation in South Africa. As such, I set out to see which lessons South African asset managers can learn from their successful counterparts in the UK. In addition to an extensive review of shareholder activism literature in the UK and South Africa, I conducted in-depth personal interviews with five of the most prominent institutional shareholder activists in London and Manchester.
My findings show that the essence of being a salient and successful shareholder activist in the UK seems to centre on being non-confrontational in public, making the most of investor networks, using the media as an ally, developing relevant skills and being transparent.
All the interviewees saw the use of legal proceedings and shareholder resolutions as a means to enforce shareholder rights as “very public” and “very aggressive”. The general feeling was that private, confidential negotiations with investee companies resulted in more frank discussions and the building of trust between shareholders and managers.
As in South Africa, divestment seldom occurs in the UK. One asset manager remarked that “divestment (as shareholder activism mechanism) is much less important than people think. However, when it does happen, it is really powerful, especially when accompanied by a press release”.
From the discussions, it was clear that non-confrontational, public shareholder activism is only likely to be effective if corporate managers are committed to discuss investors’ concerns in private. Research in South Africa suggests that many smaller asset managers do not have access to investee companies and are thus forced to voice their discontent publically.
Networking and coalition building play key roles
The interviewees also stressed the importance of networking and coalition building in becoming successful shareholder activists. One interviewee said “asset managers should realise that they are not alone and should use networks, such as the UN Principles for Responsible Investing, to identify like-minded colleagues who own shares in the same companies and share the same concerns”. The findings concurred with previous studies outlining the benefits of collectively shaping opinions and lobbying for change.
Being a proficient shareholder activist was seen as becoming a more important differentiator between asset managers. One interviewee remarked that there will come a time in the UK “where you will be able to win or lose business depending on your competency, effectiveness, track record and allocation of resources to this work”.
Not only should asset managers exhibit skill when it comes to private and public engagements, but they should also be transparent about their policies and interactions. As far back as 1998, academics have argued that UK companies will be better influenced if ethical funds (i e shareholder activists) present companies with explicit reasons why some policies and practices are regarded as ethically questionable. Since then, the focus has shifted to unsustainable environmental, social and governance (ESG) practices.
Mixed views were expressed on whether improved disclosure by asset managers of their voting records should be regulated. The general feeling, however, was that asset managers who publish their voting records already benefit more (from a commercial point of view) than those who don’t.
All the interviewees were of the opinion that shareholder activism could be greatly enhanced if it receives more attention in professional qualifications (such as the CFA qualification) and continued professional development. It was suggested that more attention be given to the business case associated with corporate social responsibility, the balance between short- and long-termism and global environmental, social and governance concerns. Continuous education within companies on sound risk management of these concerns was also viewed as critical and the role of the media in promoting the responsible and sustainable investment agenda was highlighted.
Intensive training and education is also required to stimulate more demand from asset owners. As elsewhere in the world, client demand plays a key role promoting shareholder activism in the UK and South Africa. One interviewee aptly remarked: “The more asset owners assert themselves, the more clear it will become that companies are there to work for everybody.”
My research highlights the importance of education and training in shaping a new generation of shareholders, investment professionals and managers. A fundamental rethink of the economic models currently used in mainstream commerce qualifications is, however, required.
Business educators should also accept more responsibility for cultivating moral virtues among their students. These virtues will help decision makers of the future to exhibit greater self-control and moral courage. The creation of a dedicated responsible and sustainable investor network in South Africa is furthermore encouraged.
*Professor Suzette Viviers is a professor in the department of business management at Stellenbosch University and a member of Grayswan Investments’ responsible investment committee.
