Company directors ignore minority shareholders at their peril. Investors have learnt to bite as well as bark.
Consider Comparex, which suffered a boardroom coup as minority shareholders rallied to replace nonexecutive directors because of their dissatisfaction with the company's strategy.
Primedia, too, will not forget minority action that challenged CEO William Kirsh. Though it ended with representatives of UK hedge fund Active Value resigning from the Primedia board soon after gaining their places, the pressure affected Primedia's strategy.
But does shareholder activism make any real difference? Both Primedia's and Comparex's share prices have been on steady downward slides since minorities began throwing punches.
In other cases, minorities have made a big difference to a company's future. In Datamirror's battle to take over local IT company Idion, shareholders were key to the rejection of the offer. In Nedcor's reincorporation of Nedcor Investment Bank, minorities forced up the offer price by 10%. Energy Africa is now appealing to minorities to help fend off the advances of Malaysian giant Petronas, already a 65% shareholder.
"I think you should get involved if there are corporate governance issues. It can't be all for short-term gain ," says Johan van der Merwe, CEO of Sanlam Investment Management (SIM), which has played a key role in much recent minority activism.
In the case of Comparex, institutional investors Investec Asset Management, Allan Gray and SIM targeted the company's confusing European strategy and the utilisation of R2,4bn in cash on the balance sheet. Their action was partly behind the announcement last month that the European operation would be bought out by management.
Drastic action such as a boardroom coup is a last resort for minority shareholders to make their views felt. Rather than take the risk of that happening, many companies are now quicker to meet minority demands. Kersaf, for example, agreed to put a director on its board after pressure from Allan Gray.
"Given the fact that the SA economy is too small to burn bridges, we'd rather work with a board," says Coronation Asset Managers' Louis Stassen.
Institutions have responded to concerns over corporate governance, of the asset managers and of the companies in which they invest .
But Stassen says an institution always has the power to threaten to turn hostile if it comes across unresponsive management. "It's not a case of us sitting down and voting on every issue . As long as our issues get airtime at a board level then we are quite happy," he says.
"The [asset] managers are closer to it than us - they have the analysts and need to be able to answer the questions," says Steve Braudo, CEO of Investment Solutions, a multimanager that picks asset managers and monitors their performance on behalf of pension funds.
But shareholder activism has its own governance risks. Placing a director on a board compromises an institution's independence and investment view.
Shareholder activism, though, has mostly drifted past the small private investor - it is the institutions that have stood up to be counted. In SA, private investors make up an estimated 1% or 2% of the market, whereas 40 years ago they dominated. As a source of activism, though, they are almost voiceless.
"The problem is that individual investors are many in number and small in holding, and the co-ordination is a nightmare," says David Sylvester, head of the SA Shareholder Association.
Sylvester says private investors have often been caught out in buyout offers, where a holding company attempts to delist a subsidiary. Often the support of institution s is all a delisting needs, leaving private investors voiceless. All they can do, says Sylvester, is ensure their grievances are heard in general meetings and that they stay on top of information from the company.
Shareholder activism - The Financial Mail and BusinessMap are associate sponsors of a seminar on shareholder activism presented by Sanlam Investment Managers on October 10. The seminar focused on corporate governance and black empowerment issues.
