Some companies are clearly frustrated with shareholder input after pay resolutions fail to pass.

This column was first published in Business Day. 

What is better: a company that makes a R200m profit with a CEO who earns R10m, or a company that makes a R1bn profit with a CEO who earns R100m?

If you are a shareholder, the obvious answer is the latter. That company delivers far better returns. The fact that the CEO earns 10 times that of the former company is irrelevant. Of course, there may be other considerations, such as wider inequality, that high executive pay may contribute to, but for a shareholder looking to maximise returns, highly paid CEOs are perfectly fine if they generate the profits.

But something odd is happening between shareholders and companies when it comes to remuneration, at least among listed companies. Since June 2017, JSE listings rules have required companies to put their remuneration policies and implementation reports to a non-binding advisory vote at their annual general meetings (AGMs). If these advisory resolutions do not obtain at least 75% support, then companies are required to engage with shareholders about their policies and implementation.

For the first few years, it was rare for shareholders to vote down management on these resolutions. But that has changed.

I sampled 80 listed companies that have reported AGM results so far in 2021. Of these, 26, or 33%, failed to achieve the 75% margin on the remuneration policy or implementation votes. This strikes me as an astoundingly high number. The lowest positive vote outcome was Steinhoff, which had just 7% of votes in favour, but larger, less controversial companies like Old Mutual (54%) and Capitec (49%) also failed to obtain ringing endorsements from shareholders. This was true across company sizes and sectors.

There are two reasons for this swing in sentiment. One is that the country’s largest shareholder, the Public Investment Corporation, has become more aggressive with companies on their remuneration policies and practices. The other is that shareholder proxy advisers have become more influential in guiding the votes, particularly of foreign shareholders. Between them, and other active domestic institutions, the 25% threshold can be breached quite easily.

Proxy advisers and institutions like the PIC tend to parse remuneration policies against a checklist of good practices. One of these is that there should be minimal discretion afforded to boards and their remuneration committees — the policy should be clear and implemented based on performance.

Discretion has become a major issue during Covid, when many companies saw their share prices and earnings slump, resulting in long-term incentives failing to vest. On the one hand, shareholders can justifiably say that management teams should be sharing their pain. On the other hand, a company must find a way of keeping talent on board. Consider retailer Clicks, whose CEO Vikesh Ramsunder resigned last week to take the top job of an Australian-listed company. It is fair to say that Clicks’ incentive structures failed to retain him, though I doubt that is what shareholders were concerned about when only 72% of them endorsed Clicks’ remuneration policy.

Other criteria are less straightforward, such as that long-term incentives should not be tied to the individual performance of the employee, but only to group performance. I can understand the logic of aligning incentives of senior management, who have the authority to influence overall performance, with shareholders, but how should companies retain scarce talent outside the executive committee level? You can easily imagine situations where a company wants to grant long-term incentives to highly sought-after professional employees, with vesting based on their personal long-term performance.

Some companies are clearly frustrated with shareholder input. The engagements by those who fall below the 75% level can range from a conference call to detailed meetings with each shareholder. But this doesn’t seem to work very well. Chemicals company AECI cancelled a shareholder engagement call after none of the 33% of shareholders who voted against its remuneration implementation report accepted the invitation to engage.

Perhaps the most astounding note of frustration was from The Foschini Group, which protested after receiving only 64% support on the remuneration policy and 56% on its implementation that it had “held multiple separate formal engagements with our largest shareholders … specifically established to proactively discuss, upfront, all key features presented in the remuneration report and to elicit their guidance and input into the design of all proposed significant changes … none of these engagements highlighted areas of disagreement, that weren’t adequately addressed”.

Shareholders do need to apply clear guidance to companies on the bar they expect them to meet, which should reflect how remuneration plays into the delivery of their investment objectives. Companies must ensure they do meet those shareholder expectations as a basic principle of good governance. But they can only do that if they understand the issues at play.

It is not good enough to follow the advice of a proxy adviser but then provide no input when a company dutifully arrives to discuss its remuneration policies and hear out shareholder concerns. There should be no surprise for companies if their policies fail to get shareholder endorsement.

• Theobald is chair of research-led consulting company Intellidex.

A basic income grant would be only one part of a social wage. There is healthcare, education — you need to think in broader terms, says Peter Attard Montalto, head of capital markets research at Intellidex. Featured in Financial Times.

Climate envoys from the north will find a haphazard jigsaw of policy and personas.
This column was first published in Business Day. 


There are reams of critical thought on what a mature democracy is and is not. Much can then be said about the Constitutional Court, the Electoral Commission of SA (IEC) and the like. But I think that the department of minerals & energy has added a more useful test case in the past week.

At issue is a satirical video from Politically Aweh, showing an “advert” from the “DMRE” promoting a pro-coal and pro-carbon line, which was genuinely funny. Maybe I found it more funny than most having spent so much time in recent years with head in hands on energy policy. It was some light relief.

The problem was the department’s po-faced response, labelling it fake news and warning journalists and others not to disseminate it. They didn’t just not find it funny but saw the public as at risk of being taken in — an interesting view of the IQ of the public in the run-up to an election. Taking oneself too seriously, a pomposity on the part of functionaries, has been an affliction of successive administrations. It suggests a lack of self-confidence.

Investors pick up on these things in subtle ways. Self-confidence in future energy policy may well become a “thing” through COP26 as funders pick up not only on the actual policy itself (is it Paris-aligned?) but also the likelihood of implementation and the trust in implementation. SA policymakers underestimate these latter two issues. So much of the discussions I have with clients is about trust in policy direction as much as the direction itself.

All this suggests a deftness of touch in policymaking is lacking in some quarters and is sorely needed.

The fact that the risk mitigation round of energy procurement (2GW of “emergency” power generation) now resembles the undead — as local content procurement, corruption, vested interests and multiple court cases all bear down to make financial close unlikely yet — is a problem not because it has been derailed per se but because policymakers have been unable to recognise this obvious fact and adapt to it quickly with alternatives. The Risk Mitigation Independent Power Producer Procurement Programme may well end up being one of the very things that prevent trust improving.

Trust is a funny commodity. It is easily lost but not easily won back. Yet another collapse in the prospects of spectrum auctions and digital migration in recent weeks destroyed what little trust was starting to build thanks to the efforts of Operation Vulindlela as vested interests and (new) ministerial fiddling reasserted themselves on the (even under perfect conditions) highly complex process.

The department of minerals & energy provided another fascinating example in the past week. A speech by minister Gwede Mantashe shocked the energy community because it said all the right things on renewables — infused with a seemingly  new sense of excitement about the energy transition that he has not shown before. Hooray…?

In fact the consensus seemed to be that the speech was not trusted. How can you say the exact opposite of what you said to the presidential climate commission a month earlier — and who had suddenly been hired to write this different sounding speech anyway?

The problem that unpins all this is a view of policymaking as these long, slow arcs — from ANC policy and elective conference to the following ANC policy and elective conference five years later. External shocks are sometimes required to jolt the system — whether that is COP26 or the Covid crisis — yet the system struggles to adapt between these major events and policymakers get stuck looking backwards.

An external shock on the climate front is about to arrive in the coming two weeks: envoys from “the north”.

There are two ways to look at this. Either the colonialists are back telling poor SA what to do. Or else it’s a wake-up call to the policy elite of the direction of global travel on the climate policy front, which will have implications for SA — but funding (possibly in very large size) is available to support just such  an energy transition.

These envoys are likely to find a mixed bag. A meeting with the presidential climate commission will suggest an agile mindset that is building trust as an institution both through its methods and through its outputs. They will find a receptive partner at the department of environment, forestry & fisheries (though, rightly, some pushback on an excessive focus on the environmental front and a need for balance versus the social or “just” elements of the transition).

They may be perplexed meeting the Treasury, which has not become a thought leader in climate financing issues and still views the topic as a tax issue. And the minerals & energy department may be the most interesting of all. Perhaps the minister will hide from the envoys — rather avoid uncomfortable truths from people who can see through the bluster. Or perhaps he will want to give them a lecture. Eskom might be their most interesting meeting — a leader in André de Ruyter with a plan but struggling to fit into the haphazard jigsaw of energy policy.

All this is a game that can most effectively be played when trust and agility are in abundance. Some of these role players have it and some don’t.

The recent ANC lekgotla outcomes showed in the broadest generalities there can be some movement, though the hard facts haven’t been landed yet: the need for more rapid coal decommissioning than the Eskom and Integrated Resource Plan baseline is the most obvious.

The job of the president in the run-up to COP26 will be to squidge this whole mix of forces and role players together into a cohesive whole that accepts these hard facts — requiring some political capital deployment and some toe-stepping.

There is a lot of money, credibility and trust at stake.

Attard Montalto is head of capital markets research at Intellidex, an SA research-led consulting company.


Previously Standard Bank was not doing such a good job in the mass market but it is now gaining momentum, says Nolwandle Mthombeni, senior banks analyst at Intellidex. Featured on Bloomberg. 

Intellidex today releases an important paper on a basic income grant, assessing whether one is sustainable for South Africa and outlining the macroeconomic implications of proposals on the table.

Commissioned by Business Unity South Africa and Business Leadership South Africa, this independent research has a special focus on the fiscal and revenue/funding implications of a BIG. Deeply conscious of the need for sustainable upliftment and poverty alleviation, the research addresses:

The report, Is a basic income grant sustainable, is designed to contribute to the broad discussions on social security reform, including a basic income grant. It presents a set of feasible mechanisms to achieve the desired outcome, while emphasising that further work is needed from a wider range of stakeholders, including modelling on the macroeconomic effects, detailed costings and impact analysis.

Download the report below.

The reality is that what Viceroy Research did to Capitec Bank was illegal, and it’s as simple as as that.  

This column was first published in Business Day.

Social media makes so much information visible that it is easy to assume it is all there is. But when it comes to investment research, the vast majority is not in the public domain. Good researchers aim to gain exclusive insights into the value of assets. They don’t give away their competitive edge.

I say that because of the nonsense that was widely spouted on social media after the Financial Services Conduct Authority (FSCA) announced a R50m fine of Viceroy for manipulating the share price of Capitec. While many rightly celebrated the FSCA’s decision to punish illegal manipulation of a share price, some loudly proclaimed that it was irrational, arguing that if you are going to fine Viceroy for taking a false short view on Capitec, you should also fine those who took long views on Steinhoff.

This gets wrong both what Viceroy did and what most research does.

First, let us understand what Viceroy was found guilty of. The Financial Markets Act makes it illegal to publish information you “ought reasonably to know” is “false, misleading or deceptive”. The act further requires that if you publish such a statement and later become aware it is false, you must “publish a full and frank correction”.

Viceroy was roundly informed that the extremely weak report it published on Capitec had errors, including by the SA Reserve Bank, yet refused to correct them. It was clear that Viceroy’s objective was not to publish accurate information, but to damage the share price of Capitec. Given that Capitec is a systemically important institution, Viceroy’s acts recklessly endangered financial stability. Indeed, because of this risk, my firm Intellidex was commissioned at the time to research Viceroy’s behaviour. Our conclusions in a report we produced then are in line with the FSCA’s findings.

Every year the Financial Mail publishes a ranking of the top analysts in SA. The ratings are derived from a survey of the biggest institutional investors in the country. These are the managers of giant pension funds, insurance funds, collective investment schemes, hedge funds and wealth managers. They rate analysts based on the quality of insight they gain from the work those analysts produce.

The best analysts track companies closely. They constantly communicate with their clients and update their views as new information comes to light. Analysts don’t get rated, and don’t get the financial rewards that come with it, if they knowingly publish false information or don’t correct what they later become aware of is false. There is a world of difference between this kind of investment research and that produced by Viceroy.

Most research aims to identify assets that, in the analysts’ view, are mispriced. Such research goes to clients and they use it to inform their investment decisions. Those clients can be long-only traditional asset managers, or hedge funds trading both long and short positions.

Why would information ever be put into the public domain the way a Viceroy does? Typically, an investor takes a position on the assumption that the market price will over time move in the direction predicted by the research. This requires that “the market” comes to recognise the mispricing. But sometimes that doesn’t happen, or at least not fast enough. As a result, some firms publish research to convince the market that the prevailing prices are wrong.

Examples include Bill Ackman’s five-year battle against Herbalife that ended in 2019. His fund, Pershing Square Capital, took a large short position and then published detailed research arguing that Herbalife was a pyramid scheme. In the end he failed. But there are also prominent successes like David Einhorn, who famously shorted Lehman Brothers before the financial crisis, going public with his thesis that the investment bank fudged its numbers.

These acts are literally talking your own book. Such efforts are often met with scepticism because there is a clear vested interest of those releasing the research. But if the research is high quality in that it is well reasoned and justified, and represents the genuine beliefs of the researcher, we are all better off being made aware of it.

The temptation, of course, is to publish something you don’t believe is true but will nevertheless deliver the share price outcome you desire. This is illegal. Viceroy did it on the short side, but there are corresponding efforts on the long side — the so-called “pump and dump”. A notorious example from the history books was when an “Edward Pastorini” managed to convince a Bloomberg journalist that he was preparing a $12.5bn bid for Goldfields in 2007. The news ramped up the share by 11%. It turned out Pastorini did not exist and Bloomberg had fallen for a scam. The pump and dump worked because it borrowed Bloomberg’s credibility.

Viceroy was able to do it because it earned credibility for a report it published in 2017 on Steinhoff shortly after the share price collapse of that company. It later emerged that Viceroy had substantially plagiarised that report from one written six months earlier by a hedge fund that had not put its research into the public domain.

There is a sharp difference between share price manipulation and the production of genuine research. Only one of those is illegal.

Theobald is chair of research-led consulting company Intellidex.

South Africa’s recovery from a pandemicinduced contraction quickened in Q2 as restrictions to contain the pandemic were eased. GDP expanded 1.2% in the three months through June from a revised 1% in the previous quarter. In response, Intellidex’s Peter Attard Montalto says that the economy shown stronger indications of recovery in the past year than initially expectedbut there is still significant uncertainty over the impact the July unrest, which will  result in lower investments. Featured on Bloomberg.

I think Viceroy’s credibility has waned significantly, partly because of the work they did on Capitec which was a weak piece of research meant to whack the share price, says Stuart Theobald of Intellidex in an interview with Bruce Whitfield on Radio 702. 

No-one says that complexity is not hard to deal with, but investors are tired of the roundabout.

This column was first published in Business Day. 

Why are the Treasury, SA Reserve Bank and the like lauded for a basic level of competence that is often lacking elsewhere? Why is Operation Vulindlela proving to be effective at removing roadblocks?

The answer may be that they are rare islands of skill in dealing with complexity. Much of the rest of government seems to have a complete allergy to it or misjudges its ability to handle it and ends up tying itself in knots.

Complexity comes in many forms. Political complexity is the ability to balance and manage many stakeholders with conflicting vested interests, knowing when and who to annoy and for what reasons.

Reform or policy complexity is the ability to understand complex systems of interacting dependencies not only in regulatory terms but also in the political economy — how and when to deploy what political capital, and alliances to be made to reach the end goal.

Logistical complexity is the sheer tough slog facing a state that lacks capacity to achieve goals and effect change.

As solving SA’s unemployment crisis or mapping a successful path through the Just Energy Transition is a mixture of all these sorts of complexity, it is even more intricate.

In the policy arena the government’s understanding of complex systems has been tested. The social security green paper was a huge embarrassment precisely because it failed to bridge the gap between the consensus for social security reform, and the complexity of doing so across so many spheres of support required as well as funding it without ignoring any consequences. A paper that actually showed some acknowledgment of the complexity of interactions that have been ongoing with social partners and the challenges of funding could have been engaged with and debated over seriously.

State bank

Spectrum has been eluding policymakers for so long because they have not been strategic enough in the past decade to lace together all the dependencies between the various users of spectrum such as telecoms and broadcasting; how to parcel it out; and how to deal with the consequences, such as the need for set top boxes. A path will be quickly cut on this issue as soon as a strategy that solves these issues is adopted and given political backing.

With a state bank, a topic that seems to be having refreshed interest and momentum in some parts of the ANC, the madness is precisely that those proposing it do not understand the complexity of running a bank, especially one with only one shareholder, and the international rules and norms that apply to it. The madness comprises not looking for the outcomes of better lending penetration of small, medium and microenterprises and the like.

When the government is facing a wall of complexity it likes to take one of two routes (or often both): kick it into the long grass and hope it goes away, or commission a task team and report. Both serve to stretch out the problem through time, perhaps with higher costs or poorer outcomes. Eskom is the classic example.

André de Ruyter is hailed precisely because he can understand the complexity of the reform needed to the electricity supply industry and can map a way through it (and was backed for the role by Pravin Gordhan precisely for this quality). Yet De Ruyter’s ability to understand the issues creates problems with people — certain ministers in particular, but also the corrupt elements of the state-owned enterprises (SOE) swamp — who cannot understand the complexity.

Structural problems

However, he is ultimately bound by so many dependencies that the government must fulfil and simply isn’t — whether that is legislative and licensing issues required to reach independent transmission system and market operator (Itsmo) unbundling by year’s end, or the Treasury waking up and making decisions on deleveraging the balance sheet to allow Eskom the space to borrow afresh (now partly at more concessional rates) to strengthen the transmission grid and smooth the social aspects of the Just Energy Transition.

Eskom’s deep structural problems — this complex web of tariff, debt service costs and indebtedness and future demands it must fulfil — have not been resolved since the war room of a decade ago or since the Eskom task team of the beginning of 2019.

The answers have frequently been provided to all levels of government up to the president. The Eskom task team’s report to the president has been buried, yet it set out very clearly what must be done. Instead, we are stuck on the same roundabout, with Eskom saying the same thing at each six-monthly results update: it is not sustainable, it is not a going concern without bailouts and it must delever, and it must receive a massive equity injection or much higher tariffs.

Investors are now bored of this. No-one says that complexity is not hard to deal with. But it is about grabbing it by the scruff of the neck, taking advice, looking at global best practice and getting on with it.

The fear regarding Eskom seems to be that it is just too hard and SA is not used to these things, whether dealing with creditors or legal documentation on bonds. This is rubbish. Used to dealing with exactly these situations worldwide, investors look at the situation perplexedly. They then look across at the Land Bank and see the past 18 months’ mess that has resulted from what should have been a very easy workout, and roll their eyes. In the Land Bank case we have gone around the roundabout several times and are ending up where we were at the start.

The costs of the Eskom status quo are possibly never fully and transparently laid out: higher tariffs by default feeding through ultimately to hit those who can least afford it, higher tariffs for business leading to slower employment growth, paying more and more in interest bills for Eskom annually while cutting back investments in transmission.

But this is the easy route. Allergic reactions occur taking a more decisive route. We are stuck it seems?

Attard Montalto is head of capital markets research at Intellidex, an SA research-led consulting company.