SABMiller Plays CSI: Investor

Activity by the investor relations (IR) team at SABMiller is causing a bit of a stir in the world of institutional investment. It seems the SABMiller IR team are doing a bit of CSI - "crime scene investigation". Asset management is small in the same way that FB makes the world small, not quite the club that many people think it is, especially since the computer algorithms crashed the party from late 1990s. But there is a mix of rules, regulations and norms that shape how the players play the game. Active shareholders are a feature of market capitalism and we encourage shareholders to be actively engaged in the companies they are part-owners of. Share votes usually happen in an anonymous fashion, or at least with some deference to leaving who does what a matter for mystery, not media, unless the shareholders choose to tout the way they will vote. So poking around to identify who voted for what is considered a little outside the norm. SA and UK papers on Thursday 13 August were reporting JPMorganCazenove, corporate advisers to SABMiller are trolling through records to identify the naysayers. I like the quote that it is not ‘illegal” but a sign of “a very proactive investor relations team” for Ann Crotty SABMiller witch-hunt causes stir among investors]. In fairness, the inquiry even led to a nod to the Principles for Responsible Investment and work by Element Investment Management in the Opinion pages of BR, reflecting on the fact that anonymity is not the better option, and shareowners should be know to companies.

Outsize paypackets for executives is an overarching theme of corporate governance around the world, and something flagged by sustainable finance practitioners as unhinging the creative tension between people who invest money and people who manage the business that deploys that capital. In a recession, any big paypackets are going to raise flags. The 2008 global financial meltdown helped throw a floodlight on remuneration practices, from Wall St to Main St to your neighbour: who earns what and to what benefit of society? If risk/reward mechanisms are tilted wrongly, then employees will gamble and if they fail, just walk away. And if the firm is “too big to fail” then taxpayers end up bailing out the firm so it does not run the hole political economy toxic. Nice! The situation for the respected institution making and marketing Super Bowl commercials for Miller High Life was pretty obvious.

Throw in the fact that SABMiller grew up "from the dust" of an African background where the salaries based on London scales may buy you a small Karoo town or three, and the salaries at the least were always going to bring on the army ants. The close-knit nature of the Boards tied to SABmiller execs had also got the media excited. SA papers as much as UK papers were triggered by remuneration issues. In another classic corporate tactic, where the company has the ability to set the terms of the AGM, companies will management the annual meeting to the benefit of the executive and Board, less to the minority or marginal investor. If SABMiller wanted to be engaging to its SA shareholder base, and fair enough SABMiller choose to host the AGM in London, why not hook up a video or telcon link, something over the web? Heck, SABMiller spend millions of rands and dollars on televised sports events, they could have just tagged it onto one of their month’s major sponsored TV-events, yes? Maybe too much to expect when the SABMiller FB profile only has 125 fans?

Owning shares in a company is not like having votes in politics: the majority votes do not win. There is no democracy – all votes are indicative: management can completely disregard a 99% opposition vote. What prevents this behaviour is the signal such opposition sends. Management may reject the opposition vote and win the battle, but pissing off your shareholders will lose you the war. Annual voting is one of the major methods for keeping shareholders of companies involved and included in the activities by the executive and the management. In SA we speak of annual general meetings while in the US the preferred term is annual meetings. Strides in sustainable finance and responsible investment have been made partly be active capitalists, people and institutions owning a stake in companies and being vocal about directions they consider the ways companies should go, and which not to go in. It is one of the awkward trade-offs in capitalism: sure you can have people add their capital to your company, but then they’re going to want to have a voice. Today the largest money manager in Africa, the Public Investment Corporation managing around USD 90bn in assets for the GEPF in South Africa, took up the effort to build a shareholder code to go alongside the forthcoming guidelines for good corporate governance in terms of King III, see PIC vows it will not let code for institutions die.

The proxy form is a powerful tool: whatever voting rights a share has may be given over to another shareholder to vote, so-called proxies. The proxy voting season is always eagerly anticipated, especially in it busiest “stadiums” being the annual meeting sof US corporations. The 2009 proxy season seemed to focus on issues of voting power around compensation and risk management. Voters may be anonymous, so why is SABMiller filtering through votes to find out who voted which way? Maybe the SABMiller team are feeling a little beaten up after having their webpage bounced about a bit in July, see critique of SABMiller's Investor Relations page. Surely easier to just call for opinions from shareholders in a structured way, get them talking to management? It is not hard, takes some skill and thick skin for some of the insults that (may) fly, but really just stakeholder engagement 101 – no doubt the IR team should be able to do this with their eyes closed, no? If SABMiller normally had 98%+ of votes in support of Board appointments, and now just 85% came through, well that’s their free and frank focus group acting as dashboard, registering that all is not well with people who own a chunk of the firm. Good corporate governance says all shareholders have a right to vote, and more transparency makes it clear the firm, especially the large firm, is being run well and well run. Some words to this effect are probably on the SABMiller corporate governance webpage. A larger question for SABMiller is not whether these 15% of votes may be ignored and who voted them in 2009. The bigger question is what signal and multiplier effect will ignoring the issues flagged will have on ongoing capital raising efforts for future corporate activity. If the issues are not diplomatically and deftly handled by leadership, how big will the “no” vote be in a year’s time? For the postscript, SABMiller posted a "For The Record" in BR the next day...leaves me thinking the IR team and the PR team need to hang out a bit, while the CG team heads for a session with the C-level suite to do some good work.