companies have, until recently, adopted
a passive approach to managing their
companies. However, recent events
involving attempts to have boards
reconstituted and opposition to the
approval of director's remuneration raises
the prospect that more and more South
African companies will soon be facing a
brand of shareholder activism more akin
to that practiced in the United States and
United Kingdom financial markets.
Unlike the media appointed
individual "shareholder activists" in
South Africa, shareholder activists in the
United States and United Kingdom are
fund managers and wealthy individuals,
holding significant stakes in companies,
who may be seeking to influence the way
in which those companies are run.
As
activists are by and large the re-branded
corporate raiders of the 1980s. What
motivates a shareholder activist today
are the same issues which motivated the
underperforming boards, idle assets
sitting on balance sheets and/or the
accumulation of non-core assets that
are perceived to be worth more if sold
off than retained. What has changed is
that shareholder activists no longer seek
out the weak and vulnerable, but are
targeting some of the best performing
companies.
The re-birth of the shareholder
activist has been prompted by the events
that followed the 2007-2008 global
financial crisis, which has caused many
companies, like Apple, to batten down
the hatches and has resulted in them
accumulating enormous cash reserves.
Moody's reports that United States firms
were sitting on US$1.6 trillion of cash
at the end of 2013. To provide some
perspective, that is 10 times more cash
than the South African government's
entire expenditure budget for 2014-
2015. In addition, pre-2008 double digit
growth in earnings has given way to low
growth expectations. While shareholders
were largely passive during the high
the global financial crisis, shareholder
intervention in the running of companies
is now more widespread. According
to FactSet Research Systems, in the
last five years activists have initiated
campaigns at over 20 percent of the
industrial companies in the S&P 500.
As a result, shareholder activism has
increased significantly in the United
States and other parts of the world, with
a view to unlocking trapped wealth or
forcing boards to adopt the strategies of
the shareholder activist. Typically the
actions of these new shareholder activists
consist of seeking board appointments,
proxy wars, threats of litigation or
proposing resolutions to declare
dividends or sell assets. The success rate
of these activists is somewhat mixed.
In South Africa, many companies
on the JSE are in the same position as
those in the United States. Recently
Grant Thornton reported that South
African companies were sitting on
"excessive" cash piles. Yet South Africa
Prior to establishing Read Hope Phillips, he gained extensive
experience in mergers and acquisitions, corporate finance,
private equity transactions, lending and structured lending
transactions and corporate litigation.
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