Issue: Oct 2010/Jan 2011

Shareholder Responsibility

Acid test on AMSA

Enough with the good intentions and noble words. Enough with the voluntary codes and admirable principles. A proposed R9,1bn BEE transaction has given SA institutional investors, under their new guidelines for responsible investing, the opportunity to stand up and be counted.

There comes a time, as a classic English expression has it, to pee or get off the pot. Such a time has come for asset managers and trustees of retirement funds. They must use the pot for the purpose intended or desist from sitting in frustrated contemplation. As investors in JSE-listed ArcelorMittal South Africa (AMSA), they stand to be tested on the numerous governance and accountability codes they’re supposed to uphold. Their choice, in general meeting on September 28*, is to vote for or against approval of what AMSA promotes as a “black economic empowerment ownership transaction”. To stay on the pot, by abstaining or not voting on an issue that has courted vigorous dispute, would be a cop-out that mocks adherence to the codes themselves.

If shareholders are convinced that the proposed transaction is clean, by all means they should vote in favour. But if they aren’t persuaded, they’re virtually beholden to vote against. Either they put up their hands in public, and disclose not only how but also why they vote as they do, or they shut up about the fine principles that are supposed to guide their assertions of ownership.

* This article, by TT editorial director Allan Greenblo, was first published in Business Day on Sept 21 i.e. a week prior to the originally-scheduled AMSA meeting. However, the meeting was postponed until a date that hadn’t been announced by the time that TT went to press.

The arguments in the article continue to hold. Subsequent to publication, Business Day canvassed numerous SA institutional shareholders. Those who declared that they would vote against the motion, or were likely to vote against it, included the PIC, RMB Asset Management and Sanlam Investment Management. They all gave their reasons.

By the time the meeting is held, the SA responsible-investing code will in all probability have been adopted (see Cover Story). Accordingly, after the meeting the SA institutional shareholders might expect to be asked how and why they voted as they did; and, if they didn’t vote, to explain their decision.

At the least, until and unless AMSA can explain to shareholders’ satisfaction that there was nothing untoward in its selection of the empowerment consortia, they will be hard-pressed to justify support. For the entire transaction is immersed in unresolved contention over the acquisition of mining rights and the participation of individuals, including Indian nationals, too close to President Jacob Zuma for the comfort of corruption sceptics.

Shares in AMSA, as is usually the case, are registered in the names of respective asset managers. Many of them have participated in the drafting of a new Code for Responsible Investing which, amongst other things, underpins King III and obliges the institutional investor “to influence and encourage the voluntary application of sound governance principles by the companies in which it invests”. The code echoes the UN Principles for Responsible Investing, already signed by some two dozen of SA’s top asset managers.

The beneficial shareholders commonly include retirement funds, to whom the asset managers are accountable for implementation of voting policies. Fund trustees are required, by Financial Services Board circular PF130, to mandate their asset managers to apply corporate-governance voting policies in accordance with internationally-accepted best practice.

That AMSA is controlled by its overseas parent, which directly owns 46,9%, makes the outcome of the meeting a one-way bet. But this does not preclude SA shareholders from expressing in an open forum a sense of outrage widely articulated in the investment industry. On the contrary, to take a stand congruent with their own voting policies has potent moral suasion. According to its latest annual report, 35,1% of AMSA shares are held in SA.

The two largest SA institutional shareholders are the Public Investment Corporation (9,08%) and the Industrial Development Corporation (7,91%). Because both are state-owned they’re hypothetically vulnerable to government influence.


In anticipation of the still-awaited shareholders’ meeting, the questions below were put by TT to AMSA. The replies, from AMSA investment relations manager Hennie Vermeulen and communications manager Themba Hlengani, are given in full and without further TT comment except to suggest that they be read in the context of the August 10 announcement published by AMSA on SENS and in the press:

TT: The AMSA shareholders’ meeting, to vote on the proposed BEE transaction, was postponed from September 28. When will this meeting be held?

AMSA: An indicative timeline was announced but no shareholder general meeting was scheduled. Shareholders will be informed of the revised timetable once all the details of the proposed transaction have been finalised.

Have shareholders in ArcelorMittal Holdings AG (AMH) been apprised of the legal and political controversy surrounding this transaction as comprehensively reported in SA media? If so, have they nevertheless indicated their support of it?

AMSA has closely monitored developments and AMH is fully apprised. Like other shareholders, AMH is also awaiting the finalisation of the transaction detail to be in a position to make a final consideration.

Will AMH exercise its right to vote at the shareholders’ meeting, or will it allow AMSA’s South African shareholders to decide whether the transaction should proceed?

AMSA encourages all shareholders to exercise their rights on all material matters affecting the company.

For approval of the transaction where significant assets are being transferred from one company (AMSA) to another (OPCO), is a majority vote of 75% or of 50% plus one share required?

50% plus one share. This is not a related-party transaction.

What criteria were used by AMSA in selecting its proposed BEE consortia?

These are business people with a variety of interests in SA businesses that we believe will bring added value to the company. AMSA believes that it will benefit from the perspectives and business experience of its new partners. The key objective was to identify BEE candidates who could enhance the commercial success of AMSA. A further goal was to ensure that at least 10% of the BEE holding finds itself in the hands of broad-based groups.

How does AMSA justify the inclusion of non-South Africans in the BEE transaction?

It must be remembered that Oakbay Investments (Gupta family members) holds a very small percentage in the consortium.

Since AMSA is conducting a due-diligence investigation into Imperial Crown Trading (ICT), what outcomes from this investigation will cause AMSA to withdraw its offer to purchase ICT?

This is a confidential due-diligence process; suffice to say that the due diligence is being conducted according to the highest possible ethical standards and non-compliance at any level would automatically nullify the proposed transaction.

Why is the purchase of ICT not a condition precedent for the inclusion of ICT shareholders in the BEE transaction?

As you are aware, ICT is now the holder of the prospecting rights for the Sishen mine that were previously held by AMSA. These rights are strategically very important for AMSA and, when it became apparent that it would be possible to acquire them, we decided to pursue that option. The possible purchase of ICT was structured at a time when the BEE proposal was being packaged. Having secured the Sishen rights, the ICT owners were obvious candidates for the BEE transaction, but their inclusion was based on more than just the ICT transaction. Hypothetically speaking, failure to pass the due-diligence test could put a question mark over the continued participation of ICT in the BEE transaction.

  • The 2009 AMSA report shows that 39,7% of the company’s shares are held in SA. It also shows that Luxembourg-based AMH is the single-largest shareholder, owning 46,82%. The second-largest shareholder is AMSA subsidiary Vicva Investments, owning 9,99%. On an ordinary resolution, a majority vote of 50% plus one share is required. On a special resolution, a majority of 75% is required.

J J Njeke

Njeke . . . tough calls

But the PIC is an agent for the Government Employees Pension Fund. Their voting policies overlap, with the GEPF in the vanguard of responsible-investment initiatives inclusive of governance and transparency criteria. It is hardly imaginable that the PIC will provide AMSA with a thumbs-up. The IDC, on the other hand, might be less predictable.

Come in the JSE Socially Responsible Investment index, of which AMSA is a proud constituent. Company analysis for the index is conducted by the unit for corporate governance at Stellenbosch University’s business school.

Says senior lecturer Daniel Malan: “As a research-based unit, we cannot advise any shareholders on how to vote. In this matter, we are concerned about the ethical principles – specifically with regard to transparency and probity – that are involved in terms of the proposed transaction as well as the way in which the relevant rights were awarded to Imperial Crown Trading. We urge shareholders to take these issues into account and, in the spirit of transparency, to disclose to all stakeholders how they vote and why.”

Zwelinzima Vavi

Vavi . . . outspoken critic

Other SA shareholders, all with stakes smaller than the 1,38% of Old Mutual Investment Group, are:

  • Investec Asset Management;
  • Stanlib Asset Management;
  • Prescient Investment Management;
  • RMB Asset Management;
  • Alphen Asset Management;
  • Dibanisa Fund Managers;
  • Coronation Fund Managers;
  • Kagiso Asset Management;
  • Plexus Asset Management, and
  • Sanlam Investment Management.

The way they vote will be keenly watched, not least by Cosatu general secretary Zwelinzima Vavi who has been amongst the most vociferous critics of the AMSA deals. If anybody has clout to pronounce on the institutional response, he has.

Two final points need to be made.

The first relates to the international stage. Shareholders in ArcelorMittal comprise a who’s who of blue-blood institutions such as the asset-management divisions of Credit Suisse and J P Morgan. The company’s merchant banker is Goldman Sachs which has Lakshmi Mittal amongst its main-board directors. Will they be heard on the goings-on at AMSA?

The second concerns the domestic scene. That the chairman of AMSA is J J Njeke, a most admired business person from his executive record in Kagiso Trust, lends credibility to the group and its transactions. But if he finds himself squeezed between a rock and a hard place, will he scream?


  • FSB circular PF130: To ensure that asset managers practise the same corporate governance standards and best practice that (retirement funds) are expected to maintain, and in order to meet their fiduciary obligations relating to voting and shareholding activism issues, the (funds’) mandates should also require the asset managers to report on the following matters, as recommended by the International Corporate Governance Network, namely the corporate governance policies of the asset managers detailing how they are applied in investment policies....
  • King III report: Institutional investors should be encouraged to vote and engage with companies, or require their agents to vote and engage. This will ensure that governance best practice principles are more consistently applied....Even though more than 20 (SA) asset managers have signed the UN Principles for Responsible Investment, few are voting and disclosing their votes. Institutional investors should at the very least follow the guidelines laid down by the International Corporate Governance Network.
  • UN Principles for Responsible Investment: We will be active owners and incorporate ESG (environmental, social and governance) issues into our ownership policies and practices.
  • Draft Code for Responsible Investing by Institutional Investors in SA, recently published by ASISA for comment: An institutional investor should develop a policy in regard to share ownership. This policy should include voting at shareholder meetings, including the criteria used to reach voting decisions...and be transparent.
  • Global Reporting Initiative, quoted in the 2009 ArcelorMittal corporate responsibility report as “guideline principles” for the group: Principle 10: Business should work against corruption in all its forms, including extortion and bribery.