Row over Anglo slap in face for King code

Shareholders fuming over new chairman, writes Rob Rose

Anglo Platinum shareholders, led by a vocal Public Investment Corporation (PIC), are seething over the "abysmal governance" in appointing Anglo American CEO Cynthia Carroll as chairman.

Carroll's appointment violates the King Code of Governance Principles (King III), which says a company chair should be an "independent non-executive" director.

As CEO of Anglo Platinum's 79% parent, Anglo American, Carroll is far from independent.

This is the first time that shareholders have added their voice to the fury around Carroll's appointment this week, after governance pundits labelled the move a slap in the face for the code, which came into effect in March.

Deon Botha, the head of governance at the PIC, said Anglo American had made matters worse by not bothering to apply the "apply or explain" principle of the code, which obliged it to tell shareholders why it was breaking the code.

"As shareholders, we obviously don't like this move. We had discussions with Anglo before this was announced, and we told them we didn't want this to happen, but they went ahead and did it anyway," Botha said of the first major test for the code.

The PIC owns 6% of Anglo Platinum - worth R11.4-billion - and has successfully forced large JSE-listed companies such as Barloworld and Sasol to change course on controversial appointments.

But in this case, there is little hope that the PIC will be able to strong-arm Anglo into changing tack.

"We can vote against it, but we don't have a chance when Anglo American owns (79%), so there's not much we can do, unfortunately," Botha said.

Other minority shareholders, including Old Mutual and Sanlam Investment Management, agree with the PIC's sentiments.

Old Mutual Investment Management holds about 1% of Angloplat, and head of research Brian Pyle said "this is not something we want to see happening" in the corporate arena.

"In reality, Cynthia Carroll might have been effectively fulfilling (the chairman's) role anyway, but it doesn't look great," he said.

Shareholder activist Theo Botha added: "This case illustrates how easily the new governance code can be ignored without consequence.

"Not only does Angloplat simply announce that it won't have an independent chairman, it also refuses to explain why, showing total disregard for a governance code that's not even six months old."

Anglo Platinum's board - which includes independent directors such as Tom Wixley, Wendy Lucas-Bull and Richard Dunne - "unanimously" rubber stamped Anglo American's nomination, knowing it flew in the face of governance rules.

In its announcement, Anglo said that Valli Moosa - the former chair of Eskom - would now be Angloplat's deputy chair and "lead independent director" given Carroll's conflict. It did not explain why it had breached the King code.

One insider said Anglo American was fully aware that this would spark a heated debate, "but the way the world works is that the 80% shareholder always calls the shots, and the directors were hardly going to go against that".

While many of the King code principles are specific "listing rules" for JSE-listed companies, Russell Loubser, the chief executive of the JSE said "the principle of an independent chairman isn't actually one of the listings requirements".

"We'd prefer companies to have independent chairmen, but there are some cases where chairmen aren't independent, and they still do a great job," he said.

While Loubser said that while he wouldn't want to see companies flouting the King III principles, sometimes "we have to be pragmatic" about individual situations.

Yet it is precisely because Anglo American holds such a big chunk of shares that truly independent directors are needed to ensure that small shareholders aren't given a raw deal.

Joel Wolpert, a director of Chartered Secretaries Southern Africa, said: "Anglo shouldn't have done this, because they should have been mindful of the legal principle that minority shareholders should not be oppressed."

This is not the first time that Anglo American has courted controversy for leaning on its platinum subsidiary.

Last year, Angloplat paid more than R3-billion to Anglo American in "related party" deals - a line that minority shareholders are watching closely to ensure that the parent is not siphoning too much cash from its subsidiary.

This includes a R1.67-billion payment for goods and services - a 194% jump from the R567-million it paid to its parent two years before - as well as R1.1-billion in interest on a R20-billion loan provided to Angloplat.

When asked about these escalating "services" costs last year, Dunne, conceded that there had been "a lot of heated discussion around that (in Anglo Platinum's audit committee)" given the relationship.