A makeover for the board of hospital group Netcare is in the works after pressure from shareholders over the tenure of its non-executive members, some of whom have been in place for more than 20 years.
Netcare CEO Richard Friedland said this week that shareholders Sanlam, the Public Investment Corp (PIC), Visio and BlackRock had recently raised concerns over the tenures of some directors.
At the hospital group's annual general meeting last week, 14.08% of shareholders voted for Azar Jammine to be removed after nearly 21 years on the main board, while 34.19% wanted him to leave the audit committee.
In the case of board member Norman Weltman, who has served for almost 20 years, the vote for him to step down from the main board was 15.63% and for him to leave the audit committee was 16.04%.
Of Netcare's seven nonexecutive directors, Jammine and Weltman are the longest serving; other members have been serving for between four and 12 years.
Friedland said: "The issue regarding the independence of long-tenured directors is a perennial one and has received heightened focus as a result of recent significant corporate governance failures.
"This issue really relates to technical governance rules pertaining to independence, rather than suggesting a negative perception towards a board or board member per se."
He said Netcare's nomination committee had noted the concerns of shareholders and the hospital group was making board refreshment a key focus area.
The group has experienced some big changes during Friedland's almost 14-year term, including the acquisition in 2006 of UK-based BMI Healthcare for R2.5bn - which was sold last year - and more recently a retrenchment process that began at its South African operations last month.
Friedland said in December last year that he had voluntarily forfeited his bonus as part of the restructuring process.
"Knowing that we were possibly facing a potential restructuring in 2019, I felt that I could not in good conscience accept any bonus. This decision was also taken by other members of my team.
"It does not have any direct impact on the restructuring process, but was taken in an attempt to mitigate any job losses," Friedland said.
In 2016 he received a bonus of R5.5m, which dropped to R2.7m in 2017.
Asked if he had any intention of stepping down himself, given his long service so far, he said: "I remain a servant of the company and answerable to shareholders and the board both in terms of my effectiveness and tenure."
Asief Mohamed, chief investment officer at Aeon Investment Management, said it was important that companies had directors who really were independent.
"Not every case is clear cut. I can think of boards of directors where there is a director who's been there for more than 10 years and he's not independent because he owns shares in the company but is nonexecutive.
"But they want him there because he has skills that the other directors don't have. It might be relationships with bankers; when it needs funding or better interest rates, he can just pick up [the phone] and make it happen," Mohamed said.
BlackRock and Visio declined to comment on their votes at the Netcare AGM or about concerns over governance at Netcare. The PIC did not respond to a request for comment and Sanlam said it could not comment as its representative at the AGM was off sick.
Nesan Nair, a senior portfolio manager at Sasfin Securities, said: "I think the investment community generally takes a very dim view of board members [serving] for extended periods - complacency sets in and the company is deprived of fresh new ideas.
"In a post-Steinhoff world, investors are scrutinising the board of directors even more closely, especially when it comes to whether they are actually acting in the best interests of shareholdings."
- Additional reporting Rob Rose..