Shareholders stonewall RMH non-execs’ pay

Fed up with runaway executive remuneration and want to do more than just “advise” the board of your unhappiness? Get a few like-minded shareholders together and vote against the non-executive directors’ fees. 

That’s what a group of RMH shareholders did at the AGM on Wednesday. It wasn’t a long-term plan; it turns out disgruntled shareholders had managed to build up a sufficient stake in the company – thanks to its sustained underperformance – and found themselves in a position to make a statement. That statement was: we’re not happy with the generosity heaped upon the executives while the value of our investment seeps away. So, we’re chopping the fees of non-executive directors who enable the process. 

Remarkably, given all the complaints about out-of-touch executive pay, this is only the third time shareholders of a JSE-listed company have blocked the payment of non-executive directors’ fees. Even more remarkable is that this is the first time non-executive director fees were blocked because of frustration with remuneration paid to the executives. 

In November 2020 Sasol’s extremely well paid non-executive directors had to promise to take a 20% cut in fees in a bid to sidestep a threatened revolt by shareholders. And in the same year 61% of shareholders in property investment company Safari voted against non-executive directors’ fees. 

Then at Mpact’s AGM in 2022, Caxton used its 34% stake to block payment of the packaging group’s non-executive directors’ fees. 

An obvious strategy

Given how ineffective the two non-binding advisory votes on remuneration have been in reining in executive remuneration, targeting the non-executive directors seems the obvious strategy. It is after all the non-executive directors who grant the necessary authority to pay the executives, so they are entirely responsible for the sky-high levels of generosity. Notwithstanding references to benchmarking exercises and remuneration consultants. 

Better still, a special resolution needs the backing of at least 75% of the shareholders, which means it can be blocked by 25% of the shareholders attending an AGM. Because it’s unusual for more than 75% of shareholders to attend, it’s unlikely that as much as 25% of the shareholder base would be required. Only 53% of shareholders bothered to attend RMH’s virtual-only AGM, which means the resolution was blocked by about 14.5% of total shareholders. Crucially, however, this comprised 27.15% of the shareholders in attendance. 

An additional advantage is that unlike the two non-binding advisory votes, the vote on non-executive directors’ fees has consequences, as the RMH board has just found out.  

RMH CEO Brian Roberts acknowledges that the board is now in unfamiliar territory and tells Currency the directors will discuss it at a meeting in a few weeks’ time. 

It’s unlikely RMH will be able to use the same tactic that packaging group Mpact used back in 2022 when it failed to get its non-executive directors’ fee resolution passed. 

The Mpact board got around it by appointing all of its non-executive directors to the board of its main operating subsidiary. Caxton, which is involved in a tug-of-war with Mpact, has voted against the resolution every year since in a rather ineffectual show of annoyance. 

It would be a bit of a stretch for RMH to justify appointing its non-executive directors to its only subsidiary, RMH Property, as it’s a holding company for minority stakes in a few property companies. The most valuable of those is Atterbury, in which RMH has a 38.5% stake. 

Of course, Atterbury is not quite as valuable as it used to be, which is the main reason minority shareholders feel so aggrieved.  

Value destruction

At the latest AGM, the 2022 value-destroying sale of Atterbury Europe once again came up for discussion. And once again chair Herman Bosman and Roberts attempted to defend the decision to rush the sale of the valuable Europe-based property asset. Not only was the selling price poor, it was done when the rand was unusually strong.

Minority shareholders, including Chris Logan of Opportune Investments and Albie Cilliers of Breede Coalitions, estimate shareholders lost out to the tune of R500m. Making matters worse, while Atterbury South Africa has since trundled along unimpressively, its former European business is storming forth. 

Cilliers and Logan believe RMH, once a jewel in the JSE financial sector, ventured into property just as that market peaked. It paid a hefty premium to buy a minority stake in unlisted Atterbury at the top of the market and suffered a massive discount when it sold Atterbury Europe at the bottom of the market.  

Logan was so frustrated that he attempted to exercise his appraisal rights at the time of the deal back in 2022 in the hope of getting better value for his RMH shares. But threats of prolonged and potentially extremely expensive legal action against him by the board, going as far as the Constitutional Court, led to him abandoning his appraisal rights. He remained on as a shareholder. 

Referring to that legal spat, Bosman told shareholders at the latest AGM that the company also had rights. “You can’t take umbrage at us pushing back,” he told Logan. He also stressed selling Atterbury Europe was the “best decision” taken on the basis of the “best knowledge” at the time. “Only with the benefit of time does it look bad; at the time it looked like a positive deal.”

He reminded the AGM that 97% of shareholders voted to support the deal. Which is true, though only 59% of shareholders attended the 2022 meeting to vote on the sale. 

Constant pressure from shareholders (many of whom had bought into the company after the unbundling of FirstRand in 2020) to “monetise” the group’s remaining assets was also a major factor in the decision to sell RMH’s most valuable remaining asset.  

“As I saw it at the time, we were able to sell it because it was our best asset, it performed well and was a euro-hedge,” said Roberts.  

But the pressure to monetise was soon stamped all over RMH’s executive remuneration policy. Executives were rewarded for selling assets at almost any price, say Cilliers and Logan, and distributing the proceeds to shareholders. The monetisation strategy ensured Bosman and Roberts have been rewarded to the tune of tens of millions of rands despite the value destruction. 

As a long-term RMH shareholder Logan was particularly vexed by the board’s willingness to bow to pressure from short-term investors, which he argues has destroyed value and left a company that now trades at a 53% discount to its net asset value. 

You can see why they might want someone else to share a little of the pain.