Leon Greyling, COO of Motswedi Economic Transformation Specialists
Proxy voting and shareholder activism are critical tools for influencing corporate governance, enabling shareholders to shape company policies and hold boards accountable. In South Africa, where economic transformation and sustainability are pressing concerns, these mechanisms empower investors to drive change. While they offer significant benefits, such as promoting accountability and social impact, they also face challenges, including misuse and short-termism. Despite these drawbacks, their importance in fostering responsible capitalism cannot be overstated.
The power of proxy voting
Proxy voting allows shareholders to delegate their voting rights at company meetings, typically on issues like board appointments, executive pay, or environmental policies. This is particularly vital for institutional investors, such as retirement funds, managing large sums of money. In South Africa, where concentrated ownership often limits minority influence, proxy voting amplifies smaller voices. For instance, in 2024, a coalition of investors used proxy votes to push a major mining firm to enhance its emissions reduction plan, aligning with national climate goals.
Proxy voting promotes transparency and accountability. By scrutinising resolutions, shareholders can curb excessive executive compensation or challenge weak governance structures. A 2023 study by the University of Cape Town found that active proxy voting by South African asset managers led to a 12% increase in board diversity over five years.
Moreover, proxy voting enables engagement on environmental, social, and governance (ESG) issues. As signatories to the Principles for Responsible Investment (PRI), many South African funds use proxy votes to advocate for sustainable practices, ensuring long-term value creation.
The rise of shareholder activism
Shareholder activism takes engagement further, with investors actively campaigning for change through public statements, resolutions, or media pressure. In South Africa, activism has gained traction, addressing issues from racial equity to climate risk. For example, in 2024, activists successfully pressured a retail giant to improve labour practices, boosting its reputation and share price by 8% over six months.
Activism fosters strategic shifts. By challenging complacent boards, activists can drive innovation or divestment from unsustainable sectors. It also empowers retail investors, who, through collective action, can influence the giants. The Just Share movement, for instance, has mobilised small shareholders to demand better ESG disclosures from JSE-listed firms.
The challenges and risks
However, both mechanisms have pitfalls. Proxy voting can be passive or misaligned when asset managers vote without consulting beneficiaries or prioritise short-term gains over long-term sustainability. In South Africa, some funds face criticism for rubber-stamping resolutions due to resource constraints or conflicts of interest, undermining accountability.
Shareholder activism risks being disruptive or self-serving. Hedge funds, for instance, may push for share buybacks to inflate prices, neglecting broader stakeholder interests. In 2023, a high-profile activist campaign against a South African bank was accused of prioritising quick profits over job preservation, sparking public backlash. Overzealous activism can also strain company resources, diverting focus from core operations.
Why they matter
Despite these challenges, proxy voting and shareholder activism are indispensable. They democratise corporate influence, ensuring companies reflect shareholder values, particularly in South Africa’s transforming economy. Without them, boards could entrench power, ignoring pressing issues like inequality or climate change. The Code for Responsible Investing in South Africa (CRISA) underscores their importance, urging investors to act as stewards of capital.
To maximise impact, investors must adopt robust voting policies, engage transparently, and align actions with long-term goals. South African asset managers, managing R10 trillion in assets, wield immense influence. By leveraging proxy voting and activism responsibly, they can drive sustainable growth, ensuring companies contribute to a just and prosperous society.
Retirement funds should request reporting and scrutinise the proxy voting of their asset managers, ensuring their values are aligned.
ENDS
