Shareholder Meetings and Corporate Governance

5. South Africa case study

Abstract

This case study chapter delves into the dynamics of annual general meetings (AGMs) in South Africa, revealing the key policies and practices that shape the AGM landscape. South Africa was relatively well prepared for its AGM practices to adapt to the COVID-19 pandemic, given that its statutory framework already catered for virtual AGMs since its Companies Act went into force in 2011. When the COVID-19 pandemic started, the Johannesburg Stock Exchange’s Issuer Services developed a technical solution to allow companies to hold virtual AGMs. Virtual meetings have become the preferred format for most South African listed companies, with the hybrid form also gaining popularity.

5.1. Introduction

This case study explores the dynamics of annual general meetings (AGMs) in South Africa, highlighting the key policies and practices that define the AGM landscape. South Africa was well positioned to adapt its AGM practices during the COVID-19 pandemic, as its statutory framework had already accounted for the possibility of virtual AGMs. The Companies Act 71 of 2008 (Companies Act) provides that if a company’s memorandum of incorporation does not preclude it, a company may provide for a shareholders’ meeting to be conducted entirely by electronic communication.

South Africa has a clear legal framework for electronic meetings in place since the 2008 Companies Act came into force in 2011. For a company to hold a virtual or hybrid meeting, shareholders must be able to communicate directly with each other and the board without an intermediary. The Companies and Intellectual Property Commission (CIPC), responsible for enforcing the Companies Act and acting upon complaints, issued an advisory opinion in 2023 stating that all shareholders should have the opportunity to ask questions directly during the meeting and not be required to table them in writing or in advance. They also endorsed a good practice note (JustShare, 2022[1]) issued by the non-profit shareholder activist organisation Just Share in 2020, as “consistent with the Companies Act”.

When the COVID-19 pandemic started, the Johannesburg Stock Exchange’s (JSE) Issuer Services, in partnership with The Meeting Specialist (TMS) as well as other companies such as Computershare, developed a technical solution to allow companies to hold virtual AGMs. In 2020, Alexander Forbes hosted South Africa’s first virtual general meeting by a listed company using its services with 90.93% of voteable shares represented either in person or by proxy. In South Africa, the tendency is that companies rarely revert or change the format once they start holding meetings virtually. Since 2022, of the 703 AGMs facilitated by the JSE and Computershare, approximately 63% of listed companies were held virtually, 25% in hybrid format and 12% in person, according to data from the JSE and Computershare. Before the COVID-19 pandemic, all AGMs were in person. At the same time, some institutional investors oppose virtual meetings, raising concerns about the limited opportunities for shareholders to have an interactive dialogue, compared to in-person or hybrid meetings.

5.2. Corporate governance landscape and context

The South African stock market is the largest in Africa, with market capitalisation representing more than 289% of GDP in 2022 (World Bank, 2022[2]). South Africa is home to four stock exchanges, the JSE being the largest. The other three exchanges are much smaller in terms of market capitalisation and cater to specific segments of the market. A2X offers companies a platform for the secondary listing of their shares. The Integrated Exchange (I-Ex) allows investments in JSE-listed securities without requiring additional stockbroker accounts and provides a platform for the listing and trading of Broad Based Black Economic Empowerment (BBBEE) schemes.1 Meanwhile, the Cape Town Stock Exchange (CTSE) operates on a cloud-based system and specialises in direct listings.

Since 2018, South Africa’s market capitalisation has fluctuated, peaking at nearly EUR 1.27 trillion in 2022 before declining to EUR 908 billion in 2024.2 The number of listed companies has steadily decreased from over 350 in 2018 to 280 in 2024, with 124 of these being dual listed on other stock exchanges throughout the world.3 There is significant concern in South Africa about the de-listing trend. The Financial Sector Conduct Authority (FSCA) attributes this trend partially to the economic environment, returns from offshore markets and a move to private equity. Additionally, quantitative easing in global markets has made it easier for companies to raise funds through debt rather than equity (Allan Gray, 2021[3]). To address this trend and bolster liquidity, the JSE has launched two initiatives. First, it is simplifying its listing rules, currently over 400 pages long. A public consultation on this began in September 2023 and was half complete by April 2024 (JSE, 2024[4]). The second initiative involves a market segmentation, with the JSE aiming to tailor regulations to ease the burden on smaller companies on the main board. Indeed, there are limited opportunities for growth companies, as institutional investors tend to invest in the top 40 firms, often overlooking smaller firms. As a result, many small companies tend to de-list.

The ownership structure of listed companies in South Africa is relatively dispersed compared to the other jurisdictions covered by the OECD Corporate Governance Factbook. In 2022, only about 16% of South African listed companies had a single shareholder owning more than half of the shares, whereas the median for other jurisdictions is 32%. Additionally, 40% of South African companies had their three largest shareholders collectively owning more than half of the shares, compared to a 45% median in other countries (OECD, 2023[5]). In 2022, institutional investors and private corporations were the most dominant shareholders in South Africa, holding 24% and 23% of equity, respectively. This was followed by the public sector (14%), strategic individuals (3%), and other free-floating shares (36%) (OECD, 2023[5]).

Following the election of a new coalition government (Government of National Unity) in June 2024, market participants interviewed perceive the new government as more “business friendly”. They expressed cautious optimism that the new government’s approach might lead to improvements, supporting equity market development and potentially enhancing the governance of state-owned enterprises (SOEs). SOEs, such as the state-owned electricity provider, postal service and Public Investment Corporation (PIC), significantly impact the business environment (CNBC Africa, 2024[6]).

The Companies Act mandates a one-tier board system and requires public companies and SOEs to establish an audit committee. In addition, the Companies Act requires public companies, state-owned entities and public interest companies above a certain threshold to establish a social and ethics committee. This committee is responsible for monitoring the company’s activities related to environmental and social issues, reporting back to the AGMs.4 Additionally, the Companies Act and JSE listing rules mandate the establishment of a remuneration committee.5 The King IV Code of Conduct recommends the appointment of a non-executive independent chair as well as the establishment of nomination and risk committees, which are commonly formed by JSE-listed companies in practice (Bowmans, 2021[7]). The JSE Listing requirements mandate a separation in the roles of the chair and the chief executive officer. If the chair is not an independent non-executive person, the listing rules specify that a lead independent director must be appointed.

Corporate governance of listed companies in South Africa is overseen by two public regulators: the CIPC and the FSCA. The CIPC, an agency under the Department of Trade, Industry and Competition, was established in 2011 to register companies, cooperatives and intellectual property rights, as well as to enforce company law and corporate governance requirements. The CIPC typically responds to complaints from companies, though it occasionally conducts proactive investigations, often initiated by shareholders. They also perform compliance checks and random site visits to meet with company boards, taking a risk-based approach. The CIPC is a self-funded regulator. Fees are generated from a list of services that it offers such as companies’ registration fees, annual returns fees and data sales.

The FSCA, established under the Financial Sector Regulation Act of 2017, is responsible for exercising oversight over stock exchanges and financial market infrastructure (such as Strate). The FSCA investigates and enforces market abuse, including insider trading as well as financial statements and disclosures made by listed companies if they are potentially false, misleading, or deceptive, particularly if they influence investors to trade or refrain from trading at unsustainable prices.

The FSCA’s authority can be expanded further through conduct standards, initiated by the FSCA through engagement and consultation with relevant institutions, including the Reserve Bank and the Prudential Authority. As a self-funded organisation, the FSCA collects fees from regulated entities. Its senior management includes one commissioner and three deputy commissioners. The FSCA, CIPC and JSE collaborate closely during investigations through an inter-agency task force. While the FSCA does not directly regulate AGMs, it is reviewing the dual roles of self-regulatory organisations like the JSE and Strate, which have both commercial and regulatory functions.

South Africa’s enforcement authorities report that they play an active role in exercising their responsibilities. In a recent enforcement action by the FSCA, an investigation began in 2017 into what is considered one of South Africa’s largest corporate fraud cases, involving multiple market actors (CNBC Africa, 2018[8]). Following an investigation that concluded in 2024, the FSCA issued a EUR 23.9 million penalty to the CEO, who was found to have made or published false, misleading, or deceptive statements about the holding company, knowingly or with reasonable knowledge that they were inaccurate. These statements included the omission of material facts (FSCA, 2024[9]).

5.3. Main elements of the legal and regulatory framework

In South Africa, AGMs are primarily regulated by the Companies Act covering notices, meeting conduct, quorum requirements, adjournments and shareholder resolutions. Since its implementation in 2011, the Companies Act has allowed both virtual and hybrid meetings, unless prohibited by a company’s memorandum of incorporation. Furthermore, when a company holds an AGM with online shareholder participation, it must ensure that shareholders can ask questions verbally, in real-time, without an intermediary. However, South African listed companies only began holding virtual AGMs in response to the COVID-19 pandemic (ENS, 2024[10]). The FSCA pointed out that although permitted by law, companies did not hold virtual meetings before the pandemic because the technological systems did not necessarily accommodate the South African legal requirements. Additionally, investors, issuers, and service providers were familiar with attending small in-person meetings. Therefore, while the legal framework was enabling, the COVID-19 pandemic made the benefits of virtual meetings clearer to all parties involved.

The JSE listing rules also include AGM regulations, such as the distribution of AGM notices along with annual financial statements to shareholders.6 While the listing rules are binding for JSE listed companies, the JSE reported that market participants in South Africa find them long and complex, which has prompted a simplification project.

Another significant source guiding AGM conduct is the King IV Code, a set of recommendations and practices developed by the King Committee in 2016. South Africa was one of the first countries, along with the United Kingdom, to issue a corporate governance code in 1992. The initial King Code was considered a pioneering initiative globally. While the Code operates on an “apply and explain” basis, its principles are considered voluntary. Nonetheless, JSE listed companies are expected to apply these principles and explain the practices they have implemented, detailing in their annual reports how they support the principles. While Code Principle 16 offers limited guidance on AGMs, it does encourage companies to engage with shareholders during AGMs, ensure the attendance of all board members and the external auditor, treat all shareholders equally, and disclose AGM minutes publicly. Currently, South Africa does not have a national report that monitors listed companies’ compliance with the Code.

Under Companies Act Section 30, companies must prepare their annual financial statements within six months following the end of their financial year. Listed companies are required to have their financial statements audited. The auditing process is intended to ensure compliance with legal standards and to provide a clear picture of the company’s financial health. Audited financial statements must include an auditor’s report and directors’ report detailing the company’s situation, business performance and significant factors affecting finances. The board must approve these statements, and an authorised director must sign them before they are presented to shareholders at the AGM.

5.3.1. Recent developments and reforms

While the Companies Act does not mandate shareholder approval for the remuneration of directors, the Department of Trade, Industry and Competition recently proposed amendments to the Companies Act introducing a “Say on Pay” clause. These amendments, passed by Parliament but not yet in force, will require companies to disclose detailed compensation reports and obtain shareholder approval at the AGM for both their remuneration policies and their implementation.

Meanwhile, the King Committee, now hosted by the Institute of Directors South Africa (IoDSA), plans to update the King IV Code, focusing on corporate sustainability, remuneration policies and the integration of artificial intelligence (AI). However, there are no plans to revise AGM recommendations or add new guidance on AGM conduct. Although no major changes are expected in the Code, some stakeholders considered it is mainly aspirational with many companies approaching it in a “tick-the-box” manner. The upcoming update will aim to shift the mind-sets of those in companies implementing the Code. The revision process provides an opportunity to further raise awareness and understanding through extensive public consultations, involving investors and other relevant stakeholders, such as public institutions, companies, and shareholder activist organisations. The new Code is expected to be released in 2025.

5.3.2. Voting framework in South Africa

The voting framework in South Africa is primarily determined by the Companies Act. The Act allows for the issuance of different classes of shares, each with varying voting rights, including multiple voting rights. Consequently, a company can issue shares that grant a shareholder more than one vote per share. The specific rights, including voting rights, attached to any class of shares must be detailed in the company’s memorandum of incorporation.7

The required quorum for AGMs is set at a minimum of 25% of the voting rights eligible to be exercised on at least one matter to be decided at the meeting, though the memorandum of incorporation may set a lower or higher percentage.8 Certain decisions require shareholder approval through either an ordinary resolution, which needs the support of more than 50% of the voting rights exercised on the resolution, or a special resolution, which requires at least 75% support. These thresholds can be adjusted in the company’s memorandum of incorporation.9

Ordinary resolutions may cover matters such as the removal of a director, ratification of board resolutions that violate the Companies Act’s provisions on personal financial interest, approval of rules set by the board, the appointment of an auditor and the approval of the financial statements (Bowmans, 2022[11]). The Companies Act also lists matters that require a special resolution, such as amendments to the company’s memorandum of incorporation, approval of the voluntary winding-down of the company and approval of any proposed fundamental transaction. Furthermore, the memorandum of incorporation may include other matters requiring a special resolution.10

Although the Companies Act does not explicitly address electronic voting, Section 63 specifies that “(1) Any person present and entitled to exercise voting rights must on a show of hands have only one vote, irrespective of the number of shares he or she holds or represents; (2) On a poll at any company meeting, any member including his or her proxy, must be entitled to exercise all the voting rights attached to the shares held or represented by that person.” At the same time, the Strate Directive SC.5 - binding on issuers who use Strate to settle trades - provide three approaches to voting: manually through a participant, manually through an authorised user and electronically.

In addition, the King IV Code recommends that companies allow shareholders to pass separate non-binding advisory votes on the remuneration policy and implementation report. If either the remuneration policy or the implementation report, or both, are opposed by 25% or more of the voting rights exercised, the remuneration policy should outline the board’s commitment to addressing the objections and concerns raised by shareholders through engagement and other measures.11

5.4. Before a general shareholder meeting: Scheduling a meeting, eligibility to vote and information received for voting

The Companies Act provides certain requirements for the scheduling of AGMs and setting their location and date, intended to facilitate shareholders’ access to the meetings and to ensure their effective participation. It also aims to mitigate the risk of companies scheduling AGMs irregularly or in unclear locations. AGMs are to be held once every calendar year but no more than 15 months after the date of the previous AGM.12 The board is authorised to call an AGM13 with notices sent to all shareholders at least 15 business days before the AGM. The JSE listing rules require that the issuer must, within four months after the end of each financial year and at least 15 business days before the AGM (a) release its annual report through a results announcement and (b) distribute the AGM notice, together with a weblink to the annual report, to all shareholders.14 The JSE listing rules are consistent with the Companies Act in terms of what must be included in the notice:

• date, time, venue, and record date of the meeting

• agenda and proposed resolutions

• financial statements to be presented or a summary thereof, with instructions for how to obtain statements from the previous financial year (at least 15 business days before the AGM)15

• instructions on obtaining full financial statements

• information about appointing proxies.

If a company holds its meeting in a hybrid or virtual format using electronic communication, the Companies Act requires that the AGM notice inform shareholders of the availably of the electronic form of participation. It must also provide any necessary information to enable shareholders or their proxies to access the available means of electronic communication.16

The Companies Act further provides that if there is a material defect in delivering the AGM notice - meaning a significant issue that could influence the outcome or affect a person’s judgment - the meeting may still proceed, only if every person who is entitled to exercise voting rights on any agenda item is present at the meeting and votes to approve the ratification of the defective notice.17 In the absence of ratification, shareholders can take legal action in court to nullify the notice and AGM.18 In practice, case law supports this, stating that unless an AGM is properly convened, notices are void without waiver and ratification by all shareholders. Irregularities in convening or conducting a meeting can invalidate resolutions passed.19 These measures seek to further protect shareholders’ rights to access and participate in AGMs by providing shareholders with legal recourse in the event of a failure to convene an AGM.

Regarding the notification flow and meeting announcement, some service providers and issuers find the regulatory framework (Regulation 6 and Table CR3 of Companies Act) outdated. Although issuers do publish the AGM notice on their websites, registrars are bound by a legal requirement that each shareholder needs to individually receive the notice. Shareholders need to opt-in to receive the notice electronically. Considering that many e-mail addresses are unknown, incorrect or changed, most notices are sent by postal mail. To give an idea of the scale, Computershare20 noted that, for just one of the companies that uses its services, there are 15 195 shareholders of which only 7 689 have an e-mail address and 7 506 a postal address. As a result, registrars are reliant upon the country’s postal system to deliver such communications. Given this, the registrar is unable to guarantee that shareholders will receive their legal communications, which causes inefficiencies in AGM notification. There is therefore a risk that the AGM could be invalidated if a shareholder does not receive the notice, which could pose reputational damage to the company. There are other consequences: a lack of accurate or updated e-mail addresses combined with changes to bank accounts without notifying the company can make it difficult for shareholders to receive dividends. Computershare said that it continues to encourage shareholders to keep their e-mail address and other contact information updated for this reason.

The notice announcement must be received by postal mail, e-mail or JSE Stock Exchange News Services (SENS) 15 business days before the AGM.21 The record date to participate and vote at the AGM is 3 to 10 days before the meeting.22 (Companies Act, Strate Rules and JSE listing rules). The Companies Act allows a proxy to be appointed at any time, but stipulates that the appointment must be in writing, dated and signed by the shareholder, and a copy must be delivered to the company before the proxy exercises their right to vote at the AGM.23 The meeting date is set by the issuer and results of the meeting must be published on SENS within 48 hours after the meeting.24

A key challenge is effective shareholder communication due to a lack of accurate contact information in the issuer’s securities register. FSCA suggested that it is important to find a way to ensure that companies have an incentive to obtain contact details for the ultimate shareholders, whether by e-mail or postal mail. According to Strate, shareholder voting traditionally involves a complex, multi-step process with multiple intermediaries, causing delays, increasing the chance of human error, and limiting direct communication between investors and the issuers. In 2019, Strate introduced a fully digital, end-to-end voting platform that is already used by 50% of the market (by ownership percentage). This platform allows shareholders to connect with issuers, participate in company meetings from anywhere globally, vote in real-time and change their votes before the meeting concludes. Strate e-voting also enables nominees to allocate voting rights to their customers, ensuring that voting power remains with the beneficial owners of shares rather than with intermediaries (Strate, 2024[12]). Market participants have commented that it works well and allows for efficient e-voting via proxy either before or during the AGM, as desired. Some institutional investors consider it part of their business model to require their clients to delegate their asset management company to do the voting so that votes are centralised.

Regarding transparency before the AGM, a shareholder resolution must be drafted with clarity and specificity, accompanied by sufficient information or explanatory material. This will be considered sufficient if shareholders can determine whether to participate in the meeting and influence the voting outcome.25 Furthermore, the Companies Act sets out what the AGM agenda should contain, at a minimum, and specifically includes “any matters raised by shareholders, with or without advance notice to the company.” This enhances the rights of shareholders to raise any matters related to the company for discussion or consideration at a company’s AGM.

5.5. Differences among in-person and remote general shareholder meetings

The Companies Act and King IV Code provide guidelines on how AGMs should be conducted. The recommended practices for shareholder relationships under Code Principle 16 include proactive engagement between the shareholders and the company. Additionally, the Code recommends that all board directors should be available at the AGM to respond to shareholders’ queries. The main difference with hybrid meetings is that shareholders have numerous ways to ask questions directly, either in the room or on-line as well as through on-line chats, depending on the system adopted by the company. The CEO, chair and corporate secretary typically make the decision on the meeting format. Text messages at hybrid meetings can be seen by all participants (if allowed), are not moderated and usually read out by someone. In the case of virtual meetings, the only difference is that shareholders can ask questions only by text or orally depending on the company.

In 2020, the JSE issued guidance for shareholders on virtual AGMs, in coordination with the FSCA, as a response to the challenges posed by the COVID-19 pandemic. Available to registered shareholders on the JSE ShareHub platform and by e-mail, the guidance offers a comprehensive step-by-step guide for shareholders on how to register for and participate in a virtual meeting.26 According to market participants, the virtual meetings worked smoothy, with a few hiccups early on due to challenges with technology.

In practice, hybrid meetings are becoming more common among JSE listed companies, but virtual meetings are still dominant.27 Since 2022, Computershare and JSE have facilitated 422 and 281 AGMs respectively, bringing the total to 703. Of these 25% were in-person and 12% hybrid meetings, meaning 63% of meetings were virtual. Market participants interviewed preferred the hybrid format. In terms of costs, the virtual AGM is more efficient for companies, as they do not have to provide a venue, food etc. and shareholders can avoid travel costs. Based on a survey on AGMs, the JSE considers that they are perceived as a corporate communication exercise. If results are good, companies want to make it a splash and as easy as possible to participate. Boards typically do not appreciate difficult questions, but they recognise that they need to consider and address them. The JSE perceives that shareholder activism is increasing, especially with respect to climate and environmental issues. The way companies manage it can have reputational consequences, as in the case of a global chemicals and energy company, whose 2023 AGM was significantly disrupted by climate activists, attracting media criticism.

Large, listed companies have different reasons for choosing hybrid or virtual AGM formats. For some big companies, including a large bank, the reasons cited for moving to a virtual AGM in 2024 include shareholder attendance patterns, flexibility and convenience, and optimal accessibility and engagement, including for managing sensitive issues related to climate change. At the same time, some market participants expressed concern that companies can use virtual meetings to control the narrative more easily and minimise the speaking time of shareholders who raise difficult or uncomfortable questions.

Many listed companies report that there is very limited attendance at AGMs; it is perceived that hybrid meetings may increase participation. Most investors interviewed prefer hybrid meetings, which offer more flexibility. Some passive investors find that attending AGMs in person is most effective when they have something to say, as companies can otherwise limit participation if virtual. At the same time, these investors tend to inform the company in advance that they will engage at the AGM, if there is a specific issue. However, for the most part institutional investors prefer to avoid adversarial relations with the company (as this can lead to losing access). As journalists may attend the AGMs of some companies, bilateral engagement with investors takes place behind closed doors, to provide a more secure environment. Small activist investors like Just Share prefer to engage in a public setting with a view to promoting transparency and accountability.

Just Share, who has attended 97 AGMs since its inception, suggested that AGMs that employ “electronic communication” (either virtual or hybrid) may run the risk of not complying with Companies Act Section 63(2), which requires that companies that hold electronic AGMs to ensure that everyone participating can “communicate concurrently with each other without an intermediary and participate reasonably effectively in the meeting.”

Just Share believes that virtual meetings can become sterile exercises in which technology is deployed to avoid meaningful engagement with the board by limiting opportunities for dialogue. Institutional investors’ views were more nuanced, suggesting that companies should still have the right to conduct virtual meetings, for example in the case of a smaller company with very few shareholders willing to attend an in-person meeting. Meanwhile, institutional investors with large holdings undertake their engagement in advance and either do not attend the AGM at all or only on rare occasions when there is a significant issue to discuss, such as remuneration or a major change in corporate control.

5.5.1. Chairing a general shareholder meeting: handling questions and resolutions

In terms of the AGM meeting process, the chair usually opens the meeting, confirms the quorum and explains voting procedures also for appointing scrutineers. This is followed by a presentation of the annual financial statement and other reports. Shareholders can ask direct questions after the resolutions are tabled for voting. Once all questions have been responded to, the voting process starts. Shareholders usually vote by ballot although it can also be done electronically. Once voting has been closed, the scrutineers will collect ballots and tabulate the votes on the on-line platform. Voting results are announced by the chair and the meeting is then concluded. After the meeting, the results are summarised in a JSE SENS announcement, while the details of all the relevant reports are retained by the issuer for record purposes.

Virtual and hybrid meetings must enable all persons participating to communicate with each other without an intermediary, and to participate effectively in the meeting. While the Companies Act does not define “intermediary” and with no legal precedent in court, the purpose of this requirement is to enable shareholders to engage freely, meaningfully and directly with each other, including shareholders with the chair (and where applicable board members) at the AGM. The implication is that the individual who facilitates the AGM should ensure that they do not act as an intermediary between participants in the AGM. This can be interpreted as the role of the chair being mainly to ensure that the meeting follows the agenda and to call upon the relevant participants to speak or ask questions at the relevant time, to avoid infringing on shareholders’ rights. Typically, the company secretary or equivalent prepares an AGM briefing file for the chair, the board and the CEO, followed by a briefing session with the board.

There are three platforms in South Africa that facilitate in-person, hybrid or virtual meetings: Lumi, Computershare and TMS. In-person participation in AGMs includes oral engagement with other participants, though it is not limited to it. As noted by some market participants, this is especially true for those shareholders posing questions to the board. In the case of hybrid or virtual meetings, considering shareholders’ rights to participate effectively in the meeting, companies are expected to ensure that the online platform used for hosting the AGM allows shareholders to engage orally so as not to stifle the discussion. Further, companies should not limit engagement to text-based communication. In a recent legal opinion by the CIPC, it was specified that if a company conducts a virtual-only AGM where shareholders are not permitted to ask questions in “real-time” without an intermediary, or if they are required to submit all questions in advance, the meeting will not be recognised as an AGM under the Companies Act (CIPC, 2023[13]).

Some market participants, however, stated that very few shareholders participate in AGMs and only a few ask questions. On the contrary, one large bank noted that in 2023, 30 questions were asked during the hybrid AGM, two-thirds of them virtually. In 2024, when the AGM was virtual, however, only six questions were asked, which could serve as an indication that hybrid meetings are more conducive to fostering engagement than virtual meetings. The company suggests that one explanation could be that AGMs are not the only platform for engagement. After publishing their annual reports and the AGM notice, multiple engagements are held before the AGM on a broad range of topics, guided by the themes raised by various shareholder and stakeholder groups with whom they actively engage. Therefore, it could be that those shareholders do not feel the need to attend or raise matters at the AGM itself. On the other hand, Just Share reported that its own reason for not raising questions in a bank’s 2024 AGM was a form of protest because they consider virtual meetings to be less conducive to open dialogue.

Prior to 2020, one large bank held in-person meetings with not more than 25 participants, including some bank staff. Between 2020-22, AGMs were held in virtual form only. In 2023, the AGM was conducted in a hybrid format (with some disruption involving protests outside of the meeting), while in 2024, the bank moved to virtual only and had less than 15 participants. The last AGM to be held in person was in 2019. Some market participants suggested that greater shareholder activism is a relatively recent phenomenon in South Africa, as NGOs with share ownership have become more active in raising issues, focusing on climate and inequality concerns. Some market participants suggested that asking questions is the best way to foment engagement.

The King IV Code also recommends28 that corporate governance practices include the board overseeing that the company encourages proactive engagement with shareholders, including at AGMs. It further recommends that all directors and the external auditor be available at the AGM to respond to shareholders’ questions on how the board carried out its governance duties. This is consistent with the purpose of AGMs to provide a platform for shareholders and the board to engage on matters related to the company and for shareholders to hold directors accountable. Board members were reported to be generally available to respond to questions at the AGM. However, it is difficult to know how this operates in practice, as there is no monitoring nor aggregate reporting on compliance with the Code. Market participants claim that this works well, in general.

Shareholders are also often able to pose questions to the board after the AGM, through written communication via the company secretary who would share them with the relevant director or the board. This may pose additional challenges as the response to the questions may not be as prompt as responses to live questions during an AGM, and there are legal requirements for board members to respond to questions posed outside the AGM.

5.5.2. Managing technological and digital security risks

To participate in the AGM as well as to vote, either as a shareholder or a proxy, identification is required and verified. According to market participants, the common practice with in-person AGMs is to have attendees fill in a registration form at the meeting location and provide an official form of identification for the company to verify. Technological advances have made it possible for attendees of virtual and hybrid AGMs to upload proof of their identity during the online registration process, and proof of authority when acting in a representative capacity.

The use of electronic communication platforms does, however, give rise to technology-related risks which include, but are not limited to, cybersecurity risks and technological disruptions due to power outages that could impact the meeting. In this regard, some market participants suggested that it is up to the board, with the support of management, to ensure that they make use of secure electronic communication platforms to avoid data breaches and relevant cybersecurity risks. For instance, in the early days of the COVID-19 pandemic there were some technical disruptions; in one company a hacker managed to transform the face of a judge into a potato and another participant into a cat. In recent years, no such problems have surfaced. In addition, investors consider that with cybercrime on the rise, data security needs to be improved. The electronic communication platform should also be able to accommodate many participants to minimise the risks of the platform crashing during the AGM. As an additional measure, due to occasional planned power outages in South Africa, companies (as well as shareholders) should have power backup plans available. In less developed areas, access to affordable, user-friendly platforms would be helpful. AI may also have a role to play in the future in facilitating AGMs.

The Chartered Governance Institute of Southern Africa (CGISA) noted that while South Africa is rather advanced in using electronic platforms, not only for AGMs but also for board meetings, they can run into problems with load shedding (electricity interruptions) which can interrupt access occasionally for some shareholders. Load shedding occurs on a rotating basis so that not all regions experience interruptions at the same time, meaning that remote participants might face disruptions that the company does not experience on its side. In their notices, companies stipulate that the shareholders are responsible for ensuring access on their side. Some stakeholders noted the importance for companies to have a plan for handling technical disruptions and ensure robust technical support.

5.6. Ensuring proper and accurate vote counting

The South African corporate governance framework does not provide specific rules and recommendations regarding the proper and accurate counting of votes. Further, it does not address practices such as appointing an independent party to count votes, auditing voting results or implementing end-to-end voting confirmation.

In practice, vote counting appears to be conducted electronically. This is because most votes are cast before the AGM and often companies know the voting results before the AGM takes place.29 The JSE, when it acts as a transfer agent, has companies that monitor voting to make sure it is done correctly.

Strate’s central e-voting platform was created in 2019. It is a subscription service offered to issuers and provides an access point for AGM voting processes. Strate is a financial market infrastructure, that also has self-regulatory powers and, as the Central Securities Depository and settlement authority, has issued rules with respect to voting procedures. For instance, Directive SC.5 outlines how domestic companies can vote on equity securities and Directive DC.6 sets out requirements for foreign incorporated companies. All votes must be disclosed directly on the Strate platform within 24 hours, on companies’ websites and on SENS.

A voting confirmation report is posted on the Strate platform on a monthly and quarterly basis. It actively monitors operational matters, sending alerts and reminders to clients with AGM deadlines. Through their platform, shareholders can comment on resolutions as well as engage with the issuer. The platform also allows for direct communications between shareholders and the company, which can help companies understand how shareholders intend to vote.

The Strate e-voting platform currently services 21 clients, including asset managers, brokers and custodians representing EUR 171 billion of assets under management. Strate also engages with global custodians (i.e. Broadridge, ISS, State Street and JP Morgan) allowing more time to vote based on bilateral agreements (ISS, 2023[14]). Shareholders can vote before a meeting (intention to vote) or in person using a mobile phone, tablet or laptop. Issuers can track voting. Custodians connect to Strate e-voting through a web-based application to manage shareholder meetings for South African and foreign-listed issuers. This is said to reduce the cost, volume of paperwork, and complexity of meetings for all parties, from issuers and investors to custodians and asset managers. Custodians have access to real-time voting information leading up to, and during, a meeting. Moreover, custodians can assign voting rights to clients on the system, allowing them to vote directly. Votes are automatically tallied on behalf of asset managers and submitted to issuers and their agents.

Institutional investors tend to use the Strate Platform to vote. They find the platform effective and information flow straightforward, allowing enough time to prepare for meetings. The Clearwater case was mentioned as relevant, as it removed any time restrictions for a company to receive advance proxy votes ahead of an AGM or any special resolutions being tabled.30 Even if a vote is cast in advance of the meeting, it is possible to change the vote at the AGM until the resolution is tabled31 – however in practice this is rarely done. If proxies are late, some small institutional investors noted that they tend to vote in person by accepting or rejecting the resolution, but not abstaining from voting. However, their underlying clients tend not to be too concerned about voting. If there is a challenge, they will engage bilaterally with the company, including through annual engagement letters or meetings, having robust access to corporates. In terms of engagement, they track CO₂ emissions, board independence and diversity (gender and race). Large institutional investors tend not to be active at AGMs, as companies will engage with them before the meeting on critical issues.

5.7. After a general shareholder meeting: Transparency and engagement

The JSE listing rules set out requirements for disclosing AGM voting results on their SENS platform within 48 hours after the meeting including details on resolutions proposed and/or passed by written procedure. The Companies Act also requires issuers to maintain the notice and minutes of all AGMs, including all resolutions adopted, for seven years.

Recent amendments to the Companies Act require a company to present its remuneration policy, in force for three years, for approval by shareholders at the AGM. The JSE listing rules further require the implementation report to be tabled every year for separate non-binding advisory voting by shareholders at the AGM. The JSE approach is more demanding than the Companies Act in terms of frequency but is more lenient with regards to shareholder votes. This will likely be modified to align with the Act’s revision.

In terms of AGM minutes, Just Share noted some challenges in transparency practices with regards to the disclosure of meeting minutes, as recommended by King IV. Some companies provide an accurate account of the AGM proceedings, including questions that were asked, and the responses received by the board and/or executive management. While the JSE listing rules mandate the submission of AGM minutes,32 they do not specify whether the Q&A session must be included. The JSE’s view is that the minutes need not include the Q&A session, arguing that it is not part of company “business” deserving of being included. The JSE also claims that making a video of AGM proceedings available is sufficient. However, Just Share considers that this approach misconstrues the Companies Act, which states that the business of the AGM includes any issues raised by shareholders. The JSE has decided not to publish issuers’ AGM minutes on their website because a company could argue that it has disclosed “proprietary” confidential information, and it must be careful to avoid court action. However, this is seen by some market participants as an excuse because companies allow the media to attend as guests. Investors claim it is important for the public to see what happened at the AGM and what commitments companies have made in response to questions. Just Share is considering issuing a new best practice guide for AGMs, to update the 2020 version with the many lessons learnt since COVID-19 (JustShare, 2022[1]).

5.8. Enforcement of general shareholder meetings framework

According to the Companies Act,33 if a company fails to convene an AGM within the legally required time for any reason other than because it has no directors or because all of its directors are incapacitated, a shareholder may apply to a court for an order requiring the company to convene a meeting on a specific date, and subject to any terms that the court considers appropriate in the circumstances. According to the Companies Act, failure to hold the AGM within the prescribed timeframe can result in the court issuing a fine, deciding on imprisonment for a period not exceeding 12 months or both34 – considering that it can hinder the approval of financial statements and impact respect of shareholder rights.35

It is worth noting that courts have expressed their reluctance to interfere in company affairs. For instance, the court’s view in CDH Invest NV v. Petrotank South Africa (Pty) Ltd, wherein the court held that conferring upon itself the power to instruct the board to call a meeting is counter-intuitive because the court generally declines interfering in the management of company affairs.36

The CIPC noted that it investigates complaints in terms of the Companies Act. However, it reported it has not received complaints from shareholders about inadequate conduct at AGMs. Most complaints received tend to come from companies and may involve, for example, disputes between board members. The CIPC’s enforcement powers are limited, as it cannot issue fines for wrongdoing, and essentially the main action available to it is to invalidate decisions if the proper process was not followed. The CIPC has powers to investigate and issue compliance notices to the companies that are non-compliant, but no powers to automatically impose administrative fines without applying to court. The Companies Tribunal, which operates within the Department of Trade, Industry and Competition, can adjudicate disputes involving companies and shareholders, but these rarely relate to AGMs except when companies ask for an extension of the meeting date.

Market participants indicated that there are cases where board members have been challenged for failing to act in the interests of the company, each case decided on its own merits. An asset management company representative noted that South Africa has a non-confrontational culture and that shareholders are reluctant to criticise a company in a public setting or to take legal action because they believe it may reduce their access to the market in the future if they take a more confrontational approach.

Just Share has also highlighted the challenges with filing shareholder resolutions. Between 2019 and 2022, four climate-related resolutions were put forward to a large, listed company. In 2019, this company was the first in South Africa to table a shareholder-proposed resolution on climate-risk. However, in 2020 and 2021, the board resolved not to include a shareholder resolution, while in 2022 it decided to include one. Another large, listed company, decided not to table climate risk-related resolutions submitted over the same period. Both companies claimed that they had received legal advice that the tabling of such resolutions was at the discretion of the company (Just Share, 2021[15]) (Just Share, 2022[16]). In early 2021, Just Share received a legal opinion on shareholders’ rights to file climate risk-related resolutions (JustShare, 2021[17]), asserting that shareholders are allowed to file and have their climate-related resolutions tabled at AGMs, and directors do not have unilateral discretion to refuse to table shareholder-proposed resolutions on content-based grounds. If there are disagreements over the validity of a resolution, those can be aired at the AGM and put to a vote. At the very least, directors could go to court to seek an order blocking the resolutions (JustShare, 2021[17]).

Just Share has recently filed a complaint with the CIPC, related to 2023 and 2024 AGMs held by one company with regards to enforcement of the Companies Act provision that “…any 2 shareholders of a company: (a) may propose a resolution concerning any matter in respect of which they are each entitled to exercise voting rights; and (b) when proposing a resolution, may require that the resolution be submitted to shareholders for consideration.” They claim that in both cases shareholder resolutions were co-filed, framed in non-binding, advisory terms and complied with all the procedural and formal requirements under the Companies Act and the company’s memorandum of incorporation. Allegedly, the company refused to circulate and table the climate-change related resolutions, in breach of its obligations. The company claims that the AGM is not the appropriate fora but that it is free to engage with others or express its views otherwise. Just Share is requesting an investigation and compliance notice.37

Another complaint filed by Just Share with the CIPC relates to enforcing shareholder rights at AGMs as per the Companies Act and relates to a company and its 25 July 2024 AGM. Allegedly, the company (a) failed to ensure that all matters raised by shareholder could be addressed; (b) failed to ensure that the AGM was reasonably accessible for electronic participation by shareholders; and (c) failed to ensure that the electronic communication employed enabled all participants to communicate concurrently with each other without an intermediary, and to participate effectively in the meeting. Likewise, it will be interesting to follow how the request for an investigation and compliance notice evolves, with regards to enforcing shareholder rights.38

The CGISA noted that equitable treatment of shareholders is a concern. Minority shareholders can obtain legal redress if they are well-prepared. However, most shareholders would prefer to sell their shares rather than pursue legal action due to the costs and difficulties involved. Class actions are gaining momentum but not common.

5.9. Key findings

South Africa has a clear legal framework for holding virtual AGMs. Amendments to the Companies Act in 2008 state explicitly that electronic meetings are allowed, and that shareholders should have the right to communicate effectively with the board and with each other at the meeting without an intermediary. The Companies and Intellectual Property Commission, which is responsible for enforcing the Companies Act and acting upon complaints, issued an advisory opinion in 2023 stating that all shareholders should have the opportunity to ask questions directly during the meeting and not be required to table them in writing or in advance. They also endorsed a good practice note issued by the small activist organisation Just Share in 2020 as “consistent with the Companies Act.” Furthermore, the Companies Act allows any two shareholders to propose an issue for consideration at the AGM. There is an ongoing debate between some investor groups and companies on whether that also includes an explicit right to table a resolution.

Virtual meetings have become the most common AGM format for South Africa’s listed companies. While one-fourth of all AGMs held since 2022 were in hybrid format, nearly two-thirds are now conducted in virtual format. Companies that have moved from hybrid to virtual AGMs cite efficiency, costs and concerns about potential disruptions. Since the COVID-19 pandemic, most listed companies have moved to virtual meetings, particularly large companies that may attract public protests. At the same time, some of the institutional investors, as well as Just Share, have stated that virtual meetings do not always provide the same opportunities for “effective communication” as in-person or hybrid, and that hybrid is the best practice from a corporate governance perspective. Nevertheless, institutional investors’ views were more nuanced, suggesting that they believed companies should still have the right to conduct virtual meetings, for example in the case of a smaller company with very few shareholders willing to attend an in-person meeting. All acknowledge that institutional investors with large holdings generally undertake their engagement in advance and either don’t attend the AGM at all or only on rare occasions when there is a major issue for discussion.

Cases of enforcement involving AGMs are rare in South Africa, and complaints to regulators are not common. Most complaints received tend to come from companies and may involve, for example, disputes between board members. The CIPC’s enforcement powers include issuing compliance notices, which can be enforced, and invalidating decisions if the proper process was not followed. A Companies Tribunal has been established which can adjudicate disputes involving companies and shareholders, but these have not related to AGMs in practice. Stakeholders indicated that there are “quite a few” cases where board members have been challenged for failing to act in the interests of the company, each decided on its own merits. An asset management company representative reported that South Africa has a non-confrontational culture and that shareholders are reluctant to criticise a company in a public setting or to take legal action because they believe it may reduce their access to the market in the future. Just Share was an exception in preferring more public engagement to hold companies accountable through the AGM process (although they emphasise that their aim is to participate in constructive dialogue).

With regards to engagement and transparency, some investors believe AGM minutes do not provide sufficient information. A concern raised by some small activist investors is that minutes of AGMs which must be published often do not include any details of questions or their responses, mainly referring to voting results. In this regard, there does not appear to be the same level of transparency as in some other countries in terms of posting questions and answers on company web sites.

South African listed companies consider the requirement obsolete to have to send out paper mail notices to all shareholders unless they expressly give permission to receive the notice by e-mail. In addition, there are thousands of shareholders for whom they do not have an e-mail address, which means they are required to send the notice to their last known physical address. This results in the return to sender of thousands of pieces of undelivered postal mail. However, the FSCA suggested that it is important to still find a way to ensure that companies have an incentive to obtain the correct contact details for their shareholders, whether by e-mail or regular mail.

The South African framework does not provide specific rules and recommendations regarding the proper and accurate counting of votes, although in practice vote counting appears to be conducted electronically mainly by proxy. Strate has introduced an e-voting system that 50% of the market (in terms of ownership) is using which provides for more seamless communication involving both the nominee custodians and their underlying beneficial owners. It is reported to be working well and allows for efficient e-voting via proxy either before or during the AGMs. However, interviewees suggested that there is not much demand among beneficial owners to use such systems to vote their shares directly. One asset management company stated that the number of its clients that have ever asked to vote their shares directly is particularly small.

References

[3] Allan Gray (2021), Our take on the “shrinking” JSE, https://www.allangray.co.za/latest-insights/local-investing/our-take-on-the-shrinking-jse/.

[11] Bowmans (2022), South Africa Minority Shareholder Rights, https://www.ibanet.org/document?id=Minority-Shareholder-Rights-South-Africa-22.

[7] Bowmans (2021), Spotlight: corporate leadership in South Africa, https://www.lexology.com/library/detail.aspx?g=5276aab8-f624-481a-9a18-8e565d36cffb.

[13] CIPC (2023), NON-BINDING LEGAL OPINION IN TERMS OF SECTION 188 (2)(b)(i) OF THE COMPANIES ACT 71 OF 2008 (as amended), https://www.cipc.co.za/wp-content/uploads/2023/04/NON-BINDING-LEGAL-OPINION-AGMs.pdf.

[6] CNBC Africa (2024), Investors cautiously optimistic S.Africa’s new government can deliver growth-friendly reforms, https://www.cnbcafrica.com/2024/investors-cautiously-optimistic-s-africas-new-government-can-deliver-growth-friendly-reforms/.

[8] CNBC Africa (2018), Inside the Steinhoff saga, one of the biggest cases of corporate fraud in South African business history, https://www.cnbcafrica.com/2018/steinhoff-rise-fall/.

[10] ENS (2024), Best Practices for Virtual and Hybrid Annual Shareholder Meetings in South Africa.

[9] FSCA (2024), Update on Steinhoff International Holdings Limited and Steinhoff International, https://www.fsca.co.za/News%20Documents/Press%20Release_Update%20on%20Steinhoff%20International%20Holdings%20Limited%20and%20Steinhoff%20International%20Holdings%20NV_20%20March%202024.pdf.

[14] ISS (2023), ISS GPD and Strate Collaborate to Streamline Proxy Voting Lifecycle in South Africa, https://insights.issgovernance.com/posts/iss-gpd-and-strate-collaborate-to-streamline-proxy-voting-lifecycle-in-south-africa/.

[4] JSE (2024), Simplification Project, https://clientportal.jse.co.za/Content/Presentations/Presentation%20Docs/20240318%20Simplification%20Project%20Webinar%20March%202024%20Final.pdf.

[16] Just Share (2022), Standard Bank: climate change shareholder resolution & 2022 Climate Policy analysis, https://justshare.org.za/media/news/standard-bank-climate-change-shareholder-resolution-2022-climate-policy-analysis/.

[15] Just Share (2021), Sasol refuses to table shareholder-proposed resolution – for the sixth time, https://justshare.org.za/media/news/sasol-refuses-to-table-shareholder-proposed-resolution-for-the-sixth-time/.

[1] JustShare (2022), Best practices for South African Virtual Annual General Meetings, https://justshare.org.za/wp-content/uploads/2022/11/200508-Best-Practices-for-South-African-virtual-AGMs.pdf.

[17] JustShare (2021), Legal opinion on shareholders’ right to file climate change-related shareholder resolutions, https://justshare.org.za/wp-content/uploads/2022/11/210326-Summary-of-legal-opinion-on-shareholders-right-to-file-climate-change-related-shareholder-resolutions.pdf.

[5] OECD (2023), OECD Corporate Governance Factbook 2023, OECD Publishing, Paris, https://doi.org/10.1787/6d912314-en.

[12] Strate (2024), E-voting, https://www.strate.co.za/wp-content/uploads/2024/04/Evoting-2024.pdf.

[2] World Bank (2022), Market capitalization of listed domestic companies (% of GDP) - South Africa, https://data.worldbank.org/indicator/CM.MKT.LCAP.GD.ZS?locations=ZA.

Notes

← 1.  In South Africa, some companies offer a specific number of shares to black investors. Sometimes these shares are held in schemes, which can be listed on the JSE or on I-Ex.

← 2. Conversions numbers are as of December of each year but as of 2 September 2024 for 2024 only. The ZAR to EUR conversion is based on the exchange rate provided by the South African Reserve Bank at the end of December for each year. See Selected Historical Rates (resbank.co.za).

← 3.  Data provided by JSE to the Secretariat, as of August 2024.

← 4.  Section 72(4) of the Companies Act.

← 5.  Paragraph 3.84 of the JSE Requirements.

← 6.  JSE listing rules paragraph 3.16.

← 7.  Section 36 and Section 37 of the Companies Act.

← 8.  Section 64 of the Companies Act.

← 9.  Section 65(7) and Section 65(9) of the Companies Act.

← 10.  Section 65(11) of the Companies Act.

← 11.  Principle 14 of the King IV Code.

← 12.  The Companies Act outlines procedures for handling postponements and adjournments.

← 13.  Section 62 of the Companies Act.

← 14.  However, the Companies Act allows for more flexibility, as a company’s memorandum of incorporation may provide for a longer or shorter minimum notice period, whereas the JSE listing rules do not.

← 15.  The Listing rules already require the issue to release its annual report, which is broader than the annual financial statements, at least 15 days before the AGM. However, this is not required by the Companies Act.

← 16.  Section 63(3) of the Companies Act.

← 17.  Section 62(4) of the Companies Act.

← 18.  Section 195 of the Companies Act.

← 19.  Van Zyl v. Nuco Chrome Boputataswana (Pty) Ltd 2013 JDR 0452 (GSJ).

← 20.  Computershare South Africa manages over 2 million shareholder accounts, providing share registry and custodial services for over 80% of the JSE listed companies.

← 21.  Section 62(1) of the Companies Act and Paragraph 3.16 of the JSE Requirements.

← 22.  Section 59(2) of the Companies Act, Paragraph 2.1 of the Strate Directive SC.5, and Definitions of the JSE Requirements.

← 23.  Section 58 of the Companies Act.

← 24.  Paragraph 3.95 of the JSE Requirements.

← 25.  Section 65(4) of the Companies Act.

← 26.  Available at: https://www.jse.co.za/issuer-services/sharehub.

← 27.  Based on the data provided by Computershare to the Secretariat, between 2022-2024.

← 28.  King IV Code (2016) Principles 16, practice 6.

← 29.  Data provided by Computer Share to the Secretariat, as of July 2024.

← 30.  Barry v. Clearwater Estates NPC and Others (187/2016) [2017] ZASCA 11; 2017 (3) SA 364 (SCA) (16 March 2017).

← 31.  Section 58 of the Companies Act.

← 32.  Paragraph 16.22 of the JSE Requirements.

← 33.  Section 61 (12) and Section 61 (7), respectively, of the Companies Act.

← 34.  Section 61(7)(b) and Section 216(b) of the Companies Act.

← 35.  Section 213 of the Companies Act.

← 36.  CDH Invest NV v. Petrotank South Africa (Pty) Ltd 2018 (3) SA 157 (GJ), para 81.

← 37.  Complaint lodged with the Companies and Intellectual Property Commission in terms of Section 168 of the Companies Act 71 of 2008, as amended – Just Share.

← 38.  Complaint lodged with the Companies and Intellectual Property Commission in terms of Section 168 of the Companies Act 71 of 2008, as amended – Just Share.