Brainworks wants more shareholder involvement

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Investment holding company Brainworks Ltd, which has extensive operations in Zimbabwe, is pushing the frontiers of corporate governance with its proposal to have shareholders involved in establishing thresholds on directors borrowing powers and executive remuneration.

In a SENS announcement yesterday, Brainworks notified shareholders that it proposed certain amendments to the company’s constitution to align the same with best corporate governance practice by establishing certain thresholds on borrowing powers and executive directors and/or other employees’ remuneration.

“If, in the future, the board requires certain thresholds to be exceeded, shareholders will be provided with an opportunity to consider and vote in respect thereof. The constitution amendments therefore provide shareholders with an ability to participate in material decisions which could place the company under significant financial difficulty,” the group said.

Brainworks said shareholders will accordingly be requested to consider the relevant special resolution pursuant to the constitution amendments and, if deemed fit, approve it with or without modification by written consent.

The move, largely unprecedented in South Africa’s corporate governance, is suspected by some analysts to stem from recent corporate scandals in which executives and/or board members have found to have either hiked executive pay or engaged in projects to the detriment of shareholders who often have no other recourse.

Sought for comment, executive director of the Institute of Directors of South Africa Parmi Natesan said: “In terms of governance best practice in South Africa, we follow a stakeholder inclusive model of governance, where the shareholders are but one of many material stakeholders that the company needs to take into account.

“Giving the shareholders too much power in decision-making tips the scales of the various governance structures, as the board members (directors) are the ones who have the legal duty to act in the best interests of the company and the potential liability. They should therefore be free to exercise their rights in making decisions.

“It would not be ideal if the directors hold the potential liability but the decisions were made by the shareholders,” she said.

Natesan said shareholders have other rights, like the appointment of the directors.

“Once they have appointed the directors they should trust them to make the decisions on the best interests of the organisation, taking into account all the material stakeholders,” she said.

An analyst who would not be named said the Brainworks proposal was probably drawn from experiences of mattress retailer Steinhoff, whose crash in 2017 saw the company’s value reduced by more than R200 billion on the JSE.

This in turn erased more than half the wealth of tycoon Christo Wiese and knocked the pension funds of millions of ordinary South Africans.