Successful private investor activism in an emerging market

Author:Suzette Viviers, Nadia Mans-Kemp
Publication Date:06 Nov 2020
Successful private investor activism
in an emerging market
Suzette Viviers and Nadia Mans-Kemp
Purpose Institutional investors in emerging markets are increasingly under pressure to integrate
environmental, social and corporate governance considerations into their investment analyses and
ownershippractices. Old Mutual Investment Group(OMIG) is a South African-based institutionalinvestor
that has long been regarded as a pioneer in responsible investing. The purpose of this study was to
examinethe nature and effectiveness of OMIG’s privateshareholder activism endeavours over theperiod
1 January2014 to 30 June 2018.
Design/methodology/approach A unique databasewas constructed using proprietary, point-in-time
data for 69 listed companies covering 283 private engagements. Binary logistic regressions were
conductedto test the hypothesised relationships.
Findings The majorityof the private engagements centred on executiveremuneration. This finding was
not unexpected given the large and growing wage gap in South Africa. Close to two-thirds of OMIG’s
private deliberations were successful. Engagement success was positively associated with a targeted
company’scapacity to change and desire to protectits reputation.
Research limitations/implications This study only investigatedthe private shareholder engagement
actionsof a single, well-resourced institutionalinvestor.
Practical implications The findings serve as an encouragement to other investors who are
contemplating a more active approach to change unethical and unsustainable corporate policies and
Originality/value This unique analysis sheds light on the determinants and success of private
shareholderactivism in an emerging market.
Keywords South Africa, Corporate governance, Executive remuneration, Wage gap,
Active ownership, Private shareholder activism
Paper type Research paper
“The activist is not the man who says the riveris dirty. The activist is the man who cleans up
the river” (Ross Perot quoted in Roush, 2009).
Although Perot referred to activism in general, his quote also applies to institutional
investors. Growing numbers of these investors are actively integrating environmental, social
and corporate governance (ESG) considerations into their investment analyses and
ownership practices (Principles for Responsible Investment, 2018). Corporate governance
concerns, in particular executive remuneration, are receiving more attention from
shareholder activists globally (Stathopoulos and Voulgaris, 2016) and in South Africa
(Viviers et al.,2019).
Activist investors can use exit or voice mechanisms to raise their concerns, hold boards of
investee companies accountable and transform selected corporate policies and practices
(Hoffmann et al.,2016). An exit strategy entails that a shareholder sellssome or all of his/her
shares in an investee company (Goodman et al.,2014). This mechanism is unlikely to result
Suzette Viviers and
Nadia Mans-Kemp are both
based at the Department of
Business Management,
Stellenbosch University,
Stellenbosch, South Africa.
Received 29 November 2019
Revised 11 July 2020
5 October 2020
Accepted 6 October 2020
The authors wish to extent a
special word of thanks to OMIG
for providing them with their
proprietary engagement data.
The study would not have been
possible without the assistance
of Messrs Robert Lewenson
and Jon Duncan. Our gratitude
is also extended to Ms Lizelle
Coetzee for collecting and
organising some of the data,
Prof Martin Kidd and Dr
Stefanie Ku
¨hn for their
assistance with the statistical
analysis and Prof Eon Smit for
acting as a critical reader. The
two anonymous reviewers are
also thanked for their valuable
PAGE 92 jCORPORATE GOVERNANCE jVOL. 21 NO. 1 2021, pp. 92-110, ©EmeraldPublishing Limited, ISSN 1472-0701 DOI 10.1108/CG-11-2019-0366
in significant change unless thereis a mass exodus of shareholders. Exiting is impractical in
countries with small stock marketsand can result in diversification challenges. Alternatively,
activists can use private or public voice mechanisms. Research suggests that activists who
voice their concerns are more successful in transforming corporate policies and practices
compared to those who use an exit mechanism (McNulty and Nordberg, 2016).
In line with international trends, investor activism in South Africa has intensified in recent
years (Viviers and Theron, 2019;Harvett and Mhlongo, 2018;Yamahaki and Frynas, 2016).
Most activists in the country first seek answers to their questions and request change in
private. Only if these engagements are not successful, they resort to public voice
mechanisms such as asking questions at annual general meetings (AGMs), filing
shareholder resolutionsand voting (Viviers and Smit, 2015).
Engagement success can be measured in a number of ways and depends on the
mechanism(s) used. Previous scholars have investigated the market reaction to public
shareholder activism, including shareholder resolutions tabled (and withdrawn), patterns in
“against” votes and changes implemented by targeted companies (Goranova and Ryan,
2014). As private negotiations are typically confidential, researchers do not have access to
data to determine the effectivenessof this mechanism.
Some studies were conducted on the privateactivism endeavours of retirement funds in the
USA (English et al.,2004;Anson et al., 2003;Carleton et al.,1998) and an activist fund in
the UK (Becht et al.,2010). The name of the institutional investor or investor coalition whose
private engagements were analysed is often kept anonymous. Examples of such studies
include Semenova and Hassel (2019) in Norway, Dimson et al. (2015) in the USA and Barko
et al. (2017) in Europe.
As far as could be established, no research has focussed on the success of private
shareholder activism in an emerging market. To facilitate research on the topic, one of the
largest institutional investors in South Africa, the Old Mutual Investment Group (OMIG),
provided proprietary, point-in-time data on their private shareholder activism endeavours
over the period 1 January 2014 to 30 June 2018. OMIG has used its influence as one of the
country’s largest institutional investors to promote responsible investment and business
practices amongst peers, industry partners and JSE-listed companies over the past three
A unique database was constructed consisting of 283 private engagements at 69
companies listed on the Johannesburg Stock Exchange (JSE). Interviews were furthermore
conducted with Mr Robert Lewenson, OMIG’s Head of ESG Engagement. Mr Lewenson is
not only responsible for proxy voting andengagements on ESG matters but also represents
OMIG on various industry bodies and champions responsible investment within the Old
Mutual Group. In line with previous researchers, the authorsset out to describe the nature of
companies targeted by OMIG, the issues raised in private, engagement frequency and
success. Particular attention was given to a targeted company’s capacity to change and
reputational concerns in relationto engagement success.
A shareholder should own a fairly large equity stake to gain access to an investee
company’s key decision-makers (Admati and Pfleiderer, 2009). In practice, large asset
owners generally outsource ownership responsibilities to asset managers. As such, the
owners might not be aware of the engagement activities that take place between their
appointed asset managers and investee companies (Carleton et al.,1998). Unless
unequivocal evidence can be provided that private engagements are successful in an
emerging market such as South Africa, institutional investors are unlikely to allocate more
resources to activism endeavours. If detailsof successful private engagements are publicly
disseminated, more investors (bothinstitutional and retail) might be encouraged to become
active owners.

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