Premium: Charlie Munger reckons index fund managers becoming “the new emperors”

Public companies should work like this: Shareholders appoint directors to represent them. These voted-in representatives, usually with lots of their own skin in the business, are charged with setting strategy and hiring managers to execute it. All shareholders meet at Annual General Meetings where they hear from their representatives – and decide whether to vote them another term in office. Great in theory isn't it?

In practice, however, this system of apparent checks and balances rarely exist. Most shareholders haven't a clue who the company's directors are, and worse, most of them were never co-owners of the company. This happens because very few shareholders bother to exercise their right to vote. Only a handful ever bother to turn up to AGMs. So directors are part of a ruling elite, chosen by and in alliance with management – serving those they should be directing rather than those they represent.

Our investigations editor Martin Welz has turned up an excellent example of how ridiculous it can get in a piece this morning where he explains how the chair of the TWK board's audit committee, one HJK Ferreira, is the very same "Piet" Ferreira who, for the last 15 years of Steinhoff's existence, was its head of mergers and acquisitions. Would the farmers who own TWK have knowingly voted him into such a key role at the CTSE-listed company?

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