Steven Nathan on share buybacks and shareholder activism

Sibanye-Stillwater made an announcement today that it had successfully concluded the on-market repurchase of its ordinary shares up to, but not exceeding, 5% of its ordinary shares in issue (“Repurchase Programme”). Steven Nathan, founder of 10X Investments, joined the BizNews Power Hour to provide investment insights into Sibanye’s share buyback programme, as well as other topical news, including Kumba’s appointment of a female CEO. As always, Nathan’s insights are meticulous and merited. – Nadya Swart

Steven Nathan on share buybacks:

Well, not so much disapproval outright, but just saying that there’s sort of many factors to consider and this potential conflict of interest. I mean, it’s quite interesting. You know, reading Sibanye, where the CEO says [that] he believes the company is materially undervalued and it’s always a little bit of a concern when a CEO starts to focus on the share price and be quite vocal about that. Even if they’ve got good intentions, often it’s kind of, ‘take care of the business and the share price will take care of itself’. 

It’s interesting, Gerrie Fourie just last week said that he doesn’t look at the share price and they never discuss the share price in the boardroom. In general, that is a better approach. You want management and the company to focus on what they can control and not be over-fixated on the share price. And as I said, there’s also conflict of interest because, you know, management is incentivised through share options. Share options are normally if the share price reaches a certain point. You’re not rewarded for paying high dividends. 

Whereas, as a shareholder, you want dividends – it’s money in the bank and it’s part of your total return. So, if your incentive is just the share price and not the total return, well, it’s potentially a conflict because it is in your interest not to pay the dividend but to use that to buy back shares. And when you buy back shares, you divide profits over a fewer number of shares and you increase the share price. So there are those considerations. 

As you mentioned, they bought at an average price – I think it was R55 per share. The share is now R47, so you’re 17% down, and on R8bn, that’s R1.8bn. That’s not an insignificant number. It’s a challenge because if you get it right, the market probably won’t say anything. And if you get it wrong, then I think these kinds of concerns may be raised.

On Kumba and Clicks recently appointing female CEOs:

Yeah, it’s great. As you say, it’s paying dividends, the cause for greater diversity and greater thought given across not just a male-dominated, but gender and race. And it’s fantastic to see that and well done to Kumba and Clicks and hopefully others are going to follow. 

It’s interesting; I recently read a book, it’s called ‘Banking On It’, and it’s a story of Starling, which is one of the first neobanks in the UK – very successful, the first one to actually become profitable. The founder, Anne Boden – she’s the most unlikely founder ever. A Scottish woman. Welsh, I think, actually. And she started it when she was in her 50s. And basically, you know, the point she made [is that] it was incredibly difficult for her to raise capital because only 1% of all venture capital funding in the UK had gone to women – single women founders of startups. 

So you can see how hard it is, and one of the comments she made is that it’s difficult for private equity venture capital, because people do business with people like themselves. When they don’t see women, then they don’t really do business with women. So, you know, this is really a fantastic step in the right direction. 

On shareholder activism:

I don’t like to sit on the fence. I like to be on either side of the fence. So I think activism in general is good, because you want people to voice concerns over issues that should be raised. We just spoke about sort of gender and diversity, and that’s a really important issue. And had it not been for those lobbying groups over the years… It takes a long time when you start lobbying to see the results. If you don’t make people uncomfortable and people that should be dealing with uncomfortable issues, they’re probably not going to get addressed. They’re not going to be top of the agenda. They might be at the bottom of the agenda. And often in board meetings, you do not get to the bottom of the agenda. 

So, we know climate change is a really important issue. It’s a complex issue. And as you say, there’s the trade-off between doing the right thing in the long run, protecting shareholder interests in the short, medium and long run. And how do you kind of make that transition? So I think it’s really good that companies or activist shareholders are taking this on and I think that companies can no longer ignore it.

Steven Nathan on whether the backlash with respect to executive remuneration is contributing to brain drain in South Africa:

Well, I’m not sure it’s specifically contributing to brain drain. I don’t think in and of itself, executive remuneration being disclosed contributes. I mean, if you look at the US, their executive remuneration has been disclosed for many years and they are probably the most overpaid. So if our execs are overpaid, then the US is overpaid by a multiple of that. And I guess if you’re overpaid, you’re not really going to be going anywhere. 

I think in South Africa it is a challenge because there’s so much scrutiny on listed companies. I mean, I know – having spoken to some CEOs and some former CEOs – they sort of feel that if they could, they’d love to take their companies private because then you’re far less in the public eye. And it’s not just around remuneration. There’s BEE, there’s employment equity, there’s labour. There are a lot of challenges that our country faces.

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