Prosus Naspers: Investors Challenge Vote Share Structure, Executive Pay

• Prosus and Naspers face significant investor dissent over their dual-class share structure and executive pay ahead of their AGM.
• Major investors like Storebrand and Van Lanschot Kempen plan to vote against board re-elections due to unequal voting rights and director ties to the parent company.
• The companies' share structure grants insiders 1,000 votes per share compared to one vote for ordinary securities, drawing criticism for its unusual nature.
• Executive remuneration, including a $100 million 'moonshot award' for CEO Fabricio Bloisi, has raised proportionality concerns among investors and proxy advisors.
• Proxy advisor ISS recommended against certain director re-elections and highlighted issues with both the share structure and executive compensation.

The significant dissent from a coalition of influential global investors underscores growing shareholder activism regarding corporate governance practices, particularly concerning dual-class share structures and executive remuneration.

Ahead of their annual general meeting (AGM) scheduled for Wednesday, August 26, Prosus and its parent company Naspers are facing significant investor pushback concerning their corporate governance. Several of the world's largest institutional investors have publicly signaled their objections to the companies' dual-class share structure and the compensation packages for executives and board members. This widespread dissent highlights increasing scrutiny on South African corporate governance practices.

Prominent investors, including Norway's Storebrand and the Netherlands' Van Lanschot Kempen, have declared their Prosus Naspers AGM voting intentions to vote against the re-election of board members Rachel Jafta and Mark Sorour. Their decisions largely align with recommendations from Institutional Shareholder Services (ISS), the world's largest proxy-advisory firm, which also advises these investors. Further opposition comes from funds managed by the New York City Comptroller and the California Public Employees’ Retirement System (CalPERS), both indicating votes against directors without specifying reasons.

Beyond board composition, executive remuneration shareholder dissent is also a key issue. Norges Bank Investment Management, which oversees approximately $2 trillion in assets, along with the California State Teachers Retirement System, have voiced objections to Prosus's proposed pay structures. This collective action from a diverse group of global investors underscores a growing demand for greater accountability and transparency from the technology giants.

A central point of contention is the unique share structure employed by Prosus and Naspers, which grants a small group of insiders disproportionate voting power. This 'super-share structure' allows certain individuals, including chairman Koos Bekker, to hold shares that carry 1,000 votes each, while ordinary securities are limited to a single vote per share. This significant disparity has fueled dual-class share structure criticism among investors.

Storebrand and Van Lanschot Kempen explicitly cited this unequal voting rights structure as the reason for their planned votes against the re-election of Rachel Jafta and Mark Sorour, noting their ties to Naspers. ISS, in its recommendations, also highlighted the controlling shareholder, Naspers, holding shares with unequal voting rights as a concern regarding these directors. ISS pointed out that Sorour is a former Naspers executive who did not observe a cooling-off period after his resignation, while Jafta has served on the Naspers board for two decades.

This 1,000:1 voting ratio is notably more extreme than those seen in other major tech companies. For instance, Meta Platforms Inc.'s Mark Zuckerberg and Alphabet Inc.'s Larry Page and Sergey Brin maintain control through dual-share voting systems where their shares typically carry 10 votes for every one held by an ordinary share. Naspers, which evolved from a century-old South African newspaper business into a technology firm operating its internet businesses primarily through Euronext-listed Prosus, has maintained this structure since 1995. The company has referred questions about the dual-class structure to its website, stating its commitment to an open and ongoing dialogue with shareholders.

The quantum and structure of executive compensation at Prosus have also become a flashpoint for investor dissatisfaction. Shareholders have raised concerns regarding the overall potential value of pay packages, the short-term nature of certain performance incentives, and perceived limited controls on share repurchases. These issues contribute to the broader Prosus Naspers investor vote share structure pay debate.

Specific attention has been drawn to the remuneration for CEO Fabricio Bloisi, which includes a 'moonshot award' with a notional value of $100 million (approximately R1.6 billion) and long-term incentives totaling $33.8 million (around R538 million). Storebrand expressed 'proportionality concerns' regarding these targets, noting that while the moonshot award is subject to rigorous dual conditions and has not yet triggered, its overall quantum significantly surpasses market norms. ISS echoed these sentiments, suggesting that the conditions for the moonshot remuneration awards 'appear unlikely to be met within the performance period.'

In response to questions about remuneration, Naspers stated that the chair of its remuneration committee engages 'extensively and proactively with investors on all matters of remuneration and policy matters,' emphasizing how policies are evolving based on feedback received. However, the objections from Norges Bank Investment Management and the California State Teachers Retirement System specifically targeted these pay proposals, indicating that current engagement efforts may not be fully addressing investor concerns.

The significant dissent from a coalition of influential global investors underscores growing shareholder activism regarding corporate governance practices, particularly concerning dual-class share structures and executive remuneration. The alignment of voting intentions from major funds like Storebrand and Van Lanschot Kempen with ISS proxy advisor recommendations signals a unified front from institutional investors demanding higher standards of corporate oversight.

This situation highlights the increasing pressure on listed companies, especially those with entrenched control mechanisms, to re-evaluate their governance frameworks. The objections to the Prosus Naspers investor vote share structure pay issues serve as a potent reminder that even long-standing structures, such as the dual-class system in place since 1995, are subject to intense scrutiny in the current investment climate. The election of Manisha Girotra also faced an ISS recommendation against it, citing her presence on too many boards, further illustrating the broad scope of governance concerns.

For companies operating under similar models, this episode underscores the critical importance of transparent and equitable governance. The ongoing dialogue between Naspers and its shareholders, while acknowledged by the company, must evidently translate into tangible adjustments to address the fundamental concerns about voting equity and executive compensation proportionality to mitigate future investor dissent and reputational risks.

This article highlights increasing shareholder activism and scrutiny on corporate governance, specifically regarding dual-class share structures and executive remuneration. Lawyers advising listed companies should review their clients' governance frameworks and remuneration policies to mitigate risks of investor dissent and reputational damage, especially concerning director independence and executive pay proportionality. For compliance officers, it underscores the importance of aligning practices with evolving investor expectations and proxy advisor recommendations.

Source: Original reporting via Moneyweb