Shareholders have suffered enormous harm in recent years after epic corporate fraud was uncovered at Steinhoff and other JSE-listed firms, leading to spectacular destruction of capital as the share prices of the implicated businesses imploded. Business Day caught up with Chris Logan, CIO and owner of Opportune Investments, to reflect on how investors are navigating the ever-changing investment universe.
Q: You are regarded as one of very few shareholder activists in SA, given your active participation at AGMs and results presentations of JSE-listed companies. How critical is shareholder activism in SA?
A: If you look at the disproportionate amount of value destroyed on the JSE in companies like Tongaat, Steinhoff, Nampak, PPC, Spar and the like I think it’s fair to say it’s critical to restoring decent standards.
Q: Theo Botha is another shareholder activist that comes to mind. Why do you think there is only a handful of individuals in this space when corporate SA needs to be challenged by individuals such as yourself given the scandals of recent years.
A: The job generally does not pay well and ruffling feathers often annoys people. You need to remember that activism is just part of what I do and its generally aimed at unlocking value where I derive financial benefit, although I sometimes do Salvation Army gestures like at Tongaat and Nampak.
Q: Shareholders have suffered immense losses through corporate fraud or poor allocation of capital. Do you think shareholders need to be a bit more vocal about the companies in which they are invested?
A: Yes, absolutely, but they need to have the right skills so as to instil positive change.
Q: As a shareholder in your own right, are there any lessons to be learnt from these scandals?
A: There are always lessons to be learned from hindsight. I was fortunate to never be a Steinhoff shareholder and sold my last Tongaat shares at R90. Even on the fraudulent Tongaat numbers it was clear there had been massive capital misallocation and Tongaat was overpriced. From what I know Steinhoff was similar. Both companies had highly intelligent and dominant CEOs who were used to getting their way and did not take kindly to critical engagement. On the JSE even if you were lucky enough to avoid the scandals you could have lost significantly by being invested in “blue-chip” companies like Nampak, PPC or Spar where there was minimal alignment and very poor capital allocation. Speaking from experience, this is also very painful.
Q: The number of JSE-listed companies has been shrinking for various reasons. How concerning is this to you as a money manager and what do you think the JSE could do to reverse the trend?
A: The structural JSE delisting trend is of great concern. New listings, where capital is raised, finance new employment opportunities and innovation, apart from hopefully presenting rewarding investment opportunities. Ill-conceived policies are ultimately behind the delisting trend and the JSE has limited scope to change these policies.
Q: There has been pessimism around SA as an investment destination, given the challenges the country is grappling with, including electricity supply. Do you share that pessimism or do you perhaps take a long-term view that the structural problems will be resolved. After all, one can argue SA still has some of the best-run companies in the world, both in the listed and unlisted space.
A: It’s true we still have some very good companies. But as a country, SA has been losing its best and brightest for decades, often because of short-sighted policies. It’s demoralising that so many young people who get the chance leave our country. The cumulative effect of losing talent and capital is immense and it’s hard to be optimistic while these trends continue.
Q: The remuneration packages for executives versus the company’s performance is forever a hot topic. Do you think there is an alignment between the two, taking into account the nuances of different industries?
A: As a general rule SA companies are often not well aligned, and this presents a red flag. There are no silver bullets in investments, but alignment is about as close as you can come and something investors should strive for. And alignment should not just be about the executive, it should go all the way down to the shop floor so one gets an engaged workforce that performs.
Q: According to a survey conducted by shareholder activist group Just Share a few months ago, a CEO of a well know retailer in 2022 earned 1,081 times the company’s minimum wage. In your view, how should companies be approaching such issues, given glaring inequalities in SA?
A: This is a complex subject with it being a reality that you sometimes need to reward people richly to get exceptional performance. For example, Elon Musk secured $23bn in options in Tesla stock. That’s hardly equitable, but Tesla is making the world a better place and it’s a real pity it does not operate in SA creating jobs and opportunities. So, I guess companies should be approaching these issues carefully, with sensitivity and an open mind.
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