Woolworths shareholders rebel
Woolworths’ shareholders latched on to two of the most controversial issues in corporate governance when substantial numbers voted against the reappointment of the auditors and also against the remuneration policy at Wednesday’s annual general meeting.
In a move that suggests shareholders are becoming more engaged on the matter, 18.6% of shareholders at the Woolworths AGM voted against the reappointment of EY as the group’s auditors.
Woolworths was one of the companies highlighted in the recent report by the Independent Regulatory Board for Auditors (Irba) addressing the need for auditor rotation. According to the report, EY has been auditing Woolworths for 84 years.
The regulator is calling for change and has recommended mandatory rotation of audit firms every 10 years.
The reappointment of auditors happens through an ordinary resolution requiring support from at least 50% of shareholders — the 18.6% is far off achieving any change. But it marks a significant departure from previous years when the resolution was guaranteed support from 99% of shareholders.
Irba CEO Bernard Agulhas said on Thursday the greater public discussion around auditor rotation has raised awareness around independence of auditors “and will go a long way in ensuring that auditor independence is strengthened”.
EY is one of the big four global audit firms which together audit 95% of the world’s 500 largest companies. The others are PwC, Deloitte, and KPMG.
The Irba, which revealed that EY audits 14% of JSE-listed companies, is concerned about a perceived lack of independence. It found that with 25% of listed companies the chairmen of the audit committees had previously worked for the external auditors. At Woolworths, only one of the board members had had a relationship with EY. Zarina Bassa, who is a member of the audit committee, was a partner at EY up to 2002.
On the remuneration front, a hefty 30.1% of shareholders voted against the remuneration policy. This is a record level of opposition from Woolworths’ shareholders and reflects concerns about the steady upward movement in executive remuneration at a time when the share price performance has been weak.
For financial 2016, CEO Ian Moir received total remuneration of R53.7m, up from R49.2m in 2015. The share price has been on a downward trajectory for most of 2016 and is at levels last seen in early 2014.
The remuneration levels also look inappropriately generous in the context of the grim trading update released recently. It showed that no section of the group — food, clothing, Australia, SA — had escaped the effects of the weak trading conditions.
Following the update, few shareholders are expecting to see any real growth in sales or earnings in the interim period.
The weak performance of the Australian operation was particularly disappointing given the steep price paid for it just two years ago.
At Woolworths’ 2013 AGM the remuneration policy got a 25.8% negative vote. In the following two years support surged to more than 90%.
The remuneration vote is nonbinding, but this year’s result could see Woolworths formally engaging with its shareholders to determine the reasons for their dissent and then disclosing details of that engagement.
Such dialogue is a requirement of King IV, which states if 25% or more of shareholders vote against remuneration policy an engagement process must be undertaken.