SABMiller’s boardroom reshuffle rouses criticism
SABMiller’s minority investors are a tad concerned. Some worry that it’s all getting a bit too cosy on the brewer’s board. The recent boardroom reshuffle, announced on 23 April 2012, failed to bring new faces on to the board. Moreover, the elevation of Graham Mackay, SABMiller’s long-standing CEO to Chairman stands to defy UK corporate governance practices, which do not permit a chief executive to become chairperson unless there is a good explanation from the company. The corporate governance codes are also not keen on the chairperson being a full-time executive, as Mr Mackay will be for a year.
As was reported, Mr Mackay will serve as executive chair for a year, after which his replacement as CEO, Alan Clark, will take day-to-day control of the world’s number two brewer.
The criticism does not extend to Alan Clark, the soon-to-be CEO, who has also been with the brewer for decades. Research by strategy consultants Booz & Company has consistently shown that insiders recruited to CEO do better than outsiders, because they have a feel for how the firm actually works. A big firm is a complicated organisation. It has a culture that cannot be understood simply by reading the accounts. That is why a typical insider CEO produces better returns for shareholders than an outsider.
The appointment which flies in the face of the corporate governance code is Mr Mackay’s promotion to executive chairman which, in the lingo of the financial world, is called “kicking a CEO upstairs” as The Sunday Times wrote on 20 May 2012. The ST’s commentator argued that investors have the right to worry about empire-builder-CEOs “who stay around for so long that they think the company is theirs. Bringing in new directors from the outside is a good way to stop that from happening.”
However, SABMiller is doing the opposite. In its letter to shareholders the brewer basically justified the succession by saying “if it ain’t broke, don’t fix it.” What the letter did not say was that perhaps it’s not an altogether bad idea to have an old M&A hand like Mr Mackay on the board should the long-awaited attack on SABMiller by AB-InBev finally happen.
In any case, investors will have a chance to vote on the succession at the brewer’s annual meeting in July.
To all appearances, the change in chairman became necessary because Chairman Meyer Kahn, the 72-year-old South African who steered the business from a sprawling conglomerate under the apartheid regime to a FTSE 100 company, is going to retire after 46 years with the brewer.
A spokesperson for the brewer told UK media that no external candidate had been considered for the roles of chairperson or CEO.
Still, protest from big investors against the succession is likely to be minimal because the appointments have already been approved by cigarette company Altria, formerly part of Philip Morris, and the Colombian brewing family Santo Domingo, which owned the Bavaria brewery before they sold it to SABMiller. These two investors account for five board directors (out of 16) and between them control 42 percent of the stock.
“It would be a shame”, wrote the Sunday Times, “to scramble a hierarchy that has worked so well for the sake of box-ticking alone. But every era reaches an end. The trick is to recognize when that time has come.” SABMiller’s minority investors are right to feel uneasy, the Sunday Times concluded.
