Renée Bonorchis

Editor at Large

GOLD Reef Resorts, the casino company, was forced to withdraw its ordinary resolution to reward executives with vastly discounted shares at its annual general meeting (AGM) late on Wednesday.

This means the company, which until recently had no independent directors, is finally paying attention to corporate governance concerns.

Gold Reef’s ordinary resolution number two was intended to issue as many as 4-million shares to key executives and management at 2c a share. Gold Reef’s share price has fallen 47% this year to about R17, and the issue of shares at 2c would have been prejudicial and dilutionary for shareholders.

David Couldridge, an investment analyst at Frater Asset Management, who attended the AGM with a proxy in hand, said yesterday Gold Reef’s management had been through the boom times and had done very well.

“Now we have high interest rates, high inflation and a credit crunch, so the share has depreciated.

“But it does demonstrate that share option schemes are not appropriate because the share price is more of a reflection of exogenous factors,” Couldridge said.

Although Couldridge’s company is not a shareholder in Gold Reef, he said it was the principle that mattered.

“If one company gets away with this, then others will try.

“In the long term, when large international funds are looking at investing in SA, they will be put off by the dilution and the lack of good corporate governance.

“What Gold Reef was about to do was not sustainable,” he said.

The Institute of International Finance (IIF), which is made up of some of the largest global investors, said in its most recent report on corporate governance in SA that the dilution of voting or ownership rights “should not be permitted without a majority vote by all shareholders”.

At the end of July, for the first time in its history, the casino company appointed two independent nonexecutive directors to its board — John Farrant and Zanele Matlala. Gold Reef’s executive chairman, Maxim Krok, reportedly said at the AGM that the two new directors would form part of the company’s remuneration committee and would work on the pay issues over the next six weeks. At the end of those six weeks, staff and the market, would be informed about which direction Gold Reef proposed to take regarding the remuneration of management.

Gold Reef CEO Steven Joffe said yesterday the market undoubtedly would be informed of the remuneration committee’s decision. However, whether the issue would be put to shareholders’ vote depended on the decision taken by the committee.

Joffe said the board, in the interest of improved corporate governance, had agreed to replace Krok, who recently moved to Australia, with an independent chairman.

Couldridge said that in the next six weeks he would send the IIF report, information from the International Corporate Governance Network and the Association of British Insurers, to Gold Reef’s company secretary, Chris Paul.

Couldridge said it did not help Gold Reef’s reputation that in the past Krok had received a R12m payment from the board, an unusually large sum for a chairman. “We’re not just talking about Gold Reef here — we’re talking about perceptions of how SA does business and our corporate governance. In tough times international investors get picky and might bypass SA for other emerging markets,” Couldridge said. With Julius Baumann

Source: Business Day