Audit-related voting dissent still rare

When it comes to audit-related voting, shareholders have traditionally paid less attention to audit issues than other governance issues. Using Minerva's VoteWatch module, this week we're looking at two topical cases: Lonmin plc and SIG plc.

At platinum mining group Lonmin plc’s 2018 AGM 49.2% of the shareholder ballot withheld support on the resolution to re-appoint KPMG as external auditor. Of the dissenting votes only 2% were cast as “against” with 47.2% cast as “abstain”. The FTSE SmallCap Company also received 41.7% dissent in 2017, again the vast majority of the dissenting votes were through abstentions.

The votes can be explained by the company’s major shareholder Public Investment Corporation Ltd (PIC), the South African state-owned pension fund manager, which holds around 29% of the share capital, opposing re-appointment. PIC has adopted a voting guideline to oppose auditor re-appointments if the firm has been in post for ten or more years. This guideline is in-line with South African regulation that requires companies to rotate audit firm after 10 years from 2023, which is stricter than the UK regulations which require a tender at 10 years and rotation at 20 years. KPMG has served as Lonmin’s external auditors since 1970.

Lonmin last conducted an audit tender in 2015 and the Board concluded that the Company’s and shareholders’ interests would be best served by KPMG’s re-appointment. The Board intend to re-tender the audit by January 2020 at the latest and said KPMG would not be invited to participate in this tender process. This timescale is in-line with the UK audit regulation’s transitional arrangements which allow companies with the longest tenure audits (over 20 years) until 16 June 2020 to change audit firm.

PIC is expected to oppose KPMG’s re-appointment again at Lonmin’s upcoming AGM. However, it remains to be seen whether PIC will continue to abstain or start to vote against and whether a sufficient number of other investors will join them in opposing KPMG’s to cause below majority support.

2018 saw the first defeat on an audit-related vote in the FTSE 350 at SIG plc. Shareholders voted down the resolution to re-appoint Deloitte as auditors after SIG announced that it had suspended a number of individuals following revelations of overstated profits for a number of years.

Minerva VoteWatch

Minerva's vote results database stretches back to the mid 1990s and offers unparalleled depth and breadth of rapid searching for up to 6,500 global companies across a range of policy issues. To find out more about VoteWatch say hello@minerva.info