Telkom drew heavy fire from an investment manager and a shareholder at its annual general meeting on Tuesday. The two men accused the JSE-listed telecommunications group of poor corporate governance.

Shareholder activist Theo Botha accused Telkom of failing to comply with various elements of the new King 3 codes of corporate governance.

And David Couldridge, investment analyst at Element Investment Managers, took nonexecutive chairman Jeff Molobela to task over government’s special rights in the group, accusing it also of having too few independent and appropriately skilled directors.

Botha told the AGM that Telkom had failed to take cognisance of a number of requirements prescribed under King 3, including the need for shareholders to approve directors’ remuneration. “All you had to do in the annual report was explain the reasons for the noncompliance, which you didn’t do,” Botha charged.

But Molobela hit back, saying Telkom’s articles of association superseded the requirements of King 3. “We cannot put King 3 ahead of our articles, which are the legal documents of the company,” he said.

“The concern is transparency,” Botha fired back.

“Noted, Mr Botha,” Molobela replied. “For the next annual report, we will state the fact that we don’t comply with the code of King 3 in that respect and that the articles prevent us from complying.”

Molobela clarified this later in the meeting, saying all companies whose financial years end in March need only comply from the 2011 financial year. “Processes towards compliance are [underway] and we will comply by the next financial year.”

Botha said Telkom’s articles of association appeared to be inhibiting good corporate governance at Telkom.

“You could be correct, yes, it’s inhibiting a specific element in good corporate governance,” Molobela said. “Remember what corporate governance is all about: a system of procedures to ensure no corporate failure or underperformance. In respect of that specific item, I do not see how that would lead to corporate underperformance or failure, since the disclosure is made at this AGM. Should shareholders feel very strongly about the issue of directors’ remuneration, they are at liberty to point that out.”

Couldridge then took Molobela to task, saying advisory firm Avior Research had rated Telkom’s corporate governance particularly poorly. “The board you have in place now does not have sufficient independent directors and has insufficient directors with business knowledge to take the assets of the business to where they should be,” Couldridge said. “They are … undervalued … and something is clearly wrong.”

When Telkom listed in 2003, government and then-shareholder Thintana (made up of SBC Communications and Telekom Malaysia) were granted special rights as the so-called “class A” and “class B” shareholders. Government was given the right to appoint the chairman and five board directors.

Telkom group executive for legal services Anton Klopper told the AGM that the extraordinary rights would fall away on 4 March 2011 and that the group would then be in a position to comply with King 3. In response to a question from Couldridge, Molobela said “to the best of our knowledge”, government had no plan to seek to extend those rights beyond their expiry date. — Duncan McLeod, TechCentral