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‘Someone must have known’

Governance can’t be left to boards.
For the 'web of oversight' to work, the market needs to be properly informed. Picture: Shutterstock

At the end of last year, South Africa’s debt-to-GDP ratio reached 55.8%.

As the graph below shows, this has declined rapidly since 2013.

Source: Futuregrowth Asset Management

National Treasury hopes to stabilise the national debt below 60% of GDP, but this may be impossible if government is forced to take on Eskom’s borrowings. In a worst-case scenario, where the state takes over both Eskom’s debt and its servicing costs, the country’s debt-to-GDP ratio could climb as high as 67.1%.

“This is the real cost of poor governance,” says Futuregrowth CEO Andrew Canter. “Whatever excuses one wants to make, the degradation of South Africa’s gross debt-to-GDP is a story of bad governance, bad administration, a lack of confidence, a lack of investment, slow economic growth, and out-of-control spending.”

From what is coming out of the Zondo commission of inquiry and previous revelations in the media, it has become obvious how dire the governance of many state-owned enterprises (SOEs) became under the Zuma presidency. Huge amounts of money – as much as 2-3% of South Africa’s current debt, according to public enterprises minister Pravin Gordhan – was stolen under the watch of compromised boards and management teams.

“But governance problems in South Africa have gone well beyond the SOEs and are touching on corporates on a weekly basis,” Canter points out. “Corporates are falling over, there is malfeasance, misrepresentation, and accounting fraud. That is all under the broad heading of governance.”

The character of a company

For Canter, this makes the case for incorporating environmental, social and governance (ESG) considerations into investment decisions patently obvious.

“They are not some ancillary thing,” he argues. “Whenever you analyse a company you should always be looking at financial statements, financial forecasts, market and competitive positioning, pricing power, leadership and management, alignment of interests, and a whole range of things.

“Why would you separately consider ESG factors as unique or outside of that? Especially governance. Governance is how you assess the character of a company.”

Canter’s view, however, is that while the King codes have been a positive step in helping to formalise and evaluate corporate governance, they do not do enough on their own.

“The King Code presumption is that governance begins and ends with board of directors – that everything funnels up to the board that is all-knowing and all-seeing,” he says. “That is a fallacy, whether you are talking about the public or private sector.”

An obvious example of its inadequacy is that the boards of Eskom and Transnet are appointed entirely by the minister. They have no nominations committees making decisions about what skills are needed, seeking suitable candidates, vetting those individuals and proposing their appointment.

No checks and balances on ministerial power

There are therefore no checks and balances on who a compromised minister can appoint to the board – or dismiss from the board. The impact of that on corporate governance has been obvious.

For Canter, governance is therefore a combination of many things, well beyond just the board. In the case of SOEs, the role of National Treasury, the minister of public enterprises and legislation such as the Public Finance Management Act also have to be taken into consideration.

In the private sector, the entire organisation and its organisational culture play a role.

“Are you telling me nobody inside Steinhoff knew what was going on?” says Canter. “Someone must have known.”

Governance is therefore also about whistleblower protection, and even creating the right incentives for people to come forward. In the US, for instance, if somebody presents the Securities and Exchange Commission (SEC) with information about illegal activity at a listed entity, and that information leads to a successful prosecution, the whistleblower is in line for a reward.

The need for transparency

Crucially, governance is also about those outside of these organisations – investment analysts, journalists and citizens.

“But we cannot do our job unless we get information,” says Canter. “That is why I am all about transparency.”

Last year the JSE brought out proposals to tighten bond market listing rules precisely because the information issuers had to make public was so inadequate. Particularly for SOEs that have listed bonds but are not listed on the stock exchange, very little disclosure needs to take place.

Just one example is what directors of bond issuers need to supply to the market.

“To be a director of a JSE-listed entity you have to show your qualifications and experience, you can’t have been debarred from entry into the profession, you can’t have committed perjury or embezzlement, and so on,” says Canter. “This is a good list. It’s what you expect from a listed capital market. But in the bond market, if you want to be a director of a listed bond, all you must have is a name.”

This is the kind of thing the JSE needs to address – and the urgency is obvious. For the ‘web of oversight’ to work, the market needs to be properly informed.

“We’ve had this systematic attempt to capture the state,” says Canter. “The bond market remains captured. It’s time for a change.”

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The G and T directors that abound on boards in this country are just that. A lot born with silver spoons in their mouths are invited onto the board because of connections, not an in depth knowledge of the company. They collect their money, get flown around the world/country, flip through a board pack on the way to the meeting.
Then we have the CEO’s or MD’s. Task number one!! Pull the wool over the directors eyes. When they ask awkward questions propose a higher daily meeting fee or suggest that a weekend in Mauritius my be a good team building exercise.
Either way came 12 o clock the meeting should be over, a few G and T’s and a nice lunch is had before flying home. on Sunday you can tell your friends how you had a hell of a week, meetings all over the world, high power stuff. They leave with big eyes, their mate is a high flyer……..NOT.

What is G an T directors ? Governance and ? ?

Article is excellent but basic common sense. Directors, management and other professionals not doing their job properly must be prosecuted and face the highest consequences. Of course many in and around Steinhoff would have known what was going on. A fully integrated approach to prosecute must be implemented. This includes well does affidavit templates that must be submitted by past and present relevant staff, management, directors and other professionals. For example, all involved audit staff.

Gin and tonic director.

From my view I see that SA “government” doesn’t have this capacity (has any one heard from the Batohi “new broom”?). If they (SA government) were serious they would put out the prosecution on a contingency basis. But someone would quickly want this extended to Eskom, SAA etc, then the paw paw would hit the fan as just about every ANC “big wig” would be implicated. So Cyril the Silent sits on his hands.


“Are you telling me nobody inside Steinhoff knew what was going on?” says Canter. “Someone must have known.”

I agree with Canter – and add Wiese was in from day 1 and his greed cost him plenty

Steinhoff auditors changed the colour of the red flags.

Broda: I think you mean they IGNORED the red flags?

So experts and others who are allegedly in the know believed that debts of SOEs are not implicitly that of the treasury.
If one really understands the structure of SOEs, how does want get to such a conclusion? Just how???

Think: Precisely! and eventually that of the users of the product/service and tax payers. How the money gets to the SOE creditors is administrative detail.

The joke that the Government is the “shareholder” also obscures accountability. Can anyone tell me why SOE officials proudly refer to the Government as “the shareholder”. Funny.


They refer to them as shareholder because they know the likes of World Bank and IMF would have a nervous breakdown if Eskom board referred to them as “comrades”

This is the story of SA. And we are all to blame. In front of my business is a notice that stipulates that the parking is for my business only, yet other people park there every day. It is normal people, going through their normal day. They read the sign and decide that it doesn’t apply to them. When you talk to them, they get upset and aggressive. This attitude is rife all over SA. Rules and regulations just doesn’t apply anymore… and definitely not to them. It is a consequence of a criminal government who have tried their utmost best to de-criminalize crime. But it is also a consequence of individuals who just dooesn’t follow the rules anymore. And once the genie is out the bottle, you’ll struggle to put it back in.

Do you want to really open the flood gates on lack of sticking to the rules and lack of common sense? haha

Exactly. Out on some mountain paths, signs exist saying “No cycling”. For such reasons that mountain bike tracks result in severe erosion. But do you think that some of these outdoors people care for that message? Oh no, they go right on past the sign, eyes averted. And when you accost them and point out the error of their ways, they swear, they get aggressive, as you say. Rules apply to others, not them. Do they think that law-breaking is rife in South Africa? Yes. But all that does not apply to them, educated people that they are.

Long overdue comment.

Poor governance? No, just ANC governance.

So, each person who is lucky enough to have a job in this country – after a full day of hard work – 60% of every productive day was spent working to pay back debt taken on by the revolutionary masters of the AFRICAN NATIONAL CONGRESS??? Amandla!

Oh, dear me, no. The taxpayer is paying salaries for bloated civil service, social grants, housing, dysfunctional government departments, interest on loans, loss-making SOE’s and plain simple thieves. Borrowing fills the gap that the taxpayer cannot afford. Until those taps run dry. The payback is still coming.

Investors have abdicated their rights and responsibilities by investing through intermediaries that may not have the same motivation and interests as the investors.

I remember my grandfather poring over articles and financial reports in his 30-odd share portfolio. I am 100% certain that when he voted on OldCo shareholder resolutions he knew more about OldCo than the 30y old business science mba spreadsheet jockey that has never worked in an actual business in his/her life that is sent out by any SA fund manager – if they even send somebody or rather just vote all their clients the same way from the office.

Maybe not when said 30y old arrives at the meeting with an instruction from his/her CIO about their firm’s interests in future work with the board or its members.

Blaming the auditors is like blaming the radiographer for breaking a leg that did not show up on an XRay. Shareholders cannot afford what a fraud-free audit report would need to cost. Shareholders appointed the boards that appointed the executives that perpetrate and hide the frauds.

At Johan Buys – “shareholders cannot afford what a fraud free audit would cost” – why else do we need auditors?

The audit profession needs a total re-think about their role. In terms of the fees they charge, to the public it seems as if they guarantee the health of the business. If you look closely, all their certificate says is that the figures your bookkeeper showed us, seemed to be correct. If that is all, then auditors cannot ask those huge fees.

Amazing how quickly the example of our immoral, corrupt rules permeated the very fabric of South African society and is now oozing through every pore. One cannot even find a conscionable plumber any longer. The laws “no murder; no adultery; no stealing; no lies about your neighbour,” may as well have been written on a scrap of parchment still hidden in the Qumran Caves.

Is there not one good leader to be found?

End of comments.





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