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SA’s increasingly jaded corporate governance

The regulatory muscle being flexed by the bourse, and questionable claims of independence by some corporates.
The writer believes it's time for a corporate governance code overhaul. Box-ticking does not make an exec more independent with time. Image: Shutterstock

Recent attempts to bring some companies in line – whether internal or external – have raised a few eyebrows.

EOH’s CEO Stephen van Coller is right to feel utterly frustrated by the JSE’s decision to slap the troubled company with the maximum possible fine of R7.5 million for breaching listing requirements. That a portion of the fine has been suspended is of little consolation to the head of a management team that, in 2018, moved in to clean up the life-threatening mess left by the previous team.

No doubt the JSE is under pressure to be seen to be doing something to protect the integrity and attractiveness of the local stock exchange, but this is the third time in recent months that it has attacked a pointlessly obvious target. In an embarrassing display of its regulatory muscle it also fined Steinhoff and Tongaat.

In each case the maximum fine was levied months, if not years, after the wrongdoing was uncovered and after a new group of executives had moved in to try and rescue a fragile corporate entity.

Perhaps it is time for this market regulator to be a little more discerning. We all know that Tongaat, Steinhoff and EOH drove coach-and-horses through all manner of regulations; the JSE should devote more energy to the much more difficult task of catching the lower profile wrongdoers.

And certainly something does need to be done to speed up the process of holding the wrongdoers to account, but that is outside the JSE’s authority.

Questionable independence

Only in the bizarre corporate governance world dominated by the King IV report and a fixation on box-ticking could someone become independent with time.

Most reasonably well-adjusted individuals would struggle to remain independent when it came to colleagues with whom they’d had a working relationship for a decade or more; but not in the world of business or at least not if you’re sufficiently senior in the world of business. These individuals are, apparently, able to remain aloof from the normal human bonding instincts.

And so boards, without a hint of embarrassment, are happy to claim long-serving directors are indeed independent.

The latest to make such a claim is The Foschini Group.

In a Sens announcement issued last week the retailer informed shareholders that Ronnie Stein, who had previously been categorised as a non-executive director, “is now classified as an independent non-executive director of the company effective immediately”.

Stein was an executive with the company for 19 years, serving as chief financial officer in the last of those years. When he retired in 2015 he was appointed to the supervisory board as a non-executive director.

Five years later and after 24 years with the group, he is now deemed independent.

At PSG’s recent AGM when the subject of the independence of the very long-serving Chris Otto came up, the board had no hesitation in assuring shareholders that in terms of governance codes, Otto was supremely independent.

Only King IV could enable this. It really is time for an overhaul of that jaded and abused code.

Continuing on the subject of corporate board dealings, surely the guys at MTN don’t need another four to eight weeks to finalise the CEO succession process (see its trading statement)? The members of the nomination committee have known since March 2017 that Rob Shuter would be leaving in March 2021. What have they been doing for the last three years? They should have been able to make an announcement months ago.

Read: Outgoing MTN CEO Rob Shuter to join BT Group

Getting it right

Over at Prosus, it is to that board’s immense credit that it has taken advantage of the current global market conditions to add to its cash pile rather than diminish it through some or other overpriced high-tech acquisition.

Last week the Naspers off-shoot informed shareholders it had raised more than $2 billion in debt to fund potential future merger and acquisition activity. That announcement came just days after we heard that Prosus had lost out on its second consecutive acquisition bid.

The Dutch online trading website Marktplaats, which is owned by eBay, was scooped up by Norwegian firm Adevinta in a cash and share deal valued at an eye-watering $9.2 billion. The deal gives eBay a 44% stake in the Norwegian company, so it’s hard to determine who is actually the buyer in this deal. Prosus, which was reported to be willing to pay more, was unable to match the share portion that eBay wanted.

Early in the year Prosus was beaten by Takeaway.com in its bid for Dutch-based home delivery service Just Eat. Shareholders didn’t seem too worried.

Lastly, well done to Steinhoff CEO Louis du Preez for launching a settlement proposal that seemed an impossibility a year or so ago. Now to get it to fly without consuming too much more in legal fees.

Read:
Wiese endorses Steinhoff’s R19bn settlement plan
Steinhoff’s first-half loss more than doubles to $1.7bn

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Mr King lives in a dream world I am afraid. His recommendations on corporate governance are logical, well thought out and would in theory provide great oversight. They however ignore human nature, politics, compensation and management styles.

A friendly board is usually made up of individuals that the operational team believe will vote the right way when required, if independent directors happen to have some skills thats just a bonus. Auditors are toothless necessary evils who add no value whatsoever other than a perceived endorsement. They neither accept responsibility for the audit nor do they even endorse that the numbers are correct. In fact they disclaim this on the first of second page of the audit. It is for example impossible to audit a bank in South Africa as they audit firms are presented with a few well chosen examples of documents fabricated to sat whatever the bank needs them to say. No audit company can afford to loose a bank as a client so they will not risk it meaning they will find a way to make the numbers work.

At board level the same is happening on our boards. No board wants a proverbial ”gate keeper/ whistle blower / problem child ” on their board so they elect individuals at fantastic board fees to sit and vote they way they need the vote to go. Many individuals in SA make an extremely good living by attending 4 or so board meetings a year. Mr King does not account for greed and remuneration of non executive board members. In the early 2000’s a certain Indian taxi driver owner was forced to resign from one of the big 4 banks’board, the then CEO made a public announcement right here on Moneyweb and thanked this individual for his outstanding contribution and insight while he was a non executive director of the bank. When a bank needs to pay a taxi driver over 1 million rand a year to get ”outstanding contribution and insight” then Mr King’s vision I am afraid is just that. Surely when you buy BEE at least buy someone who can ”read and write”.

Well said Kev, I may be wrong but IMHO this pervades through most SA “listed” companies – self-enrichment like the ANC.

I am unwinding from SA listed stocks except for a little speculation but, there again, even Steinhoff stung me.

What Corporate governance?

I think you don’t have to look any further than Investec in the ”Kebble-gate” saga to see what control etc. can be achieved by corroborating with the ”right people” and thereby creating massive conflicts of interest for your own gains!

End of comments.

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