Directors are generally more optimistic

IN THE FIRST half of 2018, the Institute of Directors in Southern Africa (IoDSA) conducted research on how directors saw the current economic, business and governance environment impact on their directorial role. This is the third year running that this research has been done, so it is a useful barometer of how directors’ perceptions change.

Overall, the research suggests that South African directors are more optimistic than they were in 2017 or 2016.

That said, we must also recognise that the research took place during those heady weeks when the then deputy president took an investment-friendly message to Davos and then assumed the highest office when President Zuma resigned.

The sample size was 422 directors, 101 of whom were not members of the IoDSA; 72 percent were male. They come preponderantly from Gauteng (65 percent), Western Cape (18 percent) and KwaZulu-Natal (9 percent), which tells you all you need to know about where this country’s economic activity is taking place.

The research questions covered four areas: Economic, Business, Governance and Directorship.

The first category, Economic, is where the substantive change has occurred compared to previous years’ registers. Directors’ greater optimism was particularly linked to the economic health of First World countries and the South African economy, and they were generally also optimistic about improved business prospects and the ability to increase their returns over the coming 12 months.

When it comes to economic challenges to business, by far the biggest was South African economic uncertainty, with social and political unrest and the impact of broad-based black economic empowerment (BBBEE) coming in joint second. Economic uncertainty has headed this list since the survey’s inception, while social and political unrest has advanced from third place last year, displacing the effect of BBBEE on business.

Other key concerns were the lack of skilled labour and the country’s declining credit rating.

Economic challenges to industry had a different set of results.

South African economic uncertainty came in slightly lower at 57 percent, but still way ahead of lack of skilled labour and the effect of BBBEE. A majority of directors believe the application of good governance practices adds value to the business, and that their board sets an ethical tone adequately through its leadership. Perhaps unsurprisingly, public sector directors feel least positive about boards’ effectiveness in setting an ethical tone. When it comes to governance, directors list the main governance challenges facing their businesses as lack of sustainable thinking, too costly or perceived to be too costly and too time-consuming.

For governance challenges impacting industry, the picture is radically different. The top three governance challenges are unethical behaviour, lack of understanding of King Report principles and lack of sustainable thinking.

Positive impact

Generally, South African directors are positive about directorship conditions. In particular, they feel that continuous professional development makes a positive impact on board performance.

Of most concern is the suitability of skills, experience and independence of individuals serving on boards – something that has been their number one concern for the past two years.

Given that South Africa still has a relatively small pool of directorial talent, it is worth noting the factors that influence the willingness of individuals to serve on a board.

Ethical behaviour tops the list, followed by experience and competence, and competence of existing/fellow board members. In other words, boards that are seen to act ethically and whose existing members are competent are more likely to attract new board members – another example of success breeding success.

Let’s hope the overall more positive outlook is borne out by events, and that we can report that this trend has continued into 2019, when the next survey will be undertaken.

The top three governance challenges are unethical behaviour, lack of understanding of King Report principles and lack of sustainable thinking.