Financial Mail - - EDITORIALS -

The JSE has heard the sting­ing crit­i­cism di­rected at it in re­cent months. This week, the con­ti­nent’s largest stock ex­change re­leased a con­sul­ta­tion pa­per aimed at “im­prov­ing its reg­u­la­tory ap­proach to new and ex­ist­ing list­ings”.

It’s a welcome step, given the col­lapse of Stein­hoff in De­cem­ber, al­le­ga­tions that prop­erty group Re­silient has been ma­nip­u­lat­ing its share price, and crit­i­cism of the JSE for list­ing flops like the Gupta-owned Oak­bay Re­sources.

In the pa­per, the JSE says re­cent events have high­lighted the need for it to re­view its re­spon­si­bil­i­ties and strengthen its rules on list­ings.

JSE CEO Nicky Newton-king says this is the most broad-rang­ing re­view of the rules in years. “We’ve taken this mo­ment, this noise, very se­ri­ously,” she says. “It has af­fected peo­ple’s con­fi­dence in the mar­ket. The whole point was to take a hard look and ask: would this con­trib­ute to­wards bet­ter checks and bal­ances?”

It would seem that, should these pro­pos­als be im­ple­mented, it would be a global first. Some of them are ex­tra­or­di­nary: for ex­am­ple, the JSE moots a new “gov­er­nance res­o­lu­tion” and a new “di­ver­sity res­o­lu­tion” that would be put to a share­holder vote at com­pany AGMS.

As it stands, a com­pany must de­clare in its an­nual re­port whether it com­plies with the King 4 gov­er­nance code; but to put this to a vote would be en­tirely new.

True, it would be a “non­bind­ing ad­vi­sory vote”, like the cur­rent vote on pay. But still, if more than 25% of share­hold­ers vote against this “gov­er­nance res­o­lu­tion”, the com­pany would be obliged to “en­gage” with them.

Equally far-reach­ing is the pro­posal that boards “pub­lish a manda­tory pol­icy re­gard­ing [their] di­ver­sity” as well as sta­tis­tics on how a com­pany per­forms against that pol­icy. This would also be put to a non­bind­ing vote.

It would be an im­por­tant step, since Stein­hoff’s board, for ex­am­ple, wasn’t di­verse or par­tic­u­larly in­de­pen­dent. But the JSE says direc­tors with a range in age, gen­der, race and qual­i­fi­ca­tions could “en­hance the di­ver­sity of views ex­pressed and over­sight” — which is vi­tal “when a com­pany has dom­i­nant and charis­matic direc­tors”. Such as Markus Jooste, Stein­hoff’s dis­graced for­mer CEO.

Newton-king says she doesn’t think this would be “a bridge too far for many peo­ple”.

There are other in­trigu­ing pro­pos­als. For ex­am­ple, the JSE moots re­quir­ing an­a­lysts who are bul­lied for “writ­ing or pub­lish­ing a neg­a­tive re­port” about a com­pany to re­port this. And it asks whether it would make a dif­fer­ence to re­quire large share­hold­ers — such as Coro­na­tion, Allan Gray, Old Mu­tual and San­lam — who own more than a cer­tain per­cent­age of a com­pany’s shares, to vote at AGMS and then pub­lish how they voted on the stock ex­change news ser­vice. An­other sug­ges­tion is to force a com­pany to pub­lish “any ma­te­rial con­cerns raised by au­di­tors”.

The JSE is also con­sid­er­ing “en­hanc­ing dis­clo­sure” where direc­tors have pledged their shares as col­lat­eral for debt. In the case of Stein­hoff, when the stock col­lapsed in De­cem­ber, in­vestors were shocked to learn that some direc­tors had pledged their shares to banks to cover debts.

There are more ob­vi­ous sug­ges­tions to bol­ster trust in the mar­ket. For ex­am­ple, as it stands, a com­pany that lists on the JSE is re­quired to have R500m in cap­i­tal paid for by in­vestors — and the JSE says this “may need to be re­vised up­wards”.

Many of these pro­pos­als are un­con­tro­ver­sial. Oth­ers are sure to pro­voke an­guished e-mails from as­set man­agers. In some cases, they might have missed a trick. But they are a welcome sign that the JSE is at least con­sid­er­ing how to re­store trust in the mar­ket, which has been badly shaken.

Newton-king points out that these are just pro­pos­als. “We’re not say­ing peo­ple have to do this — we’re just say­ing this is what we’re think­ing about. Let’s have a con­ver­sa­tion.” It’s one that is worth­while and long over­due.


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