State capture has spinoffs

TIGHTER CORPORATE GOVERNANCE: COMPANIES NOW RECOGNISE MATERIAL RISK OF LAPSES

Businesses are proactively looking at how to properly implement King IV Code on Corporate Governance.

Over the past two years, South Africa has witnessed failures of corporate governance. Transnet, Eskom, the SABC and Steinhoff top the list. Companies like Naspers, Net1 UEPS and Resilient have also faced demanding questions about the way they are run. And it wasn’t that long ago that African Bank imploded in what came to be recognised as a corporate governance blowout.

There is no question that these issues have damaged SA’s reputation as a business destination. However, Christina Pretorius, a director at Norton Rose Fulbright, says that not all the impacts have been negative.

“Companies are starting to say we don’t want to act that way,” says Pretorius. “They are asking how they can make sure that they don’t get themselves into trouble, and the answer to that generally is better corporate governance.

“State capture had a big impact on the way people think because it makes them angry. High-profile corporate lapses are significant and people are afraid it might happen to them, but I think the real change in attitude happened around the time that state capture reports started to come out.”

Businesses are now proactively looking at how the King IV Code on Corporate Governance can be properly implemented.

King IV offers a far more simplified code, having condensed everything into 17 principles and promoting a holistic approach to implementation.

While listed companies have been required to meet corporate governance requirements for some time, few have been willing to engage seriously with asset managers who raise issues in this space.

However, Jon Duncan, head of responsible investing at Old Mutual, believes this is changing.

“Our experience is that there is a lot more receptivity to just how important these issues are,” says Duncan. “Companies are responding with more care and sensitivity because they are dealing with asset managers who have experienced material losses as a consequence of either bad actors or lapses in governance.”

This experience has focused attention on how corporate governance issues are a material risk that can’t be ignored.

“There is a growing willingness to collaborate to resolve things that collectively impact us all,” Duncan notes. “That has been quite an important shift.”

This is a pattern that has also been observed in other markets, where asset managers have come to realise the benefits of working together to influence corporate behaviour.

“I expect the next feature on the horizon will be shareholders tabling resolutions for consideration at AGMs,” says Duncan. “Once you have asset managers realising that we can deal with this more effectively if we collaborate, the next turn of the wheel is that if we have more than 10% and are more than two shareholders, we can table a resolution for consideration or force a special meeting.

“That’s not yet a strong feature of the South African market, but I expect it is something that will come in the next two to three years.”