Corruption Watch finds shortfalls in corporate governance

CORRUPTION Watch has found that there is room for improvement in the transparency of reporting among South African companies.

In its latest report, The Transparency in Corporate Reporting: South Africa 2020 (TRAC SA 2020), released yesterday, the organisation named Rand Merchant Bank Holdings (RMB), City Lodge and Exxaro Resources as the best out of 100 companies on transparency in corporate reporting.

The report, compiled jointly with independent London-based global think tank ODI and the National Business Initiative, said that 24 other companies scored between 70 and 80 percent, and six of the top 10 were in the finance, insurance and real estate sector.

It found that the bottom 12 companies were below 30 percent, and another five were between 30 and 40 percent.

“Of the 12 below 30 percent, 10 including Virgin Mobile are private companies and so not subject to JSE or other regulation of their corporate reporting. Three of the 10 private companies are media companies,” said the report.

South Africa has been rocked by corporate scandals including Steinhoff International which underlined that opaque corporate structures could mask serious problems including related-party transactions, and off-balance sheet entities.

Former JSE chairperson Nicky Newton-King said that regulation worked if it mattered to corporates and stakeholders as well as if it could be enforced.

“You cannot enforce regulations against private companies in the way you can against listed companies which is why these results are not surprising, but you can expect a corporation to say to private companies in their value chain we want you to behave in a certain way before we can do business with you. Corporates have agency which I think they underestimate,” said Newton-King.

The TRAC SA 2020 used public information – in annual reports and on websites – of corporations operating in South Africa to score their reporting across three themes including their anti-corruption programmes – policy, management and activities, their organisational transparency – information on subsidiary and associated companies, and their country-by-country reporting of key financial data for operations outside South Africa. It included 61 JSE listed companies, 11 large privately-owned companies, seven state-owned enterprises, and 21 foreign multinationals, eight of which have JSE listings.

It set the bar on transparency in anti-corruption reporting much higher than in 2016, since it relies on the Global Reporting Initiative anti-corruption standard to approximate global best practice, and had 51 questions compared with only 13 questions in 2016.

The corporations scored an average of 59.5 percent across the three themes – 58.7 percent on anti-corruption programmes, 89.9 percent on organisational transparency, and 36.2 percent on country-by-country reporting.

The report said transparency on activities and performance through corporate reporting was a crucial element of corporate governance and contributed to better performance.

“The need to report encourages corporations to pay more attention to an issue, and devote more resources – both human and financial – to improving and measuring performance on the issue and identifying and managing any risks arising,” the report said.

“Greater transparency through better reporting also contributes to market competition and peer pressure, driving performance improvement,” it said.