SA’s corporate governance trails world rivals

THE extent to which South Africa lags behind its international peers when it comes to corporate stakeholder rights was highlighted by last week’s release by the European Commission of new legislative proposals dealing with shareholder rights.

The EU is proposing that shareholders be given binding votes on executive pay and that companies set maximum pay levels and explain how their pay policies contribute to long-term sustainability.

Commentators note that this large and growing gap between South Africa’s largely voluntary corporate governance system and that of its global peers is inappropriate given that SA executive pay scales are at least equal to the top international scales.

The SA Companies Act does oblige companies to disclose what directors are paid.

Listed companies also have to adhere to the King recommendations.

But this adherence is on an “apply or explain” basis, which allows for considerable gaps in the way companies report on executive pay. The “apply or explain” approach allows companies to apply the recommendations as they deem appropriate.

The UK government recently overhauled legislation dealing with executive pay, and now (as outlined in the book Executive Salaries in SA by Kaylan Massie, Debbie Collier and Ann Crotty) has some of the most detailed disclosure requirements in the world.

UK law now requires companies to hold binding shareholder votes to approve remuneration policies at least once every three years.

In South Africa, there is only a nonbinding advisory vote on remuneration policy .

Australian legislation also requires far more detailed disclosure than in South Africa. Its “two strikes rule” provides that if 25% or more shareholders vote against the remuneration report at two successive annual general meetings, the directors — excluding the CEO — can be voted off the board.

In the US, shareholders have a mandatory say on pay, and companies are obliged to get approval for golden-parachute and goldenhandshake agreements.

While local corporate governance experts point out that the tougher regulations overseas have so far done little to restrain executive pay, they contend that this will change as the tens of millions of beneficial shareholders become more aware.