PARMI NATESAN: Strengthening corporate governance — unlocking value for organisations

Recent developments at some of SA’s leading companies have put a spotlight on the vital role that corporate governance plays, not only in maintaining control but also in creating long-term value for organisations.

At its core, effective governance enhances resilience, builds stakeholder trust and strengthens accountability. It fosters ethical decision-making, promotes transparency and helps align the company’s objectives with the long-term interests of its key stakeholders, ultimately ensuring sustainable growth and a positive corporate reputation.

While media reports highlight potential issues related to governance practices, these situations should serve as reminders of how good governance can build stronger, more sustainable and resilient businesses. Critical to this is recognising that corporate governance serves an essential purpose and can enhance business performance.

The reported examples demonstrate not only how governance can highlight risks, but also how adherence to governance can play a role in preventing such risks from materialising in the first place.

MTN has recently been in the spotlight due to reports of senior executive departures, allegedly linked to the leadership style of the CEO. According to recent news sources, the CEO’s approach may have created an environment in which some executives felt marginalised, contributing to their exit. However, MTN Group has now announced that its board has concluded an investigation into these allegations, finding no improper conduct by the CEO. While this outcome provides clarity, it remains important to reflect on general best practice.

In terms of King IV, a key role of the board is to appoint the CEO — someone who not only leads decisively and drives performance but also fosters collaboration and a healthy corporate culture. While strong executive leadership is essential, it should not come at the expense of balance and collaboration. King IV also underscores the importance of a balanced distribution of power within leadership structures to ensure that no single individual has unchecked authority. A collaborative environment mitigates risks associated with over-centralised decision-making, improves company performance and ultimately supports the board’s ability to oversee the company effectively.

Whether directly linked or not, it’s worth noting that MTN has been under financial pressure, and recently a decline in its share price has also been reported. While it is difficult to attribute this directly to governance, these challenges certainly highlight how perceived governance challenges can potentially have tangible consequences for companies.

The departure of Absa’s Group CEO has brought succession planning for key management positions into focus. While some concerns were reported on the sudden nature of the CEO’s exit and the absence of a successor announcement, it is important to acknowledge that the company may have planned to look externally for the right candidate, which can also be a valid approach to succession.

Nonetheless, some news reports indicate a perceived lack of preparedness, as the market tends to react negatively when such transitions appear abrupt.

Similarly, at Harmony Gold, the announcement of the CEO’s planned retirement without naming a successor appeared to have a negative affect on the share price, highlighting the importance of a well-communicated and structured transition plan.

In contrast, Old Mutual recently announced the resignation of the CEO of OM Bank, but at the same time named an internal successor as CEO-designate to “ensure a smooth transition”. This proactive approach to succession planning and communication seemed to be well received, demonstrating the value of a clear and seamless leadership handover.

Succession planning, whether it involves internal development or external recruitment, is essential to ensure continuity and stability during leadership changes. King IV highlights that the governing body should ensure there is a clear succession plan for the CEO to provide continuity of executive leadership. Such planning should be periodically reviewed and cater for both emergency and longer-term scenarios.

MultiChoice’s governance practices have also come under scrutiny, particularly concerning the independence of its non-executive directors. Recent reports reveal that over the years, some non-executive directors earned significant amounts in consulting fees from the company, which raises concerns about their ability to exercise independent, unfettered judgment.

This issue came to a head just before a recent AGM, at which pressure from an institutional shareholder led to one such director stepping aside from re-election.

Board independence is critical on a board because it ensures that directors can make decisions objectively, without being influenced by personal or financial relationships. Independent directors are better positioned to hold management accountable and provide unbiased oversight, safeguarding the interests of all stakeholders.

King IV stresses that board members should avoid relationships that could interfere with their independence, and specifically highlights that a non-executive director also being a “significant or ongoing professional adviser” to the company is an indicator of a lack of independence.

However, it is important to recognise that not all non-executive directors are required to be independent. The board should evaluate whether a director’s in-depth knowledge of the company and industry outweighs any perceived lack of independence. If so, the board should clearly explain this rationale in its communications with stakeholders. Ultimately, shareholders retain the right and responsibility to appoint (or not appoint) non-executive directors based on the board’s recommendations.

A consistent and transparent process in evaluating independence is essential for maintaining trust in the board’s ability to govern effectively. Without it, the company’s credibility and long-term success could be jeopardised.

These cases serve as valuable reminders that governance is not just about avoiding pitfalls but about enabling sustainable growth and value creation. Companies that invest in sound governance are ultimately better positioned to thrive in this complex, rapidly changing world.

• Natesan is CEO of the Institute of Directors in SA.