LETTER: Is talent pool for Standard Bank’s board too shallow not to have conflicted directors?
The duty of such directors to recuse themselves has its origin in the duty of a director to act in the best interests of the company
The Centre for Environmental Rights, along with a raft of other local and international nongovernmental organisations (NGOs), recently supported local shareholder activist group Just Share’s call to the shareholders of Standard Bank to reflect on the independence of seven of the its board’s nonexecutive directors, five of whom are up for election at the bank’s June 26 AGM.
We called on institutional investors to consider whether those directors were, in fact, serving shareholders’ best interest, given their obvious conflicts of interest in participating in key decisions facing the bank and its shareholders.
Shortly thereafter, an editorial in Business Day asked whether the “climate justice lobby” has “gone too far”.
To some, our call may seem audacious — daring to question the corporate governance standards of one of SA’s biggest private banks. In fact, we are asking for no more than adherence to the Companies Act and the King IV Code on Corporate Governance.
The editorial notes that climate change is the biggest crisis facing humankind. As a result, a significant portion of policy decisions of any significance made by a major bank will have climate-related aspects and many will (or should) have climate effects as a central issue. To behave otherwise would be to make a mockery of the claim to be a socially responsible corporate citizen, a claim Standard Bank is at pains to make.
This means that, with its board as presently constituted, Standard Bank is faced with one of two problems: either the conflicted directors will recuse themselves from any decision that has any material climate aspect, in which event it will be deprived of the skills and experience of up to 40% of its board in relation to critical decisions (an outcome the Business Day editorial decries); or they will not recuse themselves, render resulting resolutions potentially invalid under section 75 of the Companies Act, and irreparably compromise Standard Bank’s ability to make rational and properly considered decisions in the time of an existential crisis.
The duty of conflicted directors to recuse themselves has its origin in the duty of a director to act in the best interests of the company. That duty, as embodied in section 75 of the Companies Act, is for the benefit of the general body of shareholders. What better way to acquit yourself of your duties as a director than to allow shareholders to vote on issues where a proposed policy direction may be socially responsible, but could also affect the bottom line?
Should responsible directors not ask themselves: do shareholders value short term profit over the prospect of the many catastrophes that climate change will bring? Why not ask them? Are there members of the board who fear a shareholder directive to disclose the extent of the bank’s funding of fossil fuel projects?
The Business Day editorial aptly illustrates this issue in the paragraph which states that the 2019 shareholder resolutions were tabled at the behest of Sim Tshabalala, and “not due to any particular eagerness on the board’s part”. So the board then did not want to table even those resolutions that were presented to shareholders in 2019. Yet one of those resolutions received 55% of shareholder votes, presenting a clear indication of shareholder views on this issue.
In the light of its duties, how exactly does the board reconcile itself to its attempts to avoid any further form of shareholder direction?
As a matter of law, conflicted directors are obliged to recuse themselves from board proceedings on the issue where conflict arises. Standard Bank has adopted certain guidelines for the funding of coal related projects (it has not, it should be noted, decided not to fund coal projects). It would appear that, to date at least, Standard Bank’s board have taken the view that they should not extend those guidelines to the funding of oil and gas.
One wonders whether the conflicted directors took part in these decisions? Even a vote in favour of such guidelines by a conflicted director is contrary to the Companies Act, and any such resolution must be ratified by a court or, ironically, by a shareholders’ resolution.
The concluding paragraph of the editorial states that, in Sub-Saharan Africa, the transition to lower carbon economies “will take longer”, and that this will, in effect, inevitably result in Standard Bank appointing directors with links to fossil fuel industries.
Leaving aside how much longer we have when dealing with “the biggest crisis facing humankind”, how exactly does this time period result in Standard Bank having to appoint conflicted directors? Is the intimation that the pool of talent is so shallow that, until fossil fuel industries disappear, at least two out of five people worth having on Standard Bank’s board are bound to be linked to those industries? Astounding, then, that the other big banks have managed to overcome this insurmountable obstacle.
Corporate citizens are part of the same society as the rest of us, and all of the directors on Standard Bank’s board, conflicted and not, will have to explain to the young people of SA why they fiddled while the flames grew.
• Fourie is the executive director of the Centre for Environmental Rights, a nonprofit organisation of activist lawyers who work with communities and civil society organisations to realise environmental rights and justice.