Profits and pay are key corporate governance areas
The UK government has been urged to set up an independent unit to monitor corporate governance. What about SA?
Imagine the Institute of Directors in Southern Africa (IoDSA), Cosatu, the Institute of Chartered Secretaries and the Association for Savings and Investment SA (Asisa) agreeing to a position on corporate governance practices, and in particular executive pay.
Then imagine them sitting down and writing a letter urging government to ensure corporate governance obligations and executive pay are policed effectively.
Finally, imagine (if you could) them sending that letter to President Jacob Zuma.
SA is probably light years away from any of that actually happening. But two weeks ago the equivalent organisations in the UK — IoD, Trades Union Congress, Institute of Company Secretaries and the International Corporate Governance Network, or ICGN — sent just such a letter to Prime Minister Theresa May.
The new PM, who has been more outspoken on these issues than any of her predecessors, is likely to embrace the letter’s recommendations (particularly the one about establishing an independent unit to oversee governance and pay).
To date, action on this front has largely been limited to the occasional outbursts by individual investment institutions or shareholders pitching up at AGMs. (In a recent encouraging development the UK’s Investment Association released a report calling for changes to the current flawed executive pay system.) The unit envisaged in the letter to May would allow for a sustained campaign instead of the ad hoc sorties that rarely see any follow-up action.
The letter to May, which brought together the most powerful organisations in corporate UK, was co-ordinated by David Pitt-Watson, a former executive at investment group Hermes and now an executive fellow at London Business School. He told the Financial Mail the intention was to get all the key stakeholders involved.
The CEO Initiative is designed to defend existing corporate interests rather than challenge them as the UK initiative is likely to do
The hope is that the unit to be established will police corporate governance and ensure businesses are run for the benefit of employees and society as well as shareholders.
“I’d like the entity to be as independent as possible so that it would be difficult for any stakeholder group to lobby it. I’d almost have it reporting direct to parliament,” says Pitt-Watson.
SA is so far from this enlightened approach it’s hard to imagine even one of these organisations writing such a letter off its own bat.
The CEO Initiative, set up last year in the wake of “Nenegate”, is designed to defend existing corporate interests rather than challenge them as the UK initiative is likely to do.
Business and labour do have a history of working together in the national economic development & labour council. But corporate governance and executive pay are obviously regarded as too esoteric for an organisation that spends its time considering life-and-death issues such as a living wage.
Cosatu (and the labour movement in general) seems happy enough to bang on about white monopoly capital but has no strategic plan to restrain the capitalists. This may be due to a chronic capacity shortage or because it’s working away at a more dramatic option, destroying the capitalist system.
The ICGN has a number of significant members in SA — the Public Investment Corp, Investec Asset Management and Momentum Asset Management — but the more obvious organisation to engage on behalf of institutional fund managers is Asisa.
The association’s website says that its members are the custodians of the bulk of the nation’s savings and investments, and are among the country’s biggest contributors to the national GDP.
“Asisa enables this industry to speak with one voice and represents the unified goal of ensuring that the SA savings and investment industry remains relevant and sustainable in the future in the interest not only of Asisa and its members, but also the country and its citizens,” says the website, describing the ideal entity to represent institutional shareholders in an initiative to promote the interests of a broad range of stakeholders.
Sadly, Asisa does not see things the same way. A spokesman for the association referred queries about following the UK initiative to the IoDSA.
“It was discussed some time ago and it was felt the IoDSA and King 4 were addressing the issue,” said the spokesman.
The IoDSA did not respond to requests for comment, which in itself may give an indication of the chances of it driving the sort of initiative its UK counterpart is involved in.
So all in all, a lack of capacity, indifference and/or arrogance means there’s about zero chance of concerted action from the private sector. This is despite the greater threat inequality represents in this country and the very useful opportunity such an initiative would have in showing we are a caring society.
This means it’s all down to the companies & intellectual property commission (CIPC). Unlike the UK’s Companies Act, the SA Companies Act 2008 has made provision for oversight in the form of CIPC’s governance, surveillance and enforcement division.
CIPC’s ridiculously broad mandate includes monitoring proper compliance with the Companies Act and receiving or initiating complaints concerning alleged contraventions. It’s also responsible for investigating those complaints. As has previously been said, the CIPC’s broad remit means it can be tied up in an investigation into one of Radovan Krejcir’s companies or a state-owned company or even a listed entity.
This might explain why the high-profile governance challenges at listed companies have so far been left to determined individuals such as Dave Woollam (Summit Financial Partners) and shareholder activists Albie Cilliers and Theo Botha, who have incurred considerable expense in their efforts to enforce better governance standards.
And it is likely CIPC’s role is not quite what the UK initiative is aiming for. As Pitt-Watson says, the oversight unit should represent all stakeholders and be independent enough to shrug off lobbying efforts by any one group of stakeholders.
Perhaps the most obvious reason SA is so far away from this sort of initiative is that for the unit to be successful, stakeholder representatives will have to see beyond their own interests to those of the broader society.
This might be expecting too much from key players in our relatively new democracy, all of whom seem more intent on defending their own existence than promoting our society’s.
And then, of course, there’s the issue of sending such a letter to Zuma.