IN MOST social settings the inability to form attachments would be considered something of a liability. It might even be something for which you would seek help or visit a support group. Not so in the corporate world. There, the inability to form attachments makes you the ideal candidate for a long-standing (in some cases very long-standing) non executive directorship.
Nothing shouts cronyism in the corporate community quite as much as boards persuading themselves that long-standing directors are “independent”.
As an “independent” the board member qualifies for appointment to any board committee. It’s an important classification with many governance experts regarding the independent director, correctly, as central to the efficient and principled oversight of the company.
For those who have difficulty getting their heads around the concept of independence or who have “attachment issues”, the King code provides some guidance on who might fail to be regarded as independent. According to the code the things that threaten a director’s independence include one’s position as: a representative of a shareholder;a significant shareholder; employment by the company in the previous three years; a direct relation to someone who has been employed in an executive capacity during the preceding three years; and not being free from any business or other relationship with the company.
Previously, a nine-year board stint was tipped as setting off a few alarm bells but the corporate governance gurus decided putting in a time horizon was too prescriptive. Essentially, it was believed the boards and individual directors should search their own souls for the answer.
In its latest batch of proxy voting results, the Public Investment Corp, the largest investor on the JSE, fingered several listed companies for their faulty soul-searching. The most egregious instance identified was Hugh Herman at Pick n Pay.
Herman has been on the PicknPay board since 1976 and was the company’s MD between 1986 and 1993. Technically, under King, he may be classed as “independent”, and so everyone involved continues with the staggering presumption that after a close relationship of 39 years he is still independent.
Everyone, that is, except the PIC. It seems the only investor taking corporate governance seriously. It was the only significant shareholder at Pick n Pay’s last AGM to vote against Herman’s reappointment to the audit committee. It worried about his independence (not about his general ability, about which the PIC seems confident and was happy to reappoint him). Others fingered by the PIC include Len Konar at Illovo Sugar, AA Raath on the Mediclinic board, and SE Abrahams at Foschini. Despite being on their boards for almost 20 years they were considered independent enough to be members of their audit committees.
Independence goes to the heart of corporate governance and highlights the weakness of a system that relies on self-regulation. In an attempt to be non-prescriptive, the King code ends up being wishy-washy.
Consider that the group we all currently love to hate, the Guptas’ Oakb ay Investments, applies almost all of the King 3 principles. (As someone pointed out, there was no principle relating to state capture.)
But here’s the problem: the public (all those people outside the boardroom, many of whom are indirectly invested on the JSE) is not persuaded by the virtues of a self-regulating code. They see little difference between Oakbay’s self-proclaimed virtuousness and that of any other listed entity.
Corporate leaders are allowed to indulge their belief in their own virtue and things like independence because they are rarely challenged. Apart from entities like the PIC and the competition authorities, we are forced to rely on outsiders like the Bench Marks Foundation and the Centre for Environmental Rights to challenge corporate self-deceptions.