EDITORIAL: Inside the JSE’s plan to restore trust
The JSE says recent events have highlighted the need for it to review its responsibilities and strengthen its rules on listings
The JSE has heard the stinging criticism directed at it in recent months. This week, the continent’s largest stock exchange released a consultation paper aimed at "improving its regulatory approach to new and existing listings".
It’s a welcome step, given the collapse of Steinhoff in December, allegations that property group Resilient has been manipulating its share price, and criticism of the JSE for listing flops like the Gupta-owned Oakbay Resources.
In the paper, the JSE says recent events have highlighted the need for it to review its responsibilities and strengthen its rules on listings.
JSE CEO Nicky Newton-King says this is the most broad-ranging review of the rules in years. "We’ve taken this moment, this noise, very seriously," she says. "It has affected people’s confidence in the market. The whole point was to take a hard look and ask: would this contribute towards better checks and balances?"
It would seem that, should these proposals be implemented, it would be a global first. Some of them are extraordinary: for example, the JSE moots a new "governance resolution" and a new "diversity resolution" that would be put to a shareholder vote at company AGMs.
As it stands, a company must declare in its annual report whether it complies with the King 4 governance code; but to put this to a vote would be entirely new.
True, it would be a "nonbinding advisory vote", like the current vote on pay. But still, if more than 25% of shareholders vote against this "governance resolution", the company would be obliged to "engage" with them.
Equally far-reaching is the proposal that boards "publish a mandatory policy regarding [their] diversity" as well as statistics on how a company performs against that policy. This would also be put to a nonbinding vote.
It would be an important step, since Steinhoff’s board, for example, wasn’t diverse or particularly independent. But the JSE says directors with a range in age, gender, race and qualifications could "enhance the diversity of views expressed and oversight" — which is vital "when a company has dominant and charismatic directors". Such as Markus Jooste, Steinhoff’s disgraced former CEO.
Newton-King says she doesn’t think this would be "a bridge too far for many people".
There are other intriguing proposals. For example, the JSE moots requiring analysts who are bullied for "writing or publishing a negative report" about a company to report this. And it asks whether it would make a difference to require large shareholders — such as Coronation, Allan Gray, Old Mutual and Sanlam — who own more than a certain percentage of a company’s shares, to vote at AGMs and then publish how they voted on the stock exchange news service. Another suggestion is to force a company to publish "any material concerns raised by auditors".
The JSE is also considering "enhancing disclosure" where directors have pledged their shares as collateral for debt. In the case of Steinhoff, when the stock collapsed in December, investors were shocked to learn that some directors had pledged their shares to banks to cover debts.
There are more obvious suggestions to bolster trust in the market. For example, as it stands, a company that lists on the JSE is required to have R500m in capital paid for by investors — and the JSE says this "may need to be revised upwards".
Many of these proposals are uncontroversial. Others are sure to provoke anguished e-mails from asset managers. In some cases, they might have missed a trick. But they are a welcome sign that the JSE is at least considering how to restore trust in the market, which has been badly shaken.
Newton-King points out that these are just proposals. "We’re not saying people have to do this — we’re just saying this is what we’re thinking about. Let’s have a conversation." It’s one that is worthwhile and long overdue.