TRACEY DAVIES: Who fears JSE ‘censure’?
The exchange should reflect on its powers and how best to use them if it is to rebuild trust in the market
Recently, when the JSE imposed its maximum available financial penalty of R7.5m on Tongaat Hulett for issuing misleading and false information to investors, commentators rightly bemoaned the paltry fine in the context of the huge losses inflicted on shareholders. If the JSE had the power to impose much greater penalties, some argued, it would deter dodgy corporate behaviour.
However, that would only be true if the JSE were willing to use that power — and to use it swiftly — against those actually responsible for wrongdoing.
As it stands, the exchange already has significant powers under the Financial Markets Act to impose penalties on companies, directors and auditors. In addition to "reprimands" and fines, these include the power to "disqualify an issuer’s director(s) from holding the office of a director of a listed company for any period of time", "terminate the accreditation of and remove an auditor, [International Financial Reporting Standards] adviser, reporting accountant or reporting accountant specialist from the JSE list of auditors and their advisers", and "issue any other penalty that is appropriate in the circumstances".
How often does it use these powers? The JSE’s "censures brochure", "Understanding JSE Investigations and Imposition of Censures", commits to publishing all censures and penalties imposed by its investigations unit "on a no-name basis".
The silliness of the no-name basis aside, a thorough scouring of both the JSE’s old and new websites fails to turn up any record of censures or penalties issued by the exchange.
The only fines referenced in the media over the two years before Tongaat Hulett’s are a R1m fine imposed on Steinhoff in August 2018 for failing to announce ratings downgrades, and a R5m fine imposed on Pepkor in November 2018 — with R1m suspended for two years — for misleading investors.
When individuals and issuers are not held accountable, misconduct is rampant
There is no reference to the JSE using any of its other regulatory powers during that period, apart from a handful of "public reprimands", including for false audit claims (Jasco Electronics Holdings) and material errors in financial statements (Rolfes Holdings).
Do these "reprimands", which imply that misleading and lying to shareholders is a childish misdemeanour, serve any purpose at all?
Last week the JSE also imposed a fine of R7.5m on EOH, with R2.5m conditionally suspended for five years, for accounting errors.
Who pays the fine? Not the directors responsible for the wrongdoing, but the company.
Unsurprisingly, EOH CEO Stephen van Coller lambasted the JSE for penalising the company, under a new management team that has bent over backwards to clean up the rot, and failing to do anything about the directors who caused the mess.
South Africans deplore the lack of action by the National Prosecuting Authority for fraud committed by state officials and those who enable them. But there is just as little accountability in the corporate sector, largely because of the pervasive complacency of regulators like the JSE.
It’s a complacency that must be due, at least in part, to the fact that the subjects of the JSE’s regulation are also its clients.
There may be benefits to issuers, their directors and the JSE in maintaining friendly relations, but this undermines trust in the financial system, just as the government’s failure to hold accountable officials who are guilty of misconduct diminishes trust in the legitimacy of the state.
The JSE’s censures brochure pronounces that "strong and effective regulation that holds individuals and issuers accountable for their actions, consequently deterring misconduct, promotes public confidence in the issuer and in the market as a whole and is a key factor in the development of efficient markets, financial services and economies".
Well, yes. But the opposite is also true: when regulation is weak and ineffective, and when individuals and issuers are not held accountable for their actions, misconduct is rampant, public confidence in the issuer and in the market as a whole is low, and the public believes less and less in the concept of "efficient markets".
The JSE styles itself as one of SA’s "guardians of corporate governance". Guardianship implies protection, responsibility, honesty and accountability.
At a time when the JSE is under scrutiny for the ever-declining number of companies listed on the exchange, perhaps it should reflect on how its existing powers, predictably, transparently and proactively deployed, could rebuild trust in the market and ignite new interest from local and international investors.
- Davies is executive director of shareholder activist organisation Just Share
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