ANSIE RAMALHO: Corporate accountability is fraying

Finally, there may just be some accountability for misbehaving directors. Recently, two former directors of Ayo Technology Solutions were banned from serving as directors of any JSE-listed company, and six former Tongaat executives were in court on charges of fraud. It’s encouraging — but the gap remains enormous between the reality of corporate accountability and where we ought to be.

US author and systems scientist Peter Senge suggests we think about these sorts of gaps in the following way: imagine a rubber band, stretched between the pole of the ideal and the pole of the present reality. The stretched rubber band represents the tension between the two poles. The only way to resolve the tension is to bring the two poles closer to each other. In other words: either lower the ideal for accountability, or change the present reality in the direction of the ideal.

The first option is, of course, not really an option at all. But we’re also not close to the ideal.

Legal accountability for directors in SA is rare and, when it does happen, it’s usually against executive directors. But while we often bemoan the lack of legal accountability, this isn’t the only option available to us.

The Zondo commission in its second report on state capture points out that people can use the Companies Act to ask a court to declare directors delinquent. And a number of people can bring such a delinquency application — shareholders, the Companies & Intellectual Property Commission and even trade unions.

But if that’s so, why are delinquency applications not brought more often?

One reason is that such applications must be brought within 24 months of a director leaving a company — a relatively short time in which to investigate wrongdoing. Still, I suspect the answer has more to do with a lack of nous or, perhaps, a measure of inertia.

This isn’t always so, however. There was certainly no inertia when environmentalists and communities on the Wild Coast obtained an interdict prohibiting Shell from carrying out its seismic survey, for example.

There are other ways for ordinary people to hold directors accountable. Customers, for example, can use their buying power to choose which businesses and products to support.

Investors are also using their power to demand greater accountability. In particular, they are allocating capital based not only on financial performance but also on the impact companies have on society and the environment.

Consider, for example, how two Sasol shareholders towards the end of last year filed a resolution demanding that the company disclose its climate lobbying activities in more detail.

There is no legal requirement for such disclosure, but the thinking is that stakeholders should be aware of corporate activities that interfere with a just transition to a low-carbon economy.

Equally, nonprofit Just Share has lobbied fiercely against Standard Bank for being the only major bank that hasn’t ruled out the financing of carbon-intensive projects.

It shows how customers, investors and activists are able to act far more swiftly, and with greater flexibility, than the legal machinery we all seem to be waiting for.

A push for transparency

Market and social sanctions have very real consequences. Such actions can lead to companies being unable to access equity and debt capital, and attract talent or business partners. And unless that company changes course, it could lose the social licence to operate.

But while these are "push" factors, there’s also the "pull" factor: the willingness of companies and directors to account to investors, customers and their communities. Transparency, here, is the barometer. I am sure companies will point to their public reports as proof that they are transparent, but disclosure is only a tentative first step towards accountability. Too often, we see annual reports that resemble marketing materials rather than any authentic attempt to provide a balanced view of the company’s performance.

Often, companies boast of how their board subscribes to the highest standards of governance, but they don’t meaningfully justify these generalities against a set of standards, such as those contained in King 4.

Judging by the number of AGMs designed to be concluded in the shortest time possible, with little invitation for shareholder engagement, accountability isn’t the default stance of most public companies.

What makes this tricky is that we are dealing with a continuum of errant behaviour, from bona fide errors in judgment to negligence, right through to deliberate misconduct.

That said, we have no option but to try to navigate a path through this and find a solution.

Without that, the notion of corporate accountability will become increasingly academic, and public confidence in companies will fray further.

*Ramalho is chair of the King committee on corporate governance in SA