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16 January 2019

Investment for Inclusion series: Part 1 of 6

On 6 March 2019 in Johannesburg, Just Share will convene the Investment for Inclusion Forum, where we will be engaging with key role-players on the challenges facing the investment industry, and what the solutions might look like. This is the first in a six-part series on the state of corporate governance and responsible investment in South Africa, which we will publish in the run-up to the event.

Part 1 looks at what we learned in 2018 about the state of corporate governance in South Africa.

The dramatic events at Steinhoff dominated South African headlines throughout 2018 and provided useful camouflage for the common-or-garden variety of unsatisfactory corporate governance that pervades the South African investment landscape.

As the year unfolded it became painfully clear that the corporate governance industry that has mushroomed in the wake of the first King Report in 1994 has done little to restrain the behaviour of many of the top executives of our listed companies. A few recent examples include:

  • Tongaat’s long-serving CEO was nudged into ‘early’ retirement when shareholders were made aware that for years his hugely generous remuneration was completely out of whack with the company’s performance.
  • The board at Trencor remained determined, in the face of activist attention, to hold onto a structure that rewards them while eroding shareholder value.
  • Underperforming directors at Grand Parade put up a desperate fight to hold onto their well-remunerated positions, despite overseeing long-term value destruction.

The system of shareholder capitalism is under scrutiny across the world, but its leaders seem incapable of marshalling an effective response to the weaknesses being identified. In South Africa, many of the top executives of the large powerful companies that dominate our economy have allowed themselves to be taken hostage by short-term considerations that promise generous pay packages, regardless of the implications for society at large.

Compounding the problem is the fact that the institutional players who should be ensuring that the pensions, savings and investments of millions of South Africans are directed to long-term sustainable value creation have largely abandoned their allotted role, as they too chase benchmarks and short-term rewards. And by the end of 2018 it was clear that the powerful overseers of this system, audit firms like KPMG, and consulting firms like Bain and McKinsey, are part of the problem. Under-resourced state regulators cannot fill the gaps created by the system’s failures.

2018 was a year in which South African corporate icons collapsed all around us, a year in which it became evident that the shareholder capitalist system, which held so much promise of wealth creation and distribution, has failed to make a positive difference to the lives of the majority of South Africans.

It is time to admit that listed companies are not playing the role they should be playing in alleviating the menace of inequality in South Africa. We have a problem. Let’s talk about it.

Save the date and be part of the conversation! Agenda, speakers and registration details will be available soon.

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