SA still needs to improve on its corporate governance practices, but is on the right track, says Old Mutual Investment Group

Jon Duncan, Head of Sustainability Research and Engagement at Old Mutual Investment Group.

Robert Lewenson, ESG Engagement Manager at Old Mutual Investment Group.

With South Africa’s corporate governance practices under scrutiny following events such as the collapse of Africa Bank and the controversy surrounding Lewis Group, the question has been raised of how our corporate governance environment compares to global standards and what role should regulation play? According to Old Mutual Investment Group, South Africa’s governance frameworks and regulation are at the forefront internationally; however there is still scope for improvement when it comes to implementation.

Head of Sustainability Research and Engagement, Jon Duncan explains that a fair number of South African companies – often the largest on the JSE – have the necessary sound structures in place and director-level experience and quality that allow a company to be well governed. “As an investor, Old Mutual Investment Group is committed to raising the bar on governance practices, and we see a number of good examples of companies in the financial and healthcare sectors,” he says.

“However, we’re still seeing quite a few larger companies and many smaller companies – particularly in the energy and materials sectors – that still have room for improvement to their governance structures and the balance of board directors.” There are still companies where the balance of the board is not optimal, with strong executives, but inexperienced or incorrectly qualified non-executives. This results in the potential for weak strategic decision making, according to Duncan.

“While SA has been acknowledged internationally as being a frontrunner regarding its governance practices and regulation, the updated King IV Code aims to strengthen this further,” he says. “However, we recognise that there is always room for improvement, particularly with respect to the governance of environmental and social issues.”

Robert Lewenson, ESG Engagement Manager, adds that Old Mutual Investment Group believes strongly in the role of regulation in South Africa and has been represented on the King IV Working Group from the outset, where it has lobbied various members to include crucial aspects of Environmental, Social and Governance to ensure a comprehensive update to the Code.

However, he doesn’t believe that the King Code should become law. “Our view is that the spirit of the principles-based approach to good corporate governance, seen in previous version of the Code, should continue with King IV, rather than become law, in order to keep the code as universal as possible and avoid crystallization of the Code” says Lewenson. “But we do acknowledge that, as with the existing Code, it should be aligned with the JSE Listing Requirements, which make aspects of the Code binding for listed companies.”

Lewenson points out that the Code is designed to drive change, rather than being a ‘ceremonious detail’. “According to the drafting committee, simplification and ease of interpretation and access will be a key tenet of King IV. This will mean clearly differentiating principles from practice recommendations. In our opinion, this shift will move adherence to King away from the ‘tick box’ approach, which has been a criticism in the “apply or explain” framework of the current Code,” he explains.

“This is firmly in line with our own approach to responsible investment and governance at Old Mutual Investment Group, where we aim to drive a sea change in the responsible investment landscape,” says Lewenson. “We employ a fully integrated ESG approach, which includes my appointment as a dedicated ESG Engagement Manager overseeing Responsible Investment integration and implementation; entrenched Responsible Investment policies; use of research, proxy voting and engagement with listed companies; representation on industry bodies like CRISA, UN PRI, RI Com of ASISA; and leading the Old Mutual group in respect of Responsible Investment.

Duncan says that good corporate governance forms the cornerstone of Old Mutual Investment Group’s responsible investment approach, which is why the business has teamed up with the University of Stellenbosch Business School (USB) and the INSEAD Corporate Governance Initiative to sponsor the Africa Directors Programme. The programme highlights the importance of enhancing the capacity of company directors for ethical and effective corporate governance and board leadership.

“We believe that when you invest to reduce governance risk, the rewards will be greater,” he explains. “We place immense importance on solid governance practices, which result in better operational performance. As such, in supporting the Africa Directors Programme, we hope to significantly enhance the capacity for ethical and effective corporate governance and board leadership for, not only our own executive team, but directorship development across the broader African continent.”