ESG

Protecting shareholder value: The importance of good corporate governance

Recent incidents of corporate governance failures across the region highlight the need for stronger shareholder activism and a greater focus on strengthening governance practices in business. Allan Gray Botswana managing director, Phatsimo Ncube, and Allan Gray Botswana portfolio manager, Tapologo Motshubi, recently hosted a webinar with Matt Orsagh, senior director of capital markets policy at the CFA Institute and Financial Mail editor, Rob Rose, to discuss the current global and regional governance landscape. Key takeouts from the discussion are highlighted below. You can also download the presentation slides here:

A company can follow good environmental and social practices, but it does not necessarily follow on that the same company is also well governed. Conversely, it is almost impossible for a well-governed company to participate in poor environmental and social practices.

Embedding strong corporate governance structures in a business enables organisations to grow sustainably and generate long-term shareholder value. This underscores why, within environmental, social and governance (ESG) considerations, governance is so important.

Global governance trends in 2021

Presenting insights into current global corporate governance trends, Matt Orsagh, senior director of capital markets policy at the CFA Institute, revealed that investors have become increasingly preoccupied with confronting corporates over issues of gender representation, racial and ethnic diversity, equality and inclusion at the board and executive level, demanding better disclosure on representation metrics.

Investors have also become more aware of the importance of remuneration in ensuring that executives are properly aligned with the long-term objectives of the businesses they lead. Shareholders believe executives should be rewarded fairly, but not excessively, especially executives of companies hardest hit by the COVID-19 pandemic.

Emerging markets and South Africa: A case study

Discussing the corporate governance failures at Steinhoff and Tongaat Hulett in South Africa, Financial Mail editor, Rob Rose, said the two case studies exposed weaknesses within the auditing profession and also highlighted the shortcomings of boards of directors who failed to interrogate some of the decisions or actions taken by executives.

Rose shared a 10-point matrix of warning signs that shareholders can use to identify red flags in corporate governance. Warnings signs to look out for include weird control structures, deals that don’t make sense, autocratic leaders, excessive debt, resignation of staff and auditors and politically based deals.

Botswana: A weak governance environment

Issues of poor disclosure, insufficient expertise of board members and senior management, inappropriate remuneration structures and the underrepresentation of independent non-executives, among others, are some of the contributing factors weakening the governance landscape in Botswana.

Retailer Choppies is a case in point. The company started with a rapid and aggressive regional expansion strategy and then went on to experience poor performance regionally. What followed were multiple accounting and audit problems, that ultimately led to the collapse of the share price and destruction in value for shareholders.

Urgent reforms are required to help move Botswana forward. Some ideas to consider include a material increase in mandated minority shareholder protections, higher minimum disclosure standards, binding shareholder vote on executive director remuneration and increased activism by minority shareholders.

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