JSE must focus on remuneration

Changes to listing rules to incorporate King IV codes is progress, but more can be done.

The Johannesburg Stock Exchange’s announcement that it has amended its listing rules to make the King IV corporate governance code mandatory for companies is a welcome step in the right direction for improving corporate governance in South Africa. However, there is still a stark need for further regulation in this regard, which would support a binding vote on executive remuneration in line with international best practice.

While the latest King IV Code has made much progress on corporate governance guidelines, there is still much to be done, particularly when it comes to ensuring fair and reasonable remuneration, as required by the code.

One doesn’t have to look very hard today to see that South Africa is at an economic and political crossroad. With the country technically in a recession and facing the likelihood of further multiple rating downgrades, if a serious effort across all sectors to improve the current situation is not undertaken swiftly, the consequences will be dire for the future of our country and our economy.

Against this backdrop, a stepped-up approach to good governance across all sectors of the economy is a critical component of the remedy to ensure that a sustainable future is achieved.  Key factors to note for this approach are the number of challenges facing the investment industry, as well as some of the recent developments in the governance arena that seek to address these challenges including our own efforts as an asset manager.

These include showing how King IV creates a platform for good governance practices by focusing on outcomes; the concerns South Africans have about poor governance; assessing its impact; and how asset managers can rise to the challenge of holding our investee companies to account for their governance practices.

As part of the drafting process of King IV, I gave input focused primarily on value creation that went broader than financial return. Sustainability through responsible investment is crucial. Most explicitly, I believe that fair and reasonable remuneration should be managed across listed companies through a binding vote on executive remuneration or ‘Say-on-Pay’. I believe that these are the key areas where the new code can still raise the bar further on organisational behaviour and thinking among our investee companies.

King IV is a significant factor as it places a specific focus on long-term value creation as a foundation principle, and it is in the long term where good governance can and does support the sustainability of companies and societies. This is in line with the needs of investors, who are becoming more vocal in their demands for companies to focus on long-term value at the expense of short-termism.

The latest code’s underpinning of existing legislative frameworks, such as the JSE Listing Requirements and the Public Services Financial Management Act, further helps to place good governance at the forefront of the strategic management of those entities subject to this legislation.

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