SOCs walking on the dark side of disclosure

Picture: Thinkstock

Picture: Thinkstock

State-owned companies’ (SOC) disclosure levels relating to boards and directors, and sustainability remain inadequate, a report from audit firm Nkonki says.

Now in its third year, the Nkonki SOC Integrated Reporting Awards evaluates principles of integrated reporting among 20 major SOCs.

Fifty percent of SOCs achieved an overall score above 50%, which is an improvement from 37% in 2012 and 16% in 2011.

“However this is still a clear indication that integrated reporting and compliance with King III still needs to be improved by many South African SOCs,” the report says.

Should do better

Head of the accounting department at Monash South Africa and one of the independent panelists who conducted the research, Anton du Toit said that while it was positive that ten of these companies achieved more than 50% overall, all twenty should be in the top range. “There are more than 300 SOCs in the country. These twenty have the most money and resources and they should be the leaders,” he said.

The top three SOCs in this order were Eskom, Transnet and Telkom, which all achieved an overall rating above 70% (‘B’).

The South African Broadcasting Corporation (SABC) and South African Airways (SAA) consistently scored Ds or below D in almost all the categories. SAA managed a C in the Internal Audit and Compliance with King III categories.

Sustainability indicator needed

Average performance in the specific categories fluctuated, with the best level of performance in the financial disclosure category (86% compared to 84% in 2012).

“On the opposite end of the scale are sustainability assurance (16% compared to 18% in 2012) and summarised integrated reporting and assurance (3% compared to 6% in 2012),” the report notes. “Sustainability disclosure needs to improve sharply to show measures used to ensure long-term survival,” it says.

Evaluations were based on integrated reports for financial years ended March 31 2013. Surveyed companies manage an asset base of more than R1 trillion and a turnover of more than R260bn.

While there was significant improvement in the Ethical Leadership and Corporate Citizenship category, with 80% of companies scoring above 50% (‘D’ and above), the report notes very few companies disclosed that there was a process of ethical performance evaluation during the year.

Ethical shortage

Only five companies achieved an “A” – above 80%. Du Toit said poor performance in this category was not necessarily a result of non-compliance. “The SOCs might have ethical standards and codes, but King III wants the report to tell us the method of measuring compliance to ethics,” he explained.

Half the SOCs analysed scored below 50% in the Boards and Directors category, with just three scoring above 70% (‘B’) and none above 80%. Du Toit said failure to describe the process of ascertaining the independence of directors is where companies lost marks. Nearly half of the largest 100 JSE-listed companies score an A-rating on this metric, according to Nkonki.

“This creates a huge question mark in terms of the balance of power and proper governance in those SOCs,” the report said. There was no disclosure of how bonuses are measured and linked to performance, according to the report.




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