Wednesday, September 30, 2020

BSE listed companies fail corporate governance test

Most domestic companies listed on the Botswana Stock exchange fall short of meeting international standards of corporate governance, Sunday Standard investigations can reveal.

Focus on corporate governance in the global financial markets aims to promote accountability, transparency and investor confidence. The BSE domestic-listed companies are aware of these needs and claim commitment to ideals of corporate governance as stipulated by King II corporate governance recommendations.

A committee appointed in South Africa in 1994, headed by a former High Court Judge, Mervyn King S.C, came up with recommendations on the best corporate governance standards in South Africa. The committee’s first report, known as King 1 incorporating a Code of Corporate Practices and conduct, was the first of its kind in the country and was aimed at promoting the highest standards of corporate governance in South Africa.
Most companies listed on the Botswana stock exchange do not meet the standards.

Best corporate governance practice dictates that a majority of board members should be independent (around 75%). The reason for this recommendation is to ensure that management and major shareholder do not serve their interests at the expense of other shareholders. Our investigation has shown that most local investors wallow under the impression that non executive members are automatically independent thus the companies they are invested in are in compliance with this requirement. However, the King II corporate governance report section 8 is categorical in its description of who fits in the criteria of an independent director.

An independent director, according to the King 1 report, is a non executive director, who is not a representative of a major shareowner or nominated by such a shareowner.

In this regard, it is fair to claim that the Board of Directors of Sechaba Brewery Holdings have only one independent director since other board members are representative of major shareholders. SEFCASH does not satisfy this requirement since the Board of Directors is entirely nominated by major shareholder, SEFALANA.

The independent must be free, it is assumed, from any business or other relationship which could or be reasonably perceived to materially interfere with the individual’s capacity to act in an independent manner. By the same token, BIHL’s “3 independent directors”, out of the 11 member team, cannot be reasonably be perceived to be independent if the recent press statement from the company is valid.
In their annual report; Chobe Holding Limited only recognizes their board chairman as independent. Standard Chartered Bank, on the other hand, has only two non executive directors who, to some degree, can be assumed to be independent.

Another case that comes into the orbit is Furnmart. Though it clearly states its commitment to the King II report on corporate governance, it doesn’t seem keen on implementing the simple requirement of categorizing the capacity of the board of directors as either executive or non executive. It appears such a hassle to reasonably infer independence.

Information turned up by The Sunday Standard further points to the fact that Best corporate governance practices dictate that board of directors should serve on no more than two or three boards. The main reason as stipulated on the King II report is to ensure that the companies on which the directors serve enjoy the full benefit of their expertise, experience and knowledge.
An analysis of the reports and the operations of most of the companies have shown that directors holding more than three board directorships, become “rubber stamps” for management and major shareholders. Most of the public companies and parastatals fail to operate in accordance with this crucial practice.

Furthermore, according to best corporate governance practices, only independent directors serve in committees such as the audit committee and the nominating committee. This condition notwithstanding, most companies still fail in this regard because they do not have a majority independent director composition to begin with.

A recently published annual report of one company revealed that their audit committee was chaired by an individual who was not even listed as a member of the board of directors.

It is also a rule of Best corporate governance practices that the board should hold annual elections as opposed to staggered elections. Proponents of the staggered elections system argue that it ensures continuity of board, however best practices recommend annual elections because it gives shareholders the power to dismiss the board quickly in case they fail to serve their interests. Most companies on the Botswana Stock Market deny investors their right by favouring the election by rotation system.

In addition, best corporate governance practices provides that the biography of each director standing for election or re-election at the annual general meeting should accompany the notice contained in the annual report. The 2007/2008 annual reports of the BSE blue chip companies (banks and financial companies) are not compliant to this recommendation. It has also emerged from the findings of our investigations that the election process for shareholding at annual meetings does not reflect the interests of all shareholders.

Elections are done by a raise of hand, if one person raises their hand as accepting the nomination, and then there is a request for someone to second it. Though usually it is asked if there is anyone opposing the nominations, we have never seen any opposition when someone has accepted despite the fact that the nominated board has poorly carried on the mandate bestowed upon them.
Sound corporate governance is a prerequisite for greater prosperity for all stakeholders concerned. Why then are stakeholders slow to demand best practices?

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