THE outbreak of hostilities between the former CEO of PPC and its board might be just what corporate South Africa needs. Up to now we’ve generally been fed — and swallowed whole — the anodyne story that the boards of listed companies operate effectively and play a critical role in ensuring the economy ticks over.

Not only effectively, but harmoniously.

The recent unprecedented move by Ketso Gordhan to reclaim his CEO position, just days after abandoning it in frustration, comes shortly after the implosion at African Bank revealed critical weaknesses in that company’s board.

Scratch a little deeper and it seems the incidence of dysfunctional or under-performing boards is far more common than members of this traditionally closed club would want to admit.

There has been a dramatic change in the role and nature of the board since the early ‘90s. Twenty or more years ago a typical board was made up of 12 white men, of 60 years plus, all of whom had come up through the management ranks of that company or a related one.

Back then a company and its board were generally controlled by one of the “very big four”, namely Sanlam, Old Mutual, Liberty or Anglo American. In cases where there wasn’t outright control there was invariably a shareholder of reference who held a substantial but non-controlling stake.

The pool of directors in this corporate ecosystem was small and everybody knew everybody else — they had gone to the same schools and belonged to the same golf clubs. Corporate governance guidelines weren’t needed because everyone understood the unwritten rules; those who didn’t, didn’t get into the club.

Not only do few companies have controlling shareholders, they rarely even have shareholders of reference who could privately mediate boardroom disputes.

AGMs were tightly choreographed affairs that lasted three minutes and questions were as rare as female directors. It was before global capitalism brought foreign shareholders in their droves to South Africa. And before local companies were able to move outside South Africa.

The extent of cross-directorships and the considerable potential for conflicts of interest seems utterly bewildering from a 2014 perspective but, judged by the rules that prevailed at the time, the system was efficient. To the extent that boards were scrutinised, they appeared to work well.

Everything has changed. The ushering in of democracy coincided with dramatic changes to global shareholder capitalism. The South African economy has become far more competitive and shareholders much more dispersed. The “very big four” are diminished in power and importance.

Not only do few companies have controlling shareholders, they rarely even have shareholders of reference who could privately mediate boardroom disputes.

In this new ecosystem the role of boards and directors has become far more critical and is subjected to a veneer of scrutiny. Crucially, there is also much money to be made, even for a non-executive director.

A plethora of corporate governance guidelines and recommendations have replaced all the old unspoken rules. Ironically these have compounded the problem. The detailed tick-box exercise that is the King 3 code has enabled boards of directors with limited experience and skills to give the impression that all is well.

This impression is reinforced by “board reviews” that are generally conducted by board members themselves. Rarely does anything emerge from the confines of the boardroom to indicate the reality behind all the boxes that are ticked.

Despite this lack of knowledge, institutional shareholders, who are generally commitment-phobic and mobile, support all resolutions including the re-election of directors.

Well done to the PPC board for highlighting the need for much more vigorous oversight of boards. Now it’s over to the shareholders.

See more articles

Our Network