Russell Loubser was the previous CEO of the JSE and a member of the King Committee for the writing of King II and III. He shared his reflections on the development of corporate governance in South Africa and the role of the JSE during an interview with business journalist Bruce Whitfield and EY Senior Researcher, Jess Schulschenk, on 16 February 2012. The video interview is included above, and reflections from both this and the longer research interview are given below. These findings were made possible by the Gordon Institute of Business Science (GIBS) and form part of the ongoing Corporate Governance Research Programme with the Albert Luthuli Centre for Responsible Leadership (University of Pretoria) supported by Ernst & Young.
“This is not something that is completely new that has been dreamt up by academics, bureaucrats etc who are now trying to impose it on you. In so many cases, if you are busy with something reasonable, good and valuable and you’ve got like minded people around you, it is no big adjustment. Corporate governance most of the time is common sense, […] basically doing the right thing all the time to all the stakeholders, and I specifically use the word stakeholders because that encompasses everything. It’s your staff, your shareholders, the community - it spreads to non-human stakeholders like climate for instance, so it is everything.”
The JSE made key principles of King I a listing requirement in 1995 and have followed suit with King II and III. The JSE has aimed to ensure that certain principles can’t be side-stepped: “We took a decision as the JSE then that there were some principles that were so fundamental that we didn’t want to give any company an opportunity to avoid them”. In 2005, the JSE launched the Social Responsibility Index (JSE SRI Index) in a move to bring key sustainability issues to the fore through a structured index. Again, they were the first emerging market and the first exchange in the world to do so.
Russell Loubser shared his experiences of championing corporate governance in the early days of King I when he joined the JSE as President in 1997. At the time, just asking the question “is that good corporate governance?” was almost as if you didn’t understand that businesses didn’t operate that way. Disclosure of remuneration was an unheard of concept. He reflected on how much things have changed since then and that those who don’t value corporate governance today are the ones now standing on the outside.
Loubser shared his experiences with colleagues at other exchanges who at first found the subscription to principles amusing and then started coding in a similar fashion:
“I put my position on the table a couple of times and said ‘being an exchange doesn’t grant you any license or right from being a good corporate citizen. Many of us are starting to list now and being an exchange, this puts you in a different situation. In many cases you are guiding a huge number of listed companies. Now you have an obligation as an exchange to take a position on corporate governance’. This was just before WorldCom and Enron and things like that. They looked at me and thought I was crazy because they thought they just needed to be there as an exchange to facilitate the raising of capital and playing with the shares – why should we now be taking positions on corporate governance? Even worse trying to impose corporate governance, [such as] the disclosing of directors remuneration which is now a listings requirement. Then there were the problems and the next meeting they said, ‘OK, maybe you have a point’.”
Loubser asserts that there is a high correlation between “good honest common sense corporate governance and good numbers”. For those who ‘just get governance’, the King Codes perhaps have little value. There certainly are a number of outstanding corporate citizens in South Africa – a number of leaders and companies of which we can be proud. There is still the other side of the spectrum too, and perhaps the role of a code such as that provided by the King Reports is to provide a safety net for society on ethical behaviour for companies. For some, good corporate governance remains ‘good common sense’.
“I think in many respects South African executives have got an advantage compared to many executives in other parts of the world, not only because of King I, II and III but because of South Africa’s unique situation where we are so sensitive, for instance, to gender issues, racial issues and discrimination because of South Africa’s past, and all of that feeds into corporate governance. I’ve been sitting on international organizations now for 15 years where I come into a room and there isn’t a single woman sitting around the table or a person of colour, and the question doesn’t even feature in the minds of people not from South Africa, that’s the first thing that strikes me. This hypersensitivity over-laid with a very structured approach to dealing with things as we all know is driven by a huge degree by King, I think that has made South African corporate governance one of the better models around the world”.
Whilst the recently launched Code for Responsible Investing in South Africa (CRISA code) is giving momentum to the cause of responsible investment, many feel that there is still considerable work to be done in raising awareness and action from the investment community. Loubser, as a directors of companies, shared that he has sat through countless meetings with analysts, and is yet to be asked the first question on governance or other ESG issues. The focus is still on good numbers, and whilst they felt that this would start to change with time it seems to be moving too slowly. The next big changes on the corporate governance front may be widening the dialogues to engage with investors, regulators, media and further stakeholders to foster a culture of active citizenry.