By Parmi Natesan and Prieur du Plessis
By the looks of it, directors haven’t yet fully come to terms with the impact of the Covid-19 crisis and how it is affecting the overall socio-economic environment.
Since 2016, the Institute of Directors in South Africa (IoDSA) has conducted an annual Directors’ Sentiment Survey to tap into how the country’s top leaders see the environment in which they ̶ and their organisations operate.
What’s perhaps most interesting about this year’s survey is how hard it is to read. On balance, our conclusion is that South Africa’s directors are in something of a wait-and-see mode – undoubtedly influenced by uncertainty created by the Covid-19 pandemic.
The survey’s responses are grouped into four categories: Economic, Business, Governance and Directorship. Economic. There is no change from the 2020 score (2.6), which was recorded just before Covid-19 struck.
Directors have consistently had a negative outlook on the economy since 2016. Overall, most directors agreed that the health of the South African economy over the next 12 months was the biggest worry.
On the positive side, the prospects of an improving commodity price and favourable interest rates featured.
This year’s respondents saw the top economic challenges facing business as the overall uncertainty relating to the economy, corruption and inadequate government service delivery.
Business. In line with the previous category, directors have been consistently negative about the business environment. Both indices peaked in 2018 and then declined for the following two years (2019 and 2020), but sentiment relating to business conditions recovered sharply this year, from 2.2 in 2020 to 2.5 in 2021.
The research pinpointed greater positivity relating to improved business prospects over the next 12 months. One can speculate that this could have been driven by two factors, one being the decisive and largely successful response by business to the lockdown by accelerating digital transformation.
The second factor could simply relate to the resumption, and growing levels, of economic activity after the trauma of the hard lockdown.
In this area, improved business prospects over the next 12 months attracted the most positivity. Poor economic conditions and consumer confidence (50 percent of respondents) and corruption (33 percent) were the top two challenges for business, with compliance in an over-regulated environment, high tax levels and a lack of infrastructure development all tying for third place (25 percent).
Governance. Since the first survey in 2016, respondents have been most positive about governance. However, an initial score of 3.6 has gradually declined to 3.3 this year, unchanged from 2019. Respondents were most positive about the way boards were setting the “tone at the top” through ethical leadership, while they were most negative about any improvement in the implementation of good corporate-governance practices over the next 12 months.
One might argue that this neatly illustrates the difficulty of driving what happens in the boardroom down through the organisation. It may also indicate a gap between the aims of the board and the executive team.
Top governance challenges identified were the lack of sustainable thinking and a general understanding of the benefits of governance.
The question of sustainable thinking is one that is likely to occupy directors and executive teams for a while because it does represent a significant shift from the short-term, profit-centred approach that remains the default setting for business (and, crucially, investors).
Taking a long-term view and considering the interests of a wide group of stakeholders remain perhaps more honoured in the breach than the observance.
While the logic of this approach, which is so embedded in the King IV Report on Corporate Governance, may seem irrefutable, a finding like this indicates how slowly established mores change.
Directorship. Along with governance, directorship has been an issue about which survey respondents have generally remained positive. This year’s score declined marginally from 3.3 to 3.2. Respondents were most positive towards the contribution continuous professional development was making to improving board performance.
By contrast, the most negative perception related to a conservative outlook that tended to eschew taking the risks necessary to nurture innovation and kickstart growth.
Interestingly, the three factors that influence respondents’ willingness to serve on a board are ethical behaviour, independence and company reputation.
As stated at the beginning, it’s a set of results that seem to indicate that directors are very much waiting to see which way the wind will (eventually) blow. But, as always, one thing is very clear: the state of the economy and the business environment remain prime concerns and drags on growth.
Parmi Natesan and Professor Prieur du Plessis are respectively CEO and facilitator of the IoDSA; email: [email protected]
BUSINESS REPORT ONLINE