The JSE's new listing requirements help to make the shareholder king
On Monday, the first day of spring, another nail was driven into the coffin of rogue directors: from September 1 the new JSE Securities Exchange listing requirements came into operation.
Corporate governance is a growth industry, with the large audit firms and various educational and staffing companies providing many courses for directors of listed companies.
These days accepting a cushy directorship is not a slam-dunk decision. Directors' responsibilities and reporting requirements are onerous and the risks very real.
At last, the pressure from shareholders for a fair deal has become an irresistible force and it is no longer only institutional investors, but also individuals, who engage actively with the companies in which they invest. Large institutional investors, such as Old Mutual, Allan Gray, Sanlam and Investec, have all recently engaged in boardroom skirmishes.
Previously, institutional investors looked the other way as management feathered its own nest while shareholders' funds were decimated.
Market risks remain, but the risk of directors being responsible for your losses must be in decline.
Institutional investors control the lion's share of the nation's savings, but they are realising that the underlying shareholder should be king. Shareholders are becoming more involved in the market and the new listing requirements will greatly strengthen their hand.
These requirements have been aligned with international best practice, which will enhance the status of a JSE listing and increase investor confidence in South African equities.
Some tenets of the King II code of corporate governance are now compulsory and companies must report compliance with King II in their annual statements. Each company director must certify that he or she is satisfied that the company has complied with the listing requirements.
Some of these requirements are:
- The JSE can suspend or terminate a listing when it deems it to be in the public interest to do so;
- A fine of up to R1 million can be imposed on companies;
- When companies wish to delist they must make an offer to minorities and get a fair value statement;
- Listed companies must comply with International Financial Reporting Standards for all years commencing during 2005;
- Directors will need clearance before trading in their company's securities;
- Pre-issue trading is now allowed for new listings;
- Disclosures of directors' dealings have been expanded to include options, rights and derivatives;
- Directors' emolument disclosures have been widened to include a greater variety of fees; and
- Closed periods and their effects have been defined.
Such disclosure requirements have already resulted in some interesting reading. We know, for example, that Stanley Fink, the chief executive of Man Group, was paid a bonus of £3.3 million (R38 million) in 2002. As the head of the world's biggest publicly traded hedge fund seller, Fink was the UK's highest-paid executive.
The average executive of a major US company earned $3.7 million in fiscal 2002 and research found that the biggest pay cheques went to executives of companies with the most worker layoffs and under-funded pensions, and the biggest tax breaks.
Shareholders shouldn't begrudge Fink his package, as Man Group's profit rose by 55 percent last year, though I can't quite grasp how anyone could need so much.