Corporate governance: SA scores
27 October 2003
South Africa rates among the best performers in corporate governance in emerging markets, according to a report by the Institute of International Finance (IIF).
"This important development is a key contributor to the overall modernisation of South Africa's economy and its increasing attractiveness to international investors," said Peter Wuffli, co-chairman of the institute's equity advisory group.
The IIF is a global association of financial firms with over 330 member institutions.
Said Wuffli: "There is increasing attention in South Africa and in a rising number of other emerging markets to improving corporate governance.
"This welcome development comes at a time when significant gains are being seen in international portfolio equity investment in emerging markets", Wuffli added.
"Securing sustained growth of the international investor base will, however, require further improvements in corporate governance standards in many of these markets."
Edward Baker, chief executive officer of Alliance Capital Ltd and leader of the IIF's South African task force, said: "Given the breadth and sophistication of its practices and rules, which benefited from the first King Report, … South Africa now qualifies as being among the best performers in terms of corporate governance in emerging markets."
In 1994, a South African committee chaired by Mervyn King released a Code of Corporate Practices and Conduct (King Code I), which was revised in March 2002 (King Code II).
Baker said there had been "decided progress" in South Africa in terms of the structures and responsibilities of boards of directors, stock exchange listing requirements, and rules governing insider trading.
He said that South Africa's corporate governance framework now addressed roughly two-thirds of the guidelines contained in the IIF code of corporate governance.
Improvements
The report does,
however, make a series of recommendations for further improvements in South African corporate governance.
These include encouraging shareholder activism by requiring disclosure of voting records by institutional investors, tightening the interpretation and enforcement of takeover/merger procedures, revising the Companies Act and adopting accounting standards into law, and improving enforcement by giving more power to regulators and through the use of class-action suits.
The managing director of the IIF, Charles Dallara, said South Africa's authorities were aware of existing corporate governance problems and that considerable efforts were under way to correct them.
"Progress has often been slow, as in the case of trying to codify accounting standards into law. The blame cannot be placed entirely on public officials, as investor apathy has been widespread in South Africa," Dallara said.
"This stems in part from the small size of the retail investor base, and from the close relationship that has continued to exist between many listed companies and institutional investors," he said.
The IIF noted that weak enforcement of rules and regulations had been a perennial concern for investors in emerging markets, and has been cited as a major problem in all of the IIF's corporate governance reports to date.
SouthAfrica.info reporter
