Failure of corporate governance: Renaissance Financial Holdings Limited

Published on 26 January 2012 by AfricanisCool in Corporate governance, For investors, For listed companies, For regulators

Many of the more established listed companies in the First World have mandatory director induction programmes. Ones designed to ensure that directors understand their fiduciary duties in the context of corporate governance. It beggars belief that a public article of the nature below can state ……

” When first appointed members had been of the view that the dismissed Board members were familiar with their fiduciary duties in terms of the law and in terms of the articles of the company (NOTE: no mention of the Zimbabwe Code on Corporate Governance), regrettably it has turned out that they were not fully conversant with the above resulting in uninformed decisions for the detriment of all shareholders”

Where is the Institute of Directors when you need it? Where’s oversight from the shareholders about the capabilities of their board. In the 21st century there is actually no excuse for this sort of failure. It seems that the authors of this notice, “the members”, have shot themselves in the foot. Members are responsible for appointing directors (or ratifying the appointment) so they should put in place measures to ensure that educated and honest members are appointed to the Board. Its always someone else’s fault isn’t it. It’s just like dealing with teenage kids.

“Comply” or “explain” Mervyn King recommends in his approach to applying corporate governance vs the alternative of legislating compliance. Corporate governance is not about “checklists” he says. Its about the integrity of directors. Well, what should one do when there is little shareholder oversight (or activism) of their Board? When legislation is not prescriptive enough? Well this is where African corporate governance is not understood. Generally the absence of critical mass in investor numbers, in regulation, in shareholder education, in all stakeholders being informed about shareholder rights etc. is a recipe for ensuring that something different needs to be done.

The difference needed is to “create lists”. Lists of clear corporate governance deliverables making it mandatory for listed company executives and the Board to sign them off in public in front of shareholders. Every year at the AGM. Hold all directors accountable for the performance of all directors, not come up with excuses like “they did not know what their fiduciary duties were”.

The wishy washy corporate governance codes language is NOT appropriate for governance in African markets. It’s not that Africans are more dishonest than others. Its just that the environment we find ourselves in is more conducive to no-one paying attention to corporate governance – the levels of oversight on all levels are not as high so abuse can slip in. And it does.

The solution is so simple. Create a list, tell the directors to swear on their mothers death that they carried out an appraisal of the things in the list and disclose the results. Ticking off things on a list will create the basis upon which directors can become more aware of what integrity means because they will be reminded of it. What is this “list” you may ask? Well, one form is the Institute of Directors South Africa’s Governance Assessment Instrument – this is what their website says….

As part of our efforts the Centre for Corporate Governance has established the Governance Assessment Instrument (GAI), a web-based tool with modules catering for all business sectors, including listed companies, SMEs, state-owned entities, medical funds, pension funds, NPOs, etc.

The GAI facilitates the implementation of good governance structures and practices. It also serves as a rating mechanism of governance.

To login or to view the GAI click here

You probably find that there are not more than 12 statements that need to be read out to directors at an AGM that cover everything that shareholders need to know about how their board is responsible for their own behaviour. Jointly. If the Board fails in part, the whole Board should go. Mix “lists” with the “comply or explain” mantra and we will be one step ahead of where we are now.

African Investor Relations