African Investor Relations

An article in the Zimbabwe press today (01 June 2011) announces Board changes to the ZSE listed Afre Corporation. Afre is significantly financially exposed and the problem appears to be related to bad corporate governance in related party transactions.  This is what the Afre 2008 annual report said about their commitment to corporate governance:-

“The group is committee to the principles of good corporate governance based on the King II report. The Directors recognise the need to conduct business of the Group with integrity and in accordance with generally accepted corporate practices in order to safeguard stakeholder interests”.

This is  part of the wording relating to the announcement of the corporate governance restructure (director changes were also announced):-

As part of the Board’s undertaking to ensure that corporate governance matters relating to the Group are reviewed and enhanced as necessary, the Board has set up a Related Party Transactions Committee consisting of independent non-executive directors…….This initiative is part of various measures taken by the Board to uphold shareholder and policy interests in all of the Group’s related business activities. The Board acknowledges its appreciation to all stakeholder for the support received to date.

I am a strong proponent of the IODSA’s online corporate governance appraisal tool for listed companies. This tool enables directors to check the substance and form of their corporate governance conformance to the King III Code on Corporate Governance in South Africa. The programme can be used by companies outside of SA as an immediate checklist and what is and what is not happening and provide a basis for directors to decide what they should do with regard to their corporate governance. The ZSE should make it mandatory for all listed companies to complete this and negotiate a bulk discount with the IODSA. But the ZSE has its own isssues at the moment…..so its up to listed company directors to decide……

In the post-dollarisation Zimbabwe economy listed company directors should be thinking seriously about providing substance to support the cliche commitments to corporate governance in their annual reports. Give shareholders facts. The wording in annual reports to describe corporate governance activities is passive, non-committal and vague. With so many Zimbabwe companies being in such a flimsy state financially don’t be surprised to hear of more instances where corporate governance fails investors. This at a time when Zimbabwe needs foreign investors. This at a time when corporate governance is added to other uncertainties such as indigenisation legislation etc. These things are simple and low cost and all they need is a decision from the Chairman of the Board.

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In South Africa the private sector came to the party in sponsoring the formulation of a new corporate governance code. It’s good for PR and your logo belongs to the IODSA website forever. For the accounting firms the prospect of referral work is high. The model is good. It’s what you would call a win-win situation. So why no similar initiatives in Kenya and Nigeria?

Here are the sponsors to the online corporate governance appraisal initiative in South Africa:-

Note that South African Government also has a hand through the SITA.

Have a look at the IOD Kenya website in Kenya. There are no corporate sponsors to the IOD Kenya. Yet every year one of the greatest corporate events is when the top companies in East Africa are awarded their prizes by a large accounting firm. Much pomp and ceremony. Where’s the substance? These winning companies are chosen largely by the movement in their price which itself is a result of the volatility in a market where information availability is imperfect.

The IOD Kenya website has one upcoming event. There is nothing on the blog. There are many subjects to blog about in Kenya. Especially relating to corporate governance.  The website does not instill confidence in the role of the organisation. It should.

I would love to get an insight as to why the Kenyan and Nigerian markets have not adopted the same approach as the South African companies. They all have corporate governance codes, they all have compelling needs to improve corporate governance, they have private sector critical mass to underwrite any of these initiatives on a sustainable basis. Is it a case that the persons running these organisations are incompetent and cannot garner support or is it a collective case of “we couldn’t give a s…” ? The regulators certainly aren’t taking the lead.

The same has happened in Zimbabwe. The much trumpeted new corporate governance code for Zimbabwe has fallen in a heap. There’s no money, executives are busy.

Is it the absence of human resources? Are business environments too corrupt in Kenya and Nigeria to address this issue at all? Not sure – would love to hear your views. In Zimbabwe companies are under severe strain and the issue of corporate governance at the top level has yet to be resolved so there is an excuse – or a real reason to take governance seriously – depends on what your outlook on life is.

The silent cost to this is lower equity valuations.

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The SEC, IOD and CAC floated a centre for corporate governance in Nigeria recently and below I pose a few critical questions, which, if answered, will provide a good idea on whether the initiative is going to be a white elephant or not. I am not going to try to call Nigeria – I don’t think its possible to get a line to there actually:-

• - how is the initiative funded?
• - is the finance recurring or temporary?
• - what products is the centre offering to address the needs of listed companies in Nigeria?
• - what percent relies on sales to companies / third parties?
• - has any feedback been received from listed companies as to whether they find the initiative responsive to their needs?
• - is the initiative of the centre backed up by stock exchange or other legislation i.e. compelling the listed companies to use the services of the centre?
• - has the centre done any research on corporate governance in Nigeria?
• - has the centre secured any high level private sector sponsorship?
• - what external organisations has the centre spoken to to allow them to offer those external services to listed Nigerian companies?
• - has the centre contacted the IOD in South Africa with a view to using their online corporate governance appraisal platform . If not why not?

As usual, the source of my info on the launch is from www.Proshareng.com. The comments above are mine.

SEC, IoD, CAC float centre for corporate governance

By Stanley Opara Monday, 11 Oct 2010

The Nigeria Institute of Directors, Securities and Exchange Commission and Corporate Affairs Commission have set up the centre for corporate governance to promote good corporate governance practice in the country.A statement from the IoD Centre for Corporate Governance on Friday, said it was committed to addressing issues of corporate governance and international best practices in Nigeria.

Its activities, according to the centre, will create a positive and favourable image for Nigeria businesses in Africa and globally.The centre said it was committed to promoting reforms in the light of the ever changing economic terrain, as well as encouraging and strengthening the operational and monitoring mechanisms of regulatory institutions.

At its maiden high-level discourse, which attracted over 100 business leaders and captains of industries from key sectors of the economy, the Chairman of the governing board of the centre, Ms. Bennedikter Molokwu, urged Nigerian businesses to imbibe good corporate governance practices.She also advised them to take advantage of the centre‘s high quality training programmes, extensive research facilities and other consulting services, to assist them in building investor confidence, business integrity and sustainability.

”The centre is at the forefront of encouraging and monitoring compliance the code of corporate governance established to ensure that discipline, transparency and accountability thrive in organisations,” the statement noted.Molokwu urged Nigerians to support the centre and its activities, especially, at this time that some businesses were failing because of poor corporate governance.

She said supporting the centre was a sure way of making businesses in Nigeria responsible and responsive.

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8 ideas to improve African capital markets:-

IDEA 1 Obtain a private sector research grant to monitor the reporting of African stock exchanges and compare their standards of performance to those required by them of their listed company clients and or of international stock exchanges or international organisations of stock exchanges. Who should do this? A private sector organisation sponsored by a grant from a development finance agency.

IDEA 2 Make an appraisal of the Institutes of Directors in those markets that have stock exchanges and ask some qualitative and quantitative questions about the impact of those IODs in each market. The IODs that are immaterial by impact should be part of an initiative to align them with the South African IOD. The IODSA should actively engage its African peers by making more efforts to put its products and services online and to increase awareness. The IODSA should not get hung up about being seen to be in African markets and should enable local IODs to brand these initiatives with a domestic identity. Who should do this? The IODSA.

IDEA 3 Use the JSE SENS service as a disclosure platform for all African markets. But brand it according to each market so that the South African face of the product does not put noses out of joint politically. The platform should be made available for a nominal sum by the JSE as a gesture to counter its perceived arrogance of the JSE by other African markets. The study into rent seeking in idea 8 will set the parameters under which this initiative may be implemented. Who should do this? The JSE through the African Stock Exchanges Association.

IDEA 4 Provide a one year notice of the intention to de-list or demote those listed companies with low free floats (ones below prescribed limits) to a second tier board. Within this year consider the undertakings by those listed companies to restructure their shareholdings or de-list. Accentuate quality of listing rather than quantity to the regulators. The African Stock Exchanges Association or regional associations should set the lead in determining the standards. It may be important to agree the fundamental principles through which companies will be appraised.

IDEA 5 Implement a comprehensive market-wide survey of all listed company executives, asking them whether the stock exchanges that serve them are delivering value to the country and their company. Use the Internet to do this. Make submissions secure but anonymous. Issue a guideline on the things that the CEOs should consider given that they may not know what to expect of stock exchanges. The African Stock Exchanges Association or regional associations should set the lead. It’s important that the questions asked are standardised across markets. Who should do this? A private sector organisation financed by grant funding.

IDEA 6 African stock exchanges should engage the IODSA with a view to adopting the GAI (the core governance modules) in African markets for all listed companies. The IODSA should offer a significant discount for this. The stock exchanges should merely be a facilitator and not get involved. Make compliance mandatory and governance disclosures in annual reports aligned to the results of these initiatives. The African Stock Exchanges Association or regional associations to set the lead.

IDEA 7 Come up with minimum standards of online disclosure – just the basics – and ensure that they are enforced by the directors of listed companies. Do not allow the publication of any annual report without a statement by the directors as to whether the minimum standards have been complied with – just yes or no statements of compliance. Who should do this? The African Stock Exchanges Association or regional associations to set the lead.

IDEA 8 – perform a basic review of which stock exchanges are rent seeking equities investment data and NOT conforming to the core objectives of ensuring that investment information is available in a broad, non-exclusive and immediate manner. Who should do this? A private sector organisation sponsored by a grant from a development finance agency.

Unfortunately the African Stock Exchanges Association appears to be a talk shop that appears to have little influence over its members but my points are nevertheless made. There is nothing to stop individual stock exchanges from pursuing these ideas separately.

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