The biggest issue on the minds of South African directors is that of sustainability, according to a new report on global corporate governance released by Grant Thornton.
In the report entitled Boards of the future: steering organisations to thrive, 76% of South African business executives highlighted sustainability as a key area of focus, compared to only 35% of directors questioned globally.
According to Carla Clamp, Director: Advisory Services at Grant Thornton, this elevated focus on sustainability in South Africa can be ascribed to local boards’ increased commitment to integrated reporting and sustainable business practices. Clamp was presenting to guests at Grant Thornton Johannesburg’s breakfast event entitled: Governance & King IV – Promoting and delivering effective governance outcomes.
“Our report outlined some of the most common issues for company directors in various countries, and findings reveal that integrated reporting and the release of the King IV Code of Corporate Governance are top of mind for local directors.”
The annual Corporate Governance report draws its data from Grant Thornton’s International Business Report (IBR) which provides insight into the views and expectations of more than 10,000 businesses per year across 36 economies. The data for this report draws on 1,865 telephone interviews with business leaders and 82 in-depth interviews with board directors across nine countries conducted between November 2015 and February 2016.
“In the past directors were only required to sign off on the accuracy of financial statements, but integrated reporting asks boards to do a more comprehensive report-back on all aspects of their operations, including its impact on society and what this means for the company’s future,” says Clamp. “This increased emphasis on integrated thinking and reporting processes has clearly resulted in directors having a very different mindset when it comes to reporting to shareholders and other key stakeholders.”
The final version of the King IV Code of Corporate Governance was released on 1 November 2016 and, as Grant Thornton’s report states, “the code aims to boost corporate governance by drawing on best practice in governance codes from around the world and changes in the global environment. At the core of the new standards is integrated thinking and taking a stakeholder-inclusive approach to effective management.”
The report reveals that another common challenge facing directors is the need for diversity of experience, with 88% of respondents globally recognising they need to do more to address this. This is arguably more difficult to measure than gender or ethnic diversity.
“The lack of diversity among directors is an issue that was highlighted in previous corporate governance reports, and it is interesting that not just South Africa battles with this. An improved combination of experience and skills among directors will equip them better to identify emerging risks and threats and make better decisions,” says Clamp.
She emphasises that diversity in thinking about current and future threats is often not encouraged by homogenous boards which may suffer from “group think” and this may lead to companies being less prepared for the future.
“Gender diversity has remained a challenge for boards globally, but we are encouraged by the progress we are making in this regard in South Africa,” says Clamp.
In the new King IV Code, a company will be required to promote diversity in its membership across a variety of attributes including field of knowledge, skills, experience as well as age, culture, race and gender. This has been implemented so as to promote greater diversity and companies are expected to set targets, to be disclosed, for race and gender representation in their membership.
“The disclosure principle does not amount to a quota system, but rather a way of forcing companies to think about this important issue,” says Clamp.
The report also found that business leaders recognise the importance of digital expertise in companies, but only 25% of companies surveyed said this is an area where their board should increase focus over the next ten years.
“We believe this is a critical issue for directors to address. Cyber threats are becoming an increasing risk for companies globally and directors need to be able to identify not only current, but future unknown challenges and opportunities or they could run the risk of being left behind,” says Clamp.
She acknowledges that age can be a hindrance in this regard, where those individuals with the relevant board experience likely not being as technology literate as those that have grown up with it, impacting their ability to advise on related matters.
On the whole, Clamp is encouraged that survey results indicate that directors recognise the issues their boards are facing and have thought about ways to address these.
“Nearly 60% of those surveyed in Africa (compared to 30% globally) believe the best way to encourage more diversity at board level is to invest in mentoring schemes, while 54% believe companies should identify future executives earlier in their careers (compared to 34% globally).”
The report further encourages companies to signpost the route to the top, which should make it easier for the best and brightest talent with a variety of skills and experience levels to have a clear vision of what they need to do in the years ahead in order to join senior management and the Board.
“It is only by considering a wide array of candidates with different skills and experience that boards of directors can be strengthened sufficiently to ensure a high quality of corporate governance,” concludes Clamp.
By Carla Clamp, Director: Advisory Services at Grant Thornton