A new equities watchdog could have more bite

Mervyn King, the head of the King committee on corporate governance
Mervyn King, the head of the King committee on corporate governance

At the conference organised by the Institute of Directors yesterday, Mervyn King, the head of the King committee on corporate governance and author of the King 2 code, gave his opinion on whether or not South Africa’s corporate law, as it undergoes changes, should legislate for corporate governance.

His take was that you can’t legislate against dishonesty. He went so far as to say that the fierce new legislation in the US, the Sarbanes-Oxley Act, would not have been able to prevent the Enron collapse if it had been in place at the time.

“Moses tried it and failed,” King said, “and like Moses, Sarbanes-Oxley will find you can’t legislate against dishonesty and it will fail.”

Corporate governance was not about quantitative measures and ticking off boxes for compliance, he said, it was about qualitative behaviour. And qualitative corporate governance, he said, didn’t begin or end with a statute.

While King may be correct here, he did note that there was a blurring of the lines between corporate governance guidelines and enforced rules. In director speak, it’s known as “comply or explain” versus “comply or else”, the latter referring to the enforcement route and the former to guidelines.

King 2 is a guideline, parts of which have been incorporated as rules by regulators like the JSE Securities Exchange, and while King is unequivocally correct in his belief that you can’t legislate for the truth that sits in someone’s heart, you can give regulators more teeth.

South Africa’s Companies Act is light on teeth. While legislation in the US set up the Securities and Exchange Commission to govern the equity markets, we live with the conundrum that the JSE, a privately owned company that profits from running an exchange, is the regulator of equities.

A new entity as a watchdog for equities or more funding and resources for a legislatively beefed up Financial Services Board could be in all of our best interests, and hopefully, unlike Moses, it wouldn’t fail. RB

Liberty Life & Sanlam Are there things that the life assurance industry is not telling us?

In the past week, two of the industry’s major players have suggested that the impact of the recent spate of rulings made by the pension funds adjudicator in favour of policyholders may have been underestimated.

Like a policyholder’s superhero, pensions fund adjudicator Vuyani Ngalwana has forced the industry Goliaths to refund tens of thousands of rands deducted from retirement savings as penalties or charges.

But the rulings, besides being a reputational nightmare for the insurance industry, threaten to throw open the door to billions of rands worth of claims against long-term insurers.

On Friday Liberty Life said it had scrapped its plans for a bond issue, saying that the increasing number of rulings that were being made against the life assurance industry, together with negative publicity, led it to believe that this was not the right time to proceed with its bond issue.

This was just a day after Sanlam warned that the rulings could have potentially significant implications for the insurance industry as a whole.

Riding the crest of the underwriting cycle, the sector clocked up record profits last year and almost every one of the big life companies boasted that it was sitting on surplus cash of billions of rands.

But not one of the companies has said what kind of impact the rulings could have on the bottom line, let alone come forward with concrete plans as to how it intends to address the potential increase in risk.

Perhaps these companies know full well that they will eventually have to revisit policy parameters and are trying hard to ignore the inevitable for as long as possible. SB-D

Dimension Data Finance Week yesterday postulated that a delisting could be next for this technology company, which rushed in the late 1990s from boom to bust on the back of the dotcom craze.

With a primary listing in London and its global business contributing more than the South African business, it’s not altogether a bad idea to leap off the local boards.

Then again, Dimension Data’s London listing has caused this company more pain. Falling off the FTSE-100 while keeping up hefty payments for the listing and domiciling executives in London has added massive cost to reputation and the bottom line.

But no matter the efficacy of either argument, the market isn’t buying it: the share barely batted an eyelid yesterday. RB

Metrorail Cape Town may be dubbed Slaapstad by jealous landlocked inlanders, but when its train drivers, who seem to be more militant than those inland, go on strike, the city goes into a veritable coma, at great cost to all kinds of businesses and individuals.

Adding insult to injury are press releases from Metrorail’s acting chief executive, Lauriette Modipane, saying, ja, well, sorry about all this but everything will be done to minimise the disruptive effects for business and consumers.

Tell that to Cape commuters stranded in cold, wet and miserable weather as they try to flag down mini-bus taxis (if they have any passing through their areas), catch an already overloaded Golden Arrow bus or just stay at home in despair.

The strike action by the United Association of SA and the United Transport and Allied Trade Unions in protest against Metrorial’s 5.5 percent wage offer is legal and protected, so it is up to the three parties to sort out their differences as soon as possible.

The SA Transport and Allied Workers’ Union, an affiliate of labour federation Cosatu, has accepted the offer, which Metrorail says is all it can afford given the financial state of health of the operation.

With shenanigans like this, one must feel some sympathy for Transnet chief executive Maria Ramos, who looked a bit exhausted at last week’s World Economic Forum Africa summit in Cape Town, and her top Metrorail officials as they try to knock the ailing transport system back into some reasonable sort of financial shape.

The “hardegat” approach by the mainly white-dominated unions causing all the problems also once again calls into question what they are most concerned about – their own pockets or the service they provide to commuters. LL

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