Corporate Ownership & Control / Volume 7, Issue 3, Spring 2010

CORPORATE GOVERNANCE IN SOUTH AFRICA:

THE INTRODUCTION OF KING III AND REPORTING PRACTICES
AT THE JSE ALT-X
Thomas Gstraunthaler*

Abstract

South Africa has experienced a tremendous growth in its economy since its first free elections in 1994.
Politicians, however, consider the transformation of the society and more equally distributed wealth as
one of their key goals. Thus, companies often find themselves under scrutiny as regards their
contribution. A new corporate governance code (King III) will become effective in March 2010. This
reworked code now tries to enhance the reporting practices of companies as to their sustainability and
corporate social engagement and tries to link international standards of corporate governance with
African values. This paper introduces the novelties of King III and examines the current reporting
practices of 68 companies listed on the Alt-X segment of the Johannesburg Stock Exchange. The
paper discusses issues like risk, board composition and remuneration and provides valuable
insights into the structure of small cap companies in South Africa and analyses which parts are used by
companies to enhance their legitimacy.

Keywords: corporate governance, South Africa, corporate governance code

*Associate Professor, Department of Accounting, University of Cape Town, South Africa

Introduction tries to balance between international developments

and African peculiarities. South Africa chose a code
Corporate governance describes the system by which of principles and practices on a „apply or explain‟
means companies are directed and controlled. basis. Thereby, so is the explanation, it is intended to
Through the separation of the ownership and the use guarantee enough freedom to the companies to
of the capital, director‟s responsibilities cover the balance the cost of compliance with their imminent
functions of direction, executive action, supervision business needs.
and accountability (Reinecke, 1996). By its nature, In addition to the corporate governance code,
corporate governance covers a set of rules and there is much demand from politicians for a company
principals written and enforced by law and to disclose how it is actively engaging in the
professional bodies and is dependent upon good transformation of the South African society by means,
practices and suggestions. Often, many of these for example, of Black Economic Empowerment
practices have their roots in the demands of the (BEE). The Code of Conduct for Broad-based Black
market. Yet, corporate governance is also Economic Empowerment, which is administered by
necessarily political (Roe, 2003; Gourevitch and the Department of Trade and Industry and based on
Shinn, 2005). It is dominated by the power- the Black Economic Empowerment Act, 2003, was
relation at a given point in time and strongly driven published in the Government Gazette in February
by political ideology and interests. 2007. There is growing pressure, across the economy,
South Africa is the largest economy in for companies to achieve adequate BEE ratings. To
Africa. Its historically Anglo-Saxon shaped get this rating companies wishing to do business with
administration and business values led it to have a any organ of state, including municipalities, or state-
very westernized approach to corporate governance, owned enterprises, must have a qualifying score
such as the market-based model of corporate (leaving aside the special considerations applying to
governance and its dominant shareholder‟s view. For exempt micro-enterprises and qualifying small
example, a single-tiered board structure is standard, enterprises). A large part of the scorecard is devoted
without any representation of stakeholders like to preferential procurement. An enterprise scores
employees. The steps South Africa decides to make in points for acquiring goods and services from other
pursuit of its economic policy are often echoed entities which are black-owned, or have a high
throughout the rest of Africa. The South African recognition level. This creates a type of cascade
Corporate Governance Code, King II, has been whereby companies, in order to increase their own
reworked and the new code, King III, will be released BEE ratings, are applying pressure on their suppliers
in March 2010. King III takes an interesting route and to be compliant.

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This paper points out key elements of King III organizations” (Tolbert & Zucker, 1983: 25). To
and, subsequently, screens the annual reports of the explain the adoption of new practices and their
companies listed on the Alt-X index at the growing similarity within social systems,
Johannesburg Stock Exchange (JSE Ltd). The Alt- institutional theorists adopt two approaches: striving
X which is comprised of 76 companies commenced in for efficiency or legitimacy considerations (DiMaggio
October 2003 in order to replace the failed venture & Powell, 1983; Tolbert & Zucker, 1983; Westphal et
capital and development capital boards established as al., 1997; Strang & Soule, 1998). If organizations
sub-sets of the main board in the 1980s. The purpose adopt practices for efficiency reasons, their actions are
behind its creation was to encourage entrepreneurship, rational and are driven by gains in efficiency or
especially among South Africa's emerging black effectiveness (Thompson, 1967; Blau & Schoenherr,
middle class. 1971). Institutionalists argue that the strive for
For this paper, a focus on the small caps of the legitimacy and support, on the other hand, can take a
Alt-X allows for the elimination of practices adopted predominant position even if the actions and decisions
from other stock exchanges, like the London Stock that foster legitimacy go against the efficiency
Exchange1 at which plenty of major South African requirements of the firm (DiMaggio & Powell, 1983;
companies are listed alongside the JSE ltd. It is with Meyer & Rowan, 1977).
the intention of understanding how South African In countries like South Africa in which there is
companies with limited foreign interest are reporting considerable pressure on companies to contribute to a
on corporate governance issues, that the paper more equal society, corporate governance might be
analyses the corporate governance sections of the used as a tool to enhance the legitimacy of
financial statements of 68 available financial companies. This paper is particularly interested in
statements from the McGregor database (out of 76 those elements of corporate governance that are
listed companies at the Alt-X). The largely designed to raise the legitimacy of the reporting
quantitative method used is enriched by giving companies.
excerpts of these financial statements. The statements
are indicated in italics and are direct quotes out of Corporate governance in South Africa
different financial statements. The names of the
companies are indicated in brackets. The economic situation and the shareholder structure
The scope of this paper is not limited to the in South Africa have changed since the opening up of
description of the findings in the company‟s financial the economy. In the early 1990s a few dominant
statements. Rather, by asking if the political pressure conglomerates controlled the JSE in which high levels
which companies face is represented in their financial of ownerships and cross-shareholding (Sarra, 2004)
statements and if companies which follow really add were exhibited. Previously the majority of shares
valuable information for investors or if it is a mere were held by a few rich families, it is now
mimicry exercise, it adds to the increasing body of institutional investors which are the largest holders of
writings about the political aspects of corporate shares. Based on commodity producers, South Africa
governance. The influx of foreign direct attracted significant foreign direct investment after the
investments and the increasing importance of the opening of the country post-Apartheid and the first
Stock Exchange facilitates change (O‟Sullivan, 2003), democratic elections in 1994. The late 1990s were
but there is not necessarily cross-national characterized by neo-liberal policy making, together
convergence. So far, attempts to combine neo-liberal with a stronger focus on shareholders and
economic policies and social responsibility in the area macroeconomic stability (Lachman, 2004; Lewis et
of corporate governance have shown unsatisfying al, 2004; Andreasson, 2007). There are, however,
results, especially for those hoping for a more other players who are not so much in favour of this
equitable global capitalism (Erturk et al., 2004). policy and, in the case of the labour unions and
The King III report understands companies as leftists, are more focused on reaching a more equal
being part of a larger environment and it is their duty distribution of wealth in society.
to act in a sustainable manner. This understanding is Despite the strong focus on the attraction of
echoed by Institutional theory which sees institutions foreign direct investments into South Africa and a
as:”[…] composed of cultural-cognitive, normative, strongly market-orientated economic system, the
and regulative elements that, together with associated tensions in South Africa are evident in the framing of
activities and resources, provide stability and meaning the economic policy. Some players, such as the
to social life. …. Institutions operate at different Congress of South African Trade Unions, lobby for a
levels of jurisdiction, from the world system to more „social‟ redistribution of wealth or the pursuit of
localized interpersonal relationships. Institutions by socialist ideologies, such as the South African
definition connote stability but are subject to change Communist Party. They reject the free market as the
processes, both incremental and discontinuous” driver of economic growth and have instead proposed
(Scott, 2001:48). Institutionalization is in turn strong government interventions to overcome the
defined as “the process through which components of debilitating legacy of uneven development and
formal structure become widely accepted, as both extreme socio-economic inequalities (Andreasson,
appropriate and necessary, and serve to legitimate 2007). Some authors have subsequently taken

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extreme positions, rejecting the shareholder wealth  how the company intends to enhance those
maximization model as „incongruent with South positive aspects and eradicate or ameliorate the
Africa‟s commitment to situating the corporation negative aspects in the year ahead„(IoD, 2009).
within civil society (Sarra, 2004: 21). The Institute of Directors (2009) in its pre-
The ideologically unpredictable times which statement to the King Report critically reflects on US-
followed the first democratic elections were countered driven incentive-based solutions such as the
by a move of corporations and professional bodies Sarbannes-Oxley Act. It cites Prof. Romano of Yale
and the drive for guidance and „best Law School:
practices‟ to enhance legitimacy. As a consequence, ‘SOX’s corporate governance provisions were
the Institute of Directors in South Africa established ill-conceived. Other nations, such as the members of
the King Committee on Corporate Governance, the European Union who have been revising
chaired by Mervyn King, a retired judge. The two their corporation codes, would be well advised to
corporate governance codes that were issued in 1994 avoid Congress’ policy blunder’
and 2002 both carried his name and are commonly or Prof. Ribstein of Illinois Law School
referred to as the King Report on Corporate comment that
Governance (King I) and the King Report on ‘once set in motion, regulation is almost
Corporate Governance for South Africa (King II) . impossible to eliminate. In short, the first three years
King II received positive feedback, in particular for its of SOX was, at best, an overreaction to Enron and
integrated Sustainability Reporting section (e.g. related problems and, at worst, ineffective and
Barrier, 2003). South Africa faced different, unnecessary’ (IoD, 2009).
sometimes contradictory, influences on the prevailing Despite the repetitive mention of international
system of corporate governance. Through the liaison developments the similarity to the regime in the UK is
of the JSE with the London Stock Exchange, major visible. When studying the evolution of the King
companies sought double listing in Johannesburg and report, one cannot help but acknowledge the influence
London. These companies, thus, had to incorporate in of Sir Adrian Cadbury, of the same-named Cadbury
their operations international practices on corporate Report. He was even consulted on the naming of the
governance and financial reporting committee, as is shown here: „[f]ollowing Sir
(O‟Sullivan, 2003). South African companies whose Adrian‟s advice, the committee in South Africa
shares were listed in London were seen as leaders in a continues to be known as the King Committee and the
South African context, and their practices were soon King Code has become an internationally recognised
being seen as best practices. In fact, a diverting brand‟ (IoD, 2009).
regulation in South Africa would have only imposed The King III Report focuses on three pillars:
more cost on these companies. Another movement in leadership, sustainability and corporate citizenship.
the same direction came from supranational Effective leadership is seen as the key to good
organizations like the WTO or the IMF, who governance and is facilitated through ethical values,
demanded a westernized system of accountability. In in particular responsibility, accountability, fairness
addition, South Africa rediscovered its own African and transparency. King III‟s interpretation of these
roots. This „African renaissance‟ led to attempts to values shows its denial of a one-size-fits-all approach
Africanise the direction of business. African cultures and its focus on two South African issues: the changes
are largely seen as communitarian (Gyekye, 2003; in the economic situation and the principle of ubuntu.
Mbiti, 1989; Mentiki, 1979; Wiredu, 2003). Ubuntu is largely translated as „I am, because we
King II focused strongly on the South African are; and since we are, therefore I am„ (Mbiti, 1989,
situation and attempted to incorporate the local p.110). Every individual is an extension of others and,
business culture. The King Committee on Corporate therefore, reaching the fullness of one‟s potential
Governance launched the King Report on Corporate without the concrete act of relating to another
Governance for South Africa – 2002 (King II Report) individual person is impossible. Ubuntu
at an Institute of Directors (IoD, 2009) Conference at pinpoints the importance of community to individual
the Sandton Convention Centre, 26 March 2002. Due identity and hence to human dignity (MEC for
to changes in legislation, particularly the introduction Education, 2006). In African cultures, effective
of the new Companies Act No. 71 of 2008 and to leadership is based on moral duties. Despite these
keep up with international developments, King II had interesting insights, little is known about how to
to be adapted. The new code named King III will crystallize these African values into the operations of
come into effect on March 2010. As already visible in corporations. One possibility is the decision-making
King I and II, the Committee for King III was focused by consensus (Nash, 2002; Wiredu, 1977), discussing
on „the importance of conducting business reporting matters with everybody concerned. For businesses in
annually in an integrated manner i.e. putting the a global economy, this approach would be hard to
financial results in perspective by also reporting on: achieve. Sustainability, according to the opinion of
 „how a company has, both positively and the Commission, „is the primary moral and economic
negatively, impacted on the economic life of the imperative of the 21st century. It is one of the most
community in which it operated during the year under important sources of both opportunities and risks for
review; and businesses‟. It is about interconnecting nature, society

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and business and the need for a fundamental shift of outflow of capital. As the market is dominated by a
corporate governance in this regard. The requirement group of institutional investors, the report urges these
to report on sustainability issues was already institutional investors to make use of their control
incorporated into King II, which explicitly required rights and to enforce good government practices.
companies to implement and to report on
sustainability. Whereas in King II it was an adjunct to The reporting of Alt-X companies
financial reporting, King III would like to see it
becoming an integrative part of the financial reporting Corporate governance statements follow a certain
process. The concept of corporate citizenship, on the pattern. Although there is no fixed prescription as to
other hand, sees the company as a „person‟ which how these statements should look, the statements of
should operate in a sustainable manner. the companies investigated follow a certain
King II chose an „inclusive„ approach to pattern. Companies listed on the JSE report on the
corporate governance (West, 2004). Instead of the extent to which they comply with the
prevailing focus on shareholders, King II demands principles incorporated in King II as well as the
that all stakeholders be considered. Furthermore, the requirements of the Corporate Laws Amendment Act,
director‟s responsibility is to serve the company as a 2006.
whole, rejecting a primarily shareholder-driven point
of view. In addition, many recommendations take on Leadership
non-financial reporting issues like transformation
progress, human capital development policies, safety The reports mention the meetings held throughout the
and health concerns, etc. (West, 2004). This means past financial year and the attendance at these of the
that what looks so much like stakeholder logic is not a directors. What is interesting is that many companies
stakeholder concept. Why? It has been ruled out by change their directors quite frequently. Many
King II. „The stakeholder concept of being companies follow this suggestion and require that one
accountable to all legitimate stakeholders must be third of their directors would retire annually. Others
rejected for the simple reason that to ask boards to be decide that their directors should stand annually for
accountable to everyone would result in their being re-election, viz:
accountable to no one„ (King II). As West (2004) has Thereafter one third of the directors (or if their
stated, the logic is interesting but unclear. number is not a multiple of three then the number
King III includes two models of corporate nearest to, but not less than one third) shall retire
governance: „stakeholder inclusive‟ and „enlightened from office at the annual general meeting. Retiring
shareholder‟. The first model means an inclusion of directors shall be eligible for re-election (ideco).
„legitimate interests‟ and expectations of stakeholders. To ensure that directors are fully conversant
In an enlightened shareholder model these interests with their corporate responsibilities, Wits Business
and expectations would only be considered if they School offers a programme which is endorsed by the
were in the interest of the shareholders. It is probable, Institute of Directors. Quite a number of the
in any event, that the directors would have done that companies studied reported that they had made use of
anyway in their attempt to maximize profits. The the program. In case of other companies, the non-
„stakeholder inclusive‟ approach demands the executive directors have no fixed term of
inclusion of the interests and expectations of all office. Another reason for the frequent change might
stakeholders if in the best interest of the company. be found in the shortage of skills in South Africa.
Whether this separation of the interests of Finding people qualified for a directorship in South
shareholders vs. interests of the company will survive Africa is anything but easy. Those who do qualify are
the test of time might well be open for debate. in strong demand, viz:
One of the preconditions of a market-based ‘[t]he directors acknowledge the need for an
model is a functioning stock exchange and a working independent non-executive chairman to be appointed
market for mergers and acquisitions. The JSE has and this will be done once the company has identified
developed from a small trading place dominated by a a person suitably qualified for the position (sanyati).
couple of conglomerates with high levels of What is remarkable, particularly for the
ownership concentration and cross-shareholding European reader, is the age structure of the
(Sarra, 2004) to one of the most important stock directors. A substantial number of directors (both
exchanges in the emerging markets. A major drive for executive and non-executive) are either under the age
this development came from the pursuit of neo-liberal of 30 or slightly above it. This is reflected in
economic policymaking of the early years of ANC population figures. Nearly 31,4% ( one
rule backed by macroeconomic stability and the huge third ) of the population is aged less than
interest of foreign investors shown in the country‟s 15 years and approximately 7,5% (3,7 million) is
main companies (Lachman, 2004; Lewis et al., 2004; 60 years or older (Statistics SA, 2009).
Andreasson, 2007). Although South Africa has a The code also suggests that the board agrees on a
relatively active stock exchange based in board charter which mentions the responsibilities of
Johannesburg, it is not very well capitalized and the board:
economic insecurities can quickly trigger a sudden

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The Board has adopted a board charter which executive directors to independent non-executive
confers among others the following responsibilities to directors in the sample studied came up to 0.5,
the Board: indicating that for every two executive directors there
• Retain full and effective control of the is one independent non-executive director in place.
company; Many companies indicated that they had
• Give strategic direction to the company; changed their structure from the previous year to the
• Monitor management in implementing plans next. Some simply stated that they „streamlined‟ their
and strategies; board and management structure to meet the
• Identify and regularly monitor key risk areas challenges they faced. Others gave more detailed
and key performance indicators of the business; accounts, e.g.:
• Ensure that the company complies with During the year, we strengthened our corporate
relevant laws, regulations and codes of business governance infrastructure through appropriate senior
practice; management appointments:
• Ensure that the company communicates with • Appointment of an additional independent non-
shareowners and relevant stakeholders openly and executive director
promptly; and • Changes to the composition of the audit and
• Regularly review processes and procedures to remuneration committees
ensure effectiveness of internal systems of control and • Adoption of a board charter and audit
accept responsibility for the total process of risk committee charter
management (rare). • Drafting of a comprehensive set of policies for
South African companies are governed by a the Group
unified board with a Chief Executive Officer and a • Suitable remuneration was put in place for all
separate chairman (following the King report non-executive directors.
preferably chaired by an independent non-executive In 2008, the composition of the Board was
director). The Code actually suggests blocking the enhanced by the addition of two experienced
executive directors from becoming chairman within independent non-executive directors with strong
three years after he had resigned as CEO. One financial backgrounds (rba).
company explains why they did not follow this Based on its recognition of risks, the Code
requirement: demands a strong focus on the adequacy of the
X has a unitary Board with a Chairman who is internal controls in place. For the directors to keep up
elected from the Board. The roles of Chairman and with the system of internal controls, the code suggests
the Chief Executive Officer (CEO) have been the use of internal audit services. The internal audit
combined due to the decision to keep the Board small function should report directly to the audit committee.
with the majority of the Board members involved in In King III, the internal audit moves from a
the Company's operations on a daily basis. Despite compliance based internal audit to a risk based
the convergence of the two roles into one, a balance internal audit. 15 companies identified shareholders as
of power and authority exists which ensures that no their prime target for communication. Ten identified
one individual has unfettered powers of decision no prime targets. 31 companies focused on
making. This divergence from the King II stakeholders. Eight companies identified shareholders
Report's recommendation is in line with the rules of and stakeholders; four others formulated their focus as
the JSE for Alt X listed companies, which due to their being on „stakeholders and shareholders‟.
size have smaller boards, and where full compliance King II requires companies to establish an audit
is impractical (Telemasters). committee, together with risk, nomination and
Yet, there is no guideline on how many remuneration committees. 53 companies have audit
directors a company should have or how the ratio of committees in place, 12 companies have audit and
executive directors to non-executive directors should risk committees. 13 companies reported to have
look like. Most companies have 8 directors (Median special risk committees in place. 53 companies had
7). The company with the highest number of directors remuneration (and nomination) committees in use.
comprised 12, the company with the smallest number One company named this committee „remuneration
3. The Code mentions that the board should comprise and transformation‟. Four companies ran
a „balance of power‟, with a majority of non- separate nomination committees; five companies had
executive directors, preferably independent non- their own investment committees. One company had
executive directors. The ratio of executive to non- an investment and transformation committee, one a
executive directors also varies greatly. The median committee for corporate governance, one for
and mode for this ratio in the studied group was 1, acquisition and one for employment equity. Three
stating that for each executive director there was one companies did not have any committees at all. They
non-executive director. The highest ratio was justified that on the grounds of the size of the board or
3, meaning that for six executive directors there were the limited nature of the business activities, namely:
two non-executive directors in office. Due to the limited nature of the company’s
Another company had nine non-executives to two activities all board members are responsible for the
executive directors. The median for the ratio following:

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• all issues regarding corporate governance; companies reported on their corporate social
• to maintain adequate accounting records and investments.
functionally effective financial reporting and internal In the 2009 financial year, the various entities
control systems, ensure compliance of published within the Group made 103 donations to 49 different
financial reports with relevant legislation, regulation, charities, many of which were in the form of monthly
accounting practice and safeguard group assets; and donations. Portable blood donor clinics have been
• to ensure that the group’s remuneration held on site periodically throughout the year at the
policies are appropriate (wooltru ltd). Durban and Port Elizabeth offices and were well
King III suggests that companies should supported by a significant number of staff in those
remunerate directors and executives in a fair and regions – so much so that the Johannesburg branch
responsible manner. Although most companies have are looking to follow suit in aiding this worthwhile
remuneration committees, it is often not easy to endeavour (santova).
understand what they are really doing – particularly in There are some central topics in the South
a country with a notorious shortage of skills. There is African context that have social impacts. Therefore
little opportunity but to pay market-related the list also included HIV-Aids, Broad-based Black
compensation for key personnel, including Economic Empowerment, health and safety,
directors. In one example there was evidence that the environmental issues, employment equity and skills
committee as regards the board also acts against the development.
advice of their consultants, as shown below: …appreciate the serious impact of the HIV/AIDS
The remuneration specialists consulted by pandemic, alongside the threat of other diseases
management for input on current salary surveys, which could cause significant risk. Healthcare
namely …, recommended a 6% increase in directors’ promotion therefore concentrates on the preventative
fees, but the Board decided not to implement any and corrective mitigation measures are being
increases in view of the present economic downturn. implemented to eliminate the underlying causes and
Short Term Incentive Scheme hazards of all health risks. The Group promotes
Annual bonus: voluntary testing, non-discrimination and awareness
The annual bonus is determined each year and about preventing the spread of the disease and
paid after the audited annual financial statements for mitigating its effects (rolfes technology holding).
the year ended 30 June 2009 have been The sections on employment equity are by and
completed. The payment of the bonus is based on the large the most informative and indicate a compliance
performance against budget of the subsidiary with the applicable laws and regulations.
companies (divisions) and of the The Group's approach has been to encourage all
group. …To recognize and reward the performance of staff to reach their maximum potential irrespective of
the staff in this difficult economic environment, the gender, race or creed. While this focus remains in
Board of Directors approved an after tax bonus of R1 place, the Group is committed to increasing the
008 000 which is equivalent to 3,4% of net profit for participation of historically disadvantaged staff in its
the year before deduction of the bonus paid with effect structures as per legislative and regulatory
from 30 June 2009. requirements. The requisite employment equity
Long Term Incentive Scheme (SAR’s) reports have been submitted to the Department of
The Long Term Incentive Scheme consists of two Labour (foneworkx).
elements: Share Appreciation Rights (SAR’s) and The paragraphs on Black Economic
Performance Units (PUs). The SAR’s that were Empowerment speak largely about the rating the
recommended by … and approved by the Board to key company and its subsidiaries received, e.g. ‘The
management with effect from 1 December 2008 and Group’s operating subsidiaries are either level 2 or
implemented with effect from 1 September 2008 level 3’ (dth).
(rare). To prevent reckless and short-sighted behaviour
King II recommends a written code of ethics. 21 of
Sustainability and corporate citizenship the studied companies reported that they had a code of
ethics in place. 13 others reported that ethical
Sustainability has been identified as one of the three principles had been agreed on but not formalised.
pillars of King III. King II had already demanded Two companies had a code of conduct in place while
sustainability reports, but King III requires four others use a combined code. 41 companies
considerably more. Out of the population studied, addressed employment equity policies, 35 disclosed
only few issued a sustainability report. Many built in how they complied with Broad-based Black
the same information content into other sections of Economic Empowerment. 26 companies raise health
their reporting. The reports were scanned to see if and safety issues, 11 of them specifically speak about
they included key words like „Corporate Social HIV-Aids. 18 companies specifically address the
Investment‟ to establish whether the companies shortage of skills. Despite this, the paragraphs
engaged in corporate citizenship. Corporate social addressing these topics are not very insightful and
investment includes donations and other financial address the company‟s awareness of the issue.
assistance given for an altruistic purpose. In sum, 15

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Political aspects of Corporate Governance the reports of other companies as to broad-based

black economic empowerment, is very sparse.
One of the key issues in the South African context The first company operates within the sector of
is the transformation of its society. Since the first free computer supplies. It strongly stresses that it is in
election after the fall of apartheid in 1994, it is excess of the required black ownership threshold and
intended that the wealth of the country is distributed points out a 50% direct BEE shareholding.
in a way that reflects the population Notwithstanding this achievement, continued
of South Africa. The goal of transformation is largely emphasis is placed on promoting and
advocated by politicians, and companies often find marketing … shareholding with historically
themselves under scrutiny for not doing enough to disadvantaged individuals. … strong empowerment
contribute to transformation. One of the most platform extends across all employment levels within
prominent issues in the area of transformation is BEE the group – 62% of group executives is black, as is at
deals, designed to allow „historically disadvantaged least 90% of the board of … of which 27% comprises
groups‟ to own shares of companies and to participate black females (simeka business group).
in its wealth creation. A detailed discussion of such This strong focus on BEE is not often visible in
BEE deals is not within the scope of this paper. the high tech sector. It becomes clearer when reading
The paper is interested in how companies use the CEO‟s vision of the company, in which he
corporate governance reports to demonstrate their will highlights the strong importance of the public sector
to comply with political goals and in the ways in for the group‟s income generation.
which they account for their contribution to Public sector remains an important growth
transformation. Three companies offer outstanding, avenue for the group. A number of large government
very detailed descriptions about their actions contracts secured (through SUHL) vindicate the
regarding transformation, while the details given in benefits of this strategy and have laid the platform for
continued growth in this area (semeka).

(erbacon)

Another company which is working in heavy considerable government procurement and orders to
construction offers a similar insight into its employee build for the public space.
structure. Here, the company benefits from

(simeka business group)

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A third company which has an outstanding reporting would do so – even in the absence of a code.
sustainability section is one that offers micro-finance From the viewpoint of small listed companies a strict
to rural areas. code with excessive reporting requirements would
Interestingly, many mining companies do not add little value.
engage in excessive accounting for transformation –
despite the rhetoric to nationalize them. Their References
corporate governance sections are quite lean and do
not engage with these topics apart from the necessary 1. Andreasson, S. (2007), The Political Economy of
minimal statements of compliance. One reason for Corporate Governance in South Africa, The Selected
this might be found in the absence of government Works of Stefan Andreasson. Available at:
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2. Barrier, M. (2003), Principles not Rules, Internal
Auditor 60(4): 68-73.
Conclusion 3. Blau, P. M. and Schoenherr, R. A. (1971), The
Structure of Organizations, Basic Books, New York.
South Africa is a society in transaction, and so is its 4. DiMaggio, P.J. and Powell, W. (1983), “The iron cage
economic landscape. What has been seen so far was revisited: institutional isomorphism and collective
UK-oriented principle-based corporate governance rationality in organizational fields”, American
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