Multi-directorships are still a concern despite recent efforts to expand the field, reports Max Gebhardt
Anglo American again leads the field with the largest number of multi-directorships, according to the latest information from McGregor’s Who Owns Whom for 1997. Michael King and Leslie Boyd from Anglo share top billing with 24 directorships each.
Out of the highest 10 in terms of the number of directorships held, eight come from the Anglo fold. The highest newcomer to the list is Chris Yates of Anglo with 16 directorships.
Multi-directorships, a symptom of the concentration of power on the Johannesburg Stock Exchange (JSE), mirror to what extent Anglo American dominates the stock market. Although Anglo’s control of the market capitalisation of the JSE has fallen in recent years, particularly since the conclusion of the sale of Johnnic and JCI, it nevertheless controls 28,3% of the JSE’s market capitalisation as of November last year. This is down from 37,1% the previous year, but still streets ahead of second- placed Sanlam, which controls 11% of the JSE’s market capitalisation but doesn’t have a single director with more than 10 directorships.
According to McGregor’s research, some 38 directors of listed companies sit on more than 10 boards.
Pierre Brooks, head of the Competition Board, said the board does have concerns with multi-directorships when a director sits on the board of two competing companies.
“In a situation such as when there is a cross-directorship and a conflict of interest arises in the director’s fiduciary duties, then it raises some problems with us,” Brooks said.
Under such circumstances, the board would investigate the company in terms of restrictive practices, but Brooks says this can be a very difficult and arduous task.
Brooks says it does try to pre-empt such situations via the sanctioning of a merger or an acquisition. But the root cause of the problem results from the concentration of power by a few major conglomerates in the South African economy.
“Certainly any rewrite of the Competition Law or Companies Act needs to focus some attention on multi-directorships,” Brooks said.
But according to Brian Kantor, professor of economics at the University of Cape Town, South Africa is not unique. Multi- directorships are commonplace throughout the Western world.
In certain circumstances, Kantor says, it can actually be beneficial for shareholders. But any attempt to legislate against multi-directorships could lead to a very dangerous situation.
“I think you could effectively discourage multi-directorships without passing any laws by the use of corporate governance procedures,” Kantor said.
It has to be kept in mind, he added, that when one company has made a significant investment in another, it would obviously want to protect its interests by appointing a board member.
But Richard Wilkinson, executive director of the Institute of Directors, said directors who sit on the board of subsidiary companies must realise they are not only there to protect their parent company’s interests.
“Such directors have an equal responsibility to act in the interests of all shareholders of the subsidiary company and not just of the parent company,” he said.
Many directors are aware of this fine line they have to tread and, according to Wilkinson, feel especially paranoid about this fact.
But the concentration of directorships in a few hands is not only unique to listed companies. Wilkinson says the situation is similar in non-listed companies as well.
Steps are being taken to rectify the problem, he says, but it’s a slow process. In recent years, priority has been given to promoting people from previously disadvantaged communities as well as women.
“The number of new names in the field of directorships is absolutely enormous. We are seeing 100 to 150 new directors appointed every week,” Wilkinson said.
The institute’s opinion regarding multi- directorships depends largely on the individual concerned, but Wilkinson says that six to eight directorships for operating companies is the maximum it would recommend.
“Obviously it depends on each individual’s time and energy and the type of directorship they hold,” he cautioned.
But Robin McGregor, founder of Who Owns Whom, says such concentration of power in a few hands could lead to collusion. This is a concern to all involved, including the Competition Board. In a paper published by Brooks, he says: “The captains of industry should be [in] the vanguard of reform.”
But he warns that if there is no action or resolve, and no discernible improvement is made in the short term, it is conceivable that in a few years’ time more dramatic steps might need to be taken.