The average director of a JSE-listed company holds positions on the boards of seven different companies.
Having directors who sit on multiple boards can result in time- and focus-related constraints, ultimately increasing conflict of interest risks. "This means these directors of major companies are essentially wearing a different hat a day," says Inoxico CEO Andre St"urmer, cautioning that multiple directorships can have serious implications for the business and for the consumer.
These findings are based on a study by Inoxico, which saw the risk solutions software company analysing roughly 380 JSE-listed companies. The companies were grouped according to parameters such as industry, sector, BEE rating, and age and gender of directors, among other factors.
"Of the largest companies, each director holds an average of 14 external directorships, which is a very big number," he says, noting that, in some cases, the number of active directorships outside of their group can be as high as 60 or 70. "From a governance point of view, this is not best practice."
Inoxico used its Directorship Singularity Index (DSI) as part of the study. The DSI assesses what risks arise when a company director sits on multiple boards, with a score of one being low risk and 10 being high risk. "We found that the average DSI among the surveyed companies was seven out of 10. Unsurprisingly, none of the companies that formed part of the study received a DSI score of one." Data showed that the telecoms and healthcare sectors were at the highest risk of conflicts of interest, says St"urmer.
Companies with more female board members and with younger directors tend to be more at risk, the study found. Inoxico unpacked this finding, noted St"urmer, and found that females tend to sit on bigger boards, and bigger boards are more susceptible to conflict of interest risks. "This finding is interesting as it reveals that, if corporate SA feels compelled to bring more females onto their boards, they tend to increase the number of board members to do so, rather than replacing male board members."
For St"urmer, the aim of the study was to present the governance risks associated with multiple directorships and to create awareness about the possible divided allegiances that can arise due to this. "Directors should not be waking up and wondering what company they are going to give their attention to that day," St"urmer stressed.
Inoxico is looking to expand these kinds of studies into the rest of Africa and to apply similar thought processes and build a similar database for the African continent, he added.
In general, related party transaction legislation is not being taken very seriously, but it should be, he concluded. "Compliance is not a nice to have. This sort of business practice really does mean that more and more things can go wrong."
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