The CEO of one of SA’s most prominent listed investment holding companies has added his voice to growing criticism of the Draft Companies Amendment Bill, saying the intention of the Bill was to “improve the ease of doing business” but that it fell well short of that and instead would disadvantage listed companies.
PSG CEO Piet Mouton told Business Times this week that one of the unintended consequences of not just the bill, but increasing regulation in general, was that it punished law-abiding businesses which are being swamped as they try to comply with increasingly onerous regulations instead of getting on with trying to make money for shareholders.
The bill was approved by cabinet last month and is open for public comment.
Mouton said dishonest individuals or companies flout regulations regardless of legislation and that with increasing regulatory burdens, honest companies ultimately end up being less competitive. He was speaking after the release of PSG’s results for the six months ended August 31 2021.
An additional requirement in the bill to disclose the ratio of the highest-paid employee to the lowest-paid 5% of workers creates a “discrepancy” between how listed companies and how privately owned ones are treated, Mouton said, which is “wrong”.
“There should also never be something that differentiates between a listed and an unlisted company in the Companies Act. How can you add something to the Companies Act or any piece of legislation that’s only applicable to listed businesses. It’s not a fair playing field then.”
Mouton said more should be done instead to try and reduce the country’s high unemployment rate of almost 35%.
Vestact portfolio manager Michael Treherne said that regarding the spread between what the CEO and the lowest paid employees earn, “we already know it is going to be atrocious”.
“If you live in SA, you know we have one of the biggest wealth gaps in the world, so I don’t know what publishing that is going to achieve. We’ve got a lot of people earning at the low end because there are a lot of jobs for positions like cleaners or tellers. I don’t think it is a fair comparison. How can you compare a cleaners’ salary with a CEO’s salary?”
Mouton said one consequence of creeping regulation was that since privately held companies are not subjected to the same onerous administrative burden that listed counters are, they are able to be nimble. The advantages of being listed are now rapidly disappearing, he added.
Nonetheless, Mouton said PSG, whose investments include PSG Konsult, Zeder, Curro and Stadio, has no intention to delist any of these businesses for the time being. But the group would, like any other company, consider any takeover bids for any of its subsidiaries if the offer was attractive.
Shareholder activist Theo Botha said listed companies, which have to answer to the JSE and the Financial Sector Conduct Authority, have “got a lot of hoops” to jump through.
“But at the same time, if a business is found wanting, like a Steinhoff, you want the law to step in and hold people to account,” he said.
Mouton said: “What are the benefits of being listed? Yes, [with] a listed business you can supposedly easily raise equity capital through the equity markets, but the JSE is making it more difficult every year. The JSE comes out year after year with new regulations making it so much more onerous in terms of what a listed business can do or what they must do or how they must report. I think the benefit of being listed is becoming very marginal at best.”
He said the declaration of director remuneration was a relatively new concept which was introduced in the early 2000s with the objective of improving transparency, but the unintended consequence was that it became a “race to the top”.
For example, he said, the average bank CEO currently earns a guaranteed and short-term incentive package of just more than R30m a year, whereas in 2002 that same executive would have earned about R7m. This represented an increase of over 9% a year, while inflation was approximately 5%.
“This excessive growth in pay can mostly be ascribed to benchmarking, which can only be performed if remuneration is disclosed to the public.”
Mouton added thatremuneration is an important tool to incentivise CEOs and their management teams to outperform their peers.
According to PSG’s draft 2021 remuneration report, Mouton was paid R13.294m, including gains from share options exercised, compared to R47.316m including gains from share options exercised in the 2020 financial year. He had no increase in his base salary for financial 2021 and is not eligible for short-term bonuses. The report says the significant remuneration he received in the 2020 financial year was mostly due to the “significant prior-year gains from exercise of share options”.
Earlier this month Busi Mavuso, CEO of Business Leadership SA, said in her column in Business Day that the Draft Companies Amendment Bill “adds significant administrative burdens on companies while diminishing SA’s attractiveness as a place to do business”.
She said the remuneration of executives at listed companies “already has to be disclosed, while information on the lowest-paid wages is readily available from unions”. Additionally, only making this applicable to listed companies meant the country “will not get a clear picture of income inequality countrywide as there are only about 330 listed companies in SA”.
As far as the requirement in the bill that companies disclose who the true or end beneficiaries of a shareholding of more than 5% are, she said most shares of listed companies are owned by institutions and the onus will be put on companies to disclose ownership.
But Vestact’s Treherne said the beneficial ownership requirement in the bill is in line with global tax regulations to counter money laundering, and is already a FICA requirement when, for example, opening a brokerage account.
Contacted for comment, the JSE said it was “still going through the finer details of the bill and is currently not in a position to comment”.
Meanwhile, the department of trade, industry & competition said it would not be “engaging on issues raised during the period of public comment as it is important that stakeholders engage with the bill and provide feedback”.
