The JSE and the King corporate governance committee have two options: they can cling to their narrow self-protectionist stance in the increasingly desperate hope that government will continue to be ineffective, or they can attempt a little boldness on the thorny matter of executive pay.
As things stand, less than one week away from the launch of King 4, it seems the committee may have taken the low road. In the absence of last-minute changes to the draft released several months ago, the new King code on corporate governance may end up as flabby on the issue of executive pay as its predecessor. It would be a tragedy, as this risks becoming the issue that will define a report that, otherwise, has many outstanding features.
Those intimately involved in the governance industry — auditors, governance advisers and executives — may be impressed by such things as the detailed insights into all five lines of assurance, as well as the descriptions of the values of a company.
But the wider public will want to know what the committee is doing to ensure that executives understand there are people outside the boardroom who cannot accept that executives are worth what they’re paid.
These people want to see progress on pay and a sign that our corporate leaders are not hopelessly out of touch.
In the past, few challenged the limp recommendations of the King code, other than the odd activist.
But this time around, it’s different. The companies & intellectual property commission (CIPC) is on the march, apparently determined not to allow King 4 to simply morph into King 5 in a few years or the JSE to continue avoiding engagement.
Behind the scenes, the CIPC has already made its intentions known — so the King committee must address the pay issue or risk having these objections aired publicly later.
Of course, the committee may be tilting towards the bold option. Perhaps it has taken seriously a remarkable submission by no less an authority than Geoff Everingham — a professor of accounting and expert on corporate governance. He has urged the committee to deal with the "contentious issue" of remuneration more vigorously, describing as feeble the recommendations that the shareholders’ vote on pay isn’t binding. "The SA context needs to be stressed," he said, pointing to the struggling economy, civil unrest, unsatisfactory labour relations, growing joblessness and poverty.
"In such an environment, the continuance of the status quo and the capitalist system with which it is associated is brought into question."
Everingham says the sustainability of the present economic system is not assured. "Remuneration of executives at levels which appear obscene and morally reprehensible aggravates disaffection with the system, even though such remuneration may be a small portion of the profits."
It’s a timely warning.