Posted on August 19th, 2009 in Industry News
Well publicized corporate scandals of the last decade elevated corporate governance and executive remuneration to the forefront of public attention. In a recent doctoral study, Neil Ulrich suggested that corporate governance control measures have seemingly become ineffective in addressing problems that arose out of the development of the modern corporation in a globalised environment.
His study analysed disclosure of executive remuneration, as one corporate governance control measure in the total corporate governance systems of South African listed companies. After both an analysis of the disclosures in companies’ Annual Reports and interviews, it was found that an alarmingly small percentage of companies disclosed at least what was required in relation to the minimum disclosure requirements under the Companies Act, King Reports, and JSE Listing Requirements.
The study found that both the level and determination process of executive remuneration are symptoms of the failure of corporate governance control measures, and that effective disclosure, which is both monitoring and informative, could contribute to a more effective overall corporate governance system. It however remains for companies to find a balance between comprehensiveness, simplicity, and affordability of different disclosure options.
Shareholder and stakeholder needs have to be the primary driver of an effective disclosure strategy, and disclosures should rather be applied as a communication tool than a mere compliance exercise to be effective.
With the coming into operation of King III in South Africa, remuneration committees have increased responsibilities to monitor and ensure their compliance with the principles contained in King III. This study could provide an invaluable resource to remuneration committees.
