In tackling corporate governance in Africa, sovereign wealth funds are well-placed to help improve the situation. This was the central argument recently of Daniel Malan, director of the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School (USB), at an Africa Sovereign Funds roundtable in Dar es Salaam.
Malan said that over the past decade, Africa had managed to rid itself of the image of being a liability, of a continent that mainly featured on the global agenda in terms of humanitarian aid or debt relief.
“Today, Africa has repositioned itself as a continent of hope – one with enormous resources that present growth opportunities not only to itself, but also to the rest of the world. Africa is the world’s most youthful continent, with 65% of its more than 1bn people under the age of 35. Currently, 40 African countries are involved in either exploration for or the production of minerals, oil and gas, and Africa is home to seven of the 10 fastest growing economies in the world.
“Yet, 63% of the total labour force in Africa still engages in some form of self-employment or ‘vulnerable’ employment, such as subsistence farming or street hawking. Only 25% of Africans have access to electricity. In the 2013 Transparency International Corruption Perceptions Index, 90% of all sub-Saharan African countries obtained a score of less than 50. And Africa is clearly not immune to global risks such as conflict and climate change.”
World Economic Forum
Malan said according to the World Economic Forum, the lack of values seems to underpin just about every negative trend that has been identified in the 10 main trends that will impact the world in 2014.. “The World Economic Forum hasembarked on a project called the ‘New Social Covenant’ – a global dialogue that will attempt to put human dignity, the common good and stewardship of the planet back on the agenda of corporations, governments and civil society. Concerns about issues such as growing income disparity and climate change have also become mainstream within the business community itself.”
In a recent UN study on sustainability, 67% of more than a thousand CEOs of global companies disagreed with the statement that business is doing enough to address global sustainability challenges. Perhaps the most significant finding from the survey was the acknowledgement that big business cannot address current challenges on its own. Some 85% of CEOs demanded clearer policies and market signals from governments. This percentage is even higher in Africa.
“Some people might question whether these are really governance issues. I would like to argue that they are and that sovereign wealth funds are well placed to make a contribution to improve the situation.
“According to the classical definition of corporate governance it is the system whereby organisations is directed and controlled. Many people think about compliance issues only when they talk about governance. They associate the term with red tape, bureaucracy and regulation. Once they understand that governance is also about performance (driving the enterprise forward while keepingit under prudent control), they get excited but often lapse into a ‘business as usual’ attitude – i.e. a simplistic view that governance can help companies to improve short-term profits.
“This is where inclusivity, the role of stakeholders and a long-term perspective become very important. The business case for corporate governance should be understood in its totality – it is not only about one organisation, it is also about a long-term, sustainable future for everyone on the planet.”
Malan argued that within this context, issues such as societal tensions, income disparity, cyber threats and climate change could be viewed as governance issues.“They go to the heart of how organisations are directed, controlled and governed. Technical governance issues such as the balance between executive and non-executive directors or the existence of a board charter are important, but not sufficient. The fundamental governance values of honesty, transparency and accountability and how these are reflected in the words and actions of organisational leadership are far more important.
“We would need a triple shift if we were to tackle these governance issues effectively: firstly, a shift from conformance to performance, and secondly from traditional performance to values-based performance, i.e. performance that is not in conflict with the values mentioned above. Many companies have made these shifts already, and therefore the position for individual companies will depend on their context. The third shift has to do with the role of investors in general and sovereign wealth funds in particular.”
Malan said there was a missing link in mainstream governance: “Most people only talk about the relationship between directors and management, but the relationship between owners and the board is just as important.
“Direction and control are also relevant here. If one can combine a developmental role – such as a commitment to the importance of initiatives such as the new social covenant -with support and pressure from investors, the outcome can be very powerful. More and more institutional investors are subscribing to the UN’s Principles for Responsible Investment. One would like to think thatwhen the state is the owner - as is the case with sovereign wealth funds – this developmental role and concern for values such as the common good and human dignity would be a no-brainer. Nobody is better positioned than sovereign wealth funds to drive this process, because they understand the message that humanity should be served by wealth, and not ruled by it.”