Boards in South Africa must have more representation from younger generations

11 February 2019 Consultancy.co.za

Contributing to a current debate on executive remuneration and board structures across South Africa, global professional services firm PwC has released a new report that reveals that most boards in South Africa currently consist primarily of non-executive, independent directors. 

The appointment of non-executive directors is becoming an increasingly popular strategy for firms across South Africa, particularly those listed on the Johannesburg Stock Exchange (JSE). PwC reports that there are nearly 150 more independent directors among the JSE this year than there were last year.

The trend is visible across a number of sectors, the most prominent being the financials and financial services sector, followed at a distance by the basic materials sector and the industrials sector. The real estate and consumer discretionary sector follow, while a number of other sectors make the list with lower proportions.

Median board tenure

Most firms appear to be favouring independent directors due to the multifaceted expertise and flexibility that they lend to operations, which is exemplified by the fact that most state-owned enterprises have fixed board members. The utilities sector, for instance, doesn’t feature in the list of top sectors in terms of independent directors.

On the other hand, while most firms are looking for the flexibility offered by independent directors, firms are also increasing the average tenure for Chairpersons. Compared to the six-year median for 2017, most JSE firms are now appointing Chairpersons for an average of seven years.

The median tenure has been increasing steadily since 2014, when it stood at 4 years. However, the median tenure for non-executive directors stands much lower at 5 years for last year, but represents an increase nonetheless from the 2017 median of four years.

Proportion of non-executive directors

The fact that non-executive directors are the more popular appointments is demonstrated in the proportions of these models across various sectors in the country. More than half of the board directors across the largest sectors in the country operate in an independent or non-executive capacity. 

In the telecommunications sector – which is increasingly central in the South African economy, 77% of the board consists of non-executive directors, a figure that stands at 67% for the overall technology sector. 70% of the directors in real estate also operate in a non-executive capacity.

Other sectors with substantial participation from non-executive directors include industrials, healthcare, financials, energy, consumer staples and basic materials, among others. According to PwC, however, the age of these directors [plays as much of a factor as their employment model.

Median age of board members

The median ages of the chairpersons as well as the board members across all of these major sectors lies above 50. As the South African market moves towards a more innovative approach to growth, a younger perspective at the reins of an organisation might prove useful, according to the firm.

“There is a strong case for including millennials on boards of South African companies, as there is a feeling that they have their fingers on the pulse when it comes to emerging trends and risks,” says the report.

News

More news on