With environmental, social and governance (ESG) themes continuing to dominate corporate priorities, boards have responded by redefining organisational purpose and ensuring ESG considerations are incorporated throughout all areas of business, professional services network of firms PwC’s ‘Non-Executive Directors (NED)’ report for 2022 indicates.
The fifteenth edition of the report – which surveys boardroom trends in South Africa every year – is centred around three main themes: purpose, retention and risk.
The report highlights that the changes alluded to earlier are considered vital to rebuild trust with stakeholders and deliver sustained outcomes.
It states that, pivotal to this, will be retaining – or in some instances, attracting – the talent that can drive the change.
PwC Reward Practice co-lead and People and Organisation division partner Leila Ebrahimi says that listed companies are reassessing the definition of their purpose in light of global issues that dominate the world’s political and media agenda.
“Climate change, inequality and the role of business in addressing these challenges are at the forefront of boardroom discussion. Every company has a social and environmental impact, and boards are carefully considering how strategic changes can affect their organisations’ impact.
“Listed company board members have noticed that trust levels appear to be at an all-time low, undermining support for executive pay structures that are traditionally seen as key to retaining the talent that can successfully restructure and repurpose businesses,” she says.
The report notes that this challenge overlaps with the current ‘Great Resignation’ period, which has seen many skilled employees leave corporate structures to seek greater fulfilment in their work lives as free agents.
Shareholders and media commentators appear to lack empathy for the ‘war for talent’ argument, the report finds, but trends reflecting increases in retention awards and sign-on bonuses show that companies are struggling to retain key talent even as executive pay remains a contentious issue – especially in the context of South Africa’s inequality.
“Companies are becoming innovative in retention arrangements, which are more sophisticated than cash alone, to compete in the talent war,” Ebrahimi points out.
RETENTION VS INEQUALITY PERSISTS
The executive pay issue does not exist in a vacuum, but alongside economic and social challenges exacerbated by Covid-19.
The report indicates that the just transition must take account of the economic effects of lost jobs that could exacerbate inequality.
Moreover, it notes that the public is tired of rhetoric related to the integration of ESG concerns into executive remuneration and performance measurement – especially when nothing concrete can be observed at ground level.
Therefore, what is needed is clarity and honesty.
Concrete changes most South Africans would like to see relate to a living wage. The report reveals that, in 2021, 55.5% of South Africans were living below the upper-bound poverty line of R1 335 a month.
Covid-19’s impact demonstrated just how fragile and vulnerable the country’s economy is.
South Africa’s national minimum wage – currently at R21.69 for every hour worked – results in a monthly salary of R3 630, based on a 21-day work month of eight hours per day.
“Research shows that a worker earning this wage would have a shortfall of R1 353 a month for three core household expenses – transport, electricity and food. This means earning the minimum wage is not enough to secure basic needs for a family.
“It is clear that companies can do more to balance job creation with improving the lives of workers by committing to paying wages that meet employees’ minimum needs, lift them out of poverty and allow them to live a dignified life,” PwC People and Organisation division director Makhosazana Mabaso says.
JSE NONEXECUTIVE DIRECTOR PROFILE
This year’s report found that the number of NEDs serving on the boards of active JSE-listed companies was 1 955, which is 151 fewer than in 2021. The average tenure for NEDs remained unchanged at six years.
The average NED only sits on a single board, with fewer than 50 NEDs sitting on four boards or more. The median age of chairpersons in South Africa is 64, while that of other board members (excluding chairpersons) is 58.
This demonstrates that South African boards tend to exhibit a reasonable experience base and tenure profile, although results from PwC’s NED survey indicate that a lack of experience of other board members still remains an area of concern for some NEDs.
However, while age diversity has not historically been a focal area, it is likely that boards will be seeking greater diversity in thinking and approach as the world continues to accelerate in digitalisation, the report indicates.
Racial and gender diversity continue to be themes for required change on South African boards. Of the South African NEDs (including chairpersons), most (50%) were white, with black Africans making up 40%.
The remaining two categories registered low levels of representation, with Indian/Asians at 6% and coloureds at 4%.
The representation of black Africans and whites as nonexecutive chairpersons increased from 32% to 35% and 52% to 58%, respectively, while the Indian/Asian and coloured categories decreased to 4% and 2% from 2020, respectively.
Male nonexecutive directors are still heavily favoured, at 67%. This is only a slight improvement on the report’s findings last year, which reflected a 71% male to 29% female split.
PwC has also noted a slight improvement in companies of different sizes, with large caps having 64% male NEDs, medium caps 63% and small caps 72%.
In terms of industries, the trends are consistent with those of the overall JSE analysis with the exception of basic materials, healthcare, industrials and real estate, where the number of male NEDs has increased since 2020, PwC indicates.
As of October 31, 2021, chairpersons were paid a median of R905 000. This is down from a median of R934 000 in 2020.
However, the median remuneration of lead independent directors increased to R811 000 in 2021, from R723 000 in 2020.
The median remuneration of NEDs rose from R554 000 in 2020 to R620 000 in 2021.