The macroeconomic impact of business on society was placed under the microscope at the Business Day Financial Dynamics breakfast hosted in association with Greymatter & Finch – a financial and stakeholder communications company specialising in reporting for public, private and listed companies.
The recent exposés of corruption and tender irregularities hold dire consequences for individual citizens and businesses in South Africa. The failure of auditors, lawyers, bankers and regulators mean that the entire system has been corrupted, without consequences to prevent further plunder of private and public entities. The capture of state owned entities like Eskom, as well as the corporate collapse of organisations like Steinhoff and VBS Bank among others, should be a motivation for stronger shareholder activism, according to Sygnia CEO Magda Wierzycka who delivered the keynote address.
Addressing the issue of ethical leadership, Wierzycka believes that the global financial crisis of 2007/8 should have ushered in a new era of corporate governance and regulation. However, the lack of ethical leadership is an international problem and not just one in SA. Considering the ongoing failures of large organisations to act in the interest of shareholders, Wierzycka asked whether ethical leadership really exists?
Where there is an absence of fear of being caught, or of prosecution, Wierzycka believes corruption will continue to thrive. Without the application of consistent principles and rigorous oversight, it becomes too easy for leadership to claim they were unaware of irregularities taking place. Importantly, she stated that leadership and ethics are not necessarily linked. This is why shareholder activism needs to play a stronger role in bringing the fear factor back into the equation and holding individual board members accountable for a company’s misdeeds.
Bruce Whitfield hosted a panel discussion with Marc Hasenfuss (Editor-at-Large, Financial Mail); Arthur Kamp (Chief Economist, Sanlam); Delphine Govender (CIO, Perpetua Investment Managers); Wayne McCurrie (HO Equity Research, FNB Wealth & Investments), and Frank Ford (Group Manager: Investor Relations, Distell).
Panellists agreed that South Africa requires a dramatic ideological change to ensure that the consequences of unethical behaviour outweigh the rewards. Consumers continue to feel the impact of muted growth and unemployment in 2019. This presents numerous challenges in the investment environment, where market sentiment may be negative.
However, Govender believes that investments can deliver profit despite periods of negative sentiment, provided you stick to trusted fundamentals. A more bearish Hasenfuss advises people to get intimate with a company’s annual report, interrogate the numbers, go and see the company offices and attend the AGM.
In using the numbers to predict the future of a business, cash remains king. ROIC and cash conversion were those agreed on by all panellists. Kamp also highlighted the importance of the interest coverage ratio – the ratio of earnings to interest liabilities. The PE-ratio is not necessarily the best indicator if investors don’t know what the right multiples are for a company operating in a specific sector…and these should, in any case, be based on the actual cash conversion of a business.