King code got it wrong -Mouton

WHY did African Bank collapse while Capitec Bank continues to go from strength to strength?

WHY did African Bank collapse while Capitec Bank continues to go from strength to strength?

After all, they were in the same unsecured lending space, dealing with the same risks, weren't they?

African Bank imploded under a mountain of bad debt while Capitec's share price gained 18.4% over the past year. And Capitec recently announced it had made R1.18-billion in profit for the half-year to August - a 20% jump.

One obvious reason is different business plans: Capitec's profits come from transactional banking as well as lending, while African Bank was wholly dependent on lending.

But what about the boards?

Recently, critics have laid into the board of African Bank, criticising its directors for being ineffectual - a claim that will be ventilated at the impending Myburgh commission of inquiry into the bank's collapse.

Now, Jannie Mouton, chairman of the Stellenbosch-based PSG Group, which owns Capitec, has waded into the debate by suggesting that African Bank's board may actually have been too independent.

Mouton said that maybe African Bank's nonexecutive directors didn't have a large enough financial stake in the bank over which they were custodians.

"Board members must be heavily invested to really care. An independent, nonexecutive director only comes to board meetings to drink your tea and eat your cookies," he said.

Instead, argued Mouton, nothing concentrated the minds of directors more than having a financial stake in a company. Directors without a stake in a company read the company documents only "looking for spelling mistakes and this and that", he says.

Mouton admitted that his views were contrary to the King code of corporate governance, but said the code exaggerated the importance of independent directors.

"I am openly against what King says about independent directors.

"You need some independents, but the independent director doesn't look at the wellbeing of the company. He doesn't lie awake at night thinking, 'will it survive?'

"There are exceptions, but 90% of the time they don't care. If you're invested in the company, as we are at Capitec, you'll feel unbelievable pain. We care about the company."

The King code is being revamped, and it remains to be seen whether the committee takes any heed of Mouton's view that King focuses too heavily on the need for independent directors.

"There should be a bigger focus on the other side of the coin because that is where value comes from," he said.

"If you have a smart person with an investment in the company, he will keep you on your toes. He will ask the right questions and he will look that you do business straight."