SA corporate governance continues to improve

Thursday, 21 January 2010

South African corporate governance practices are considered relatively mature compared to emerging market peers, says Fitch Ratings in a report published, but they remain underdeveloped by international market standards.

Fitch believes that further improvements in South African corporate governance are required, especially regarding transparency and disclosure of interim financial reporting, and related-party transactions and internal audit processes.

"South African corporate governance practices have improved in recent years, but significant further improvement is still required to meet the King III corporate governance guidelines published on 1 September 2009. However, this is expected to be a gradual process," says Roelof Steenekamp, Director in Fitch's South African Corporate team.

"Corporates with weaker corporate governance rated by Fitch also tend to have lower ratings. The current financial downturn has highlighted the increased importance of robust management control processes, and the relative difficulty in implementing some corporate governance practices," adds Steenekamp.

Fitch evaluates the relationship between corporate governance and credit quality in the report, with the board of directors considered a key factor in effective corporate governance analysis.

The agency notes that high downside risk to corporate credit quality exists, should governance practices be weak. This is affected by the fact that governance and management controls impact the ongoing viability of a company, which in turn may impact timely payment of contractual obligations and ultimately constrain a company's credit ratings. On the other hand, sound corporate governance practices would usually not in themselves lead to upward rating pressure.

The full report, entitled "Corporate Governance: The South African Perspective", is available on the agency's website, www.fitchratings.com.

Reuters

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Home arrow Business & Economy arrow SA corporate governance continues to improve

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