Who monitors the monitors? An examination of listed companies in an emerging market context

Abstract

The growing number of corporate scandals globally highlights the importance of effective corporate governance mechanisms. Many of the corporate governance frameworks that are rooted in the agency theory advocate the election of independent non-executive directors, an independent chairperson, and a lead independent director. Shareholder voting on the election or re-election of directors (hereafter referred to as ‘director re-elections’) has been largely unexplored in South Africa—a country widely recognised as a pioneer in the corporate governance field and yet marred by several corporate scandals in recent years. In this study, an unbalanced panel data set was thus constructed comprising voting outcomes and board-level characteristics of companies listed on the Johannesburg Stock Exchange from 2014 to 2020. Significant positive relationships were noted between shareholder voting opposition to director re-elections and both board size and board tenure. Shareholders who cast opposing votes mainly did so because of their concerns about the lack of director independence, at board, committee, and nominee level. The findings of this study were explained in the context of the agency, stakeholder, stewardship, and resource dependence theories. It is recommended that nomination committees use more robust selection criteria for directors. Shareholders are also encouraged to vote more actively on director re-elections to monitor these monitors.