An analysis of director interlocks on the JSE - with reference to the top 40 listed companies.
Director interlocks have concerned shareholders, the public and legislators since the early 1900’s. In 1914 the Clayton Act prohibited interlocking directorates among competing corporations in the USA. Research has been performed since the 1930’s covering stock exchanges around the world, however very little information was available concerning director interlocks in South Africa. This paper analysed interlocking directorships of the Top 40 companies listed on the Johannesburg Stock Exchange using key metrics as per Newman and Conyon’s Small World theory, comparing the results to research on Italian, French, German, UK and US companies performed in 2008 by Santella, Drago, Polo and Gagliardi. South Africa was found to be closest to Italy, between the low density models (UK and US) and the significantly higher density models (Germany and France), suggesting that rather than just the two camps, there is a continuum currently reflected as the UK, US, South Africa, Italy, France and Germany. The presence of directors with multiple directorships and having significant influence in the network suggests systemic collusion is possible. Analysis performed on the composition of JSE boards showed that many of the King III Code requirements (presence of Non-Executive Directors, split of Chairman from Chief Executive amongst others) are met while some, such as the annual rotation of one third of directors and the independence of directors is problematic. There is still much that can be learned through enhancing the research coverage to provide a factual basis for understanding the impact of legislation and governance codes on the South African network, as well as to perform holistic research covering the combined network formed by board on exchanges across the globe.