Mervyn King has become the face of SA corporate governance. Yet he often appears to be exemplar in brand more than substance. After all, King himself hasn’t seemed able to follow the best practice outlined in his King 2 governance code.

King sits on the boards of two JSE-listed companies – private equity house Brait and retailer JD Group – both of which have found reason to bend the code. This year, Fraters Asset Management, which holds a small stake in JD Group, chose to abstain from voting to re-elect King to the board. Fraters said it would not vote to re-elect King because “an independent non executive director should be paid for time allocated to director duties [and] share options are not appropriate compensation”.

The King 2 code said that the prevailing theory in global markets was that non executive directors should not be granted share options, although it made it permissible in certain circumstances. For example, the UK’s 2003 combined code of corporate governance is more explicit, stating unambiguously that non executives should not be given share options.

Yet JD Group’s annual report shows that King himself holds 120 000 share options. Based on JD Group’s share price of R70 on Friday, these share options would have been worth R8,4m in total, implying profits of more than R4,5m. (This, of course, was in addition to the R225 000 he earned as a salary last year.)

King argues that his share options were entirely appropriate, given that his code says options are fine as long as shareholders agree to them.

“It was a [JD Group] shareholders’ resolution – not a board resolution – to give the non executive directors share options. Shareholders believed it was in the best interests of the company that the non executive directors had share options,” he says.

But JD Group falls short of best governance practice in another area, too. One of the core tenets of King 2 is that it is best to have a separate CEO and an independent non executive chairman.

Yet David Sussman, who founded the group in 1983, remains JD Group’s executive chairman while the CEO position is held by Mias Strauss. Fraters voted against Sussman’s re-election, saying “we do not support an executive chairman role”, adding that JD Group’s board “requires more balance between non executive and executive directors”.

King says the board “honestly applied our minds to this”, and decided it was “in the best interests of the company”.

“In 2000, the question was raised in the boardroom [that] we must get a non executive chairman… and the question I asked the boardroom was, Who is the uncle in the furniture business? Who actually deals with the suppliers, who actually is known?’ It is David Sussman,” says King.

King adds: “We wanted David to focus on a more global oversight [role] and it would really be a group chairman, a group executive chairman”. He says the company explained this to the market, which appears to have accepted the explanation, considering that “our shares were R23; they went to R109 at one stage; they’re now at R70 and the company has done helluva well since then”.

The recent downward pressure on the JD Group share price has been helped by allegations that the company has been fleecing poor customers in a way that is certainly unethical and possibly criminal. The allegations tumbled into the open in March on the TV programme Carte Blanche, which scrutinised a high court tussle between the company and a customer, Linda Ellerston.

Judgment is expected later this month, but it is interesting to see that JD Group’s shares are now 30% lower than the R101 they hit on March 8 – their highest level this year. By comparison, stock in other credit retailers has fared better. The Ellerine share price is 21% lower since March and Foschini is just under 7% off from its March level.

King refuses to discuss this case, saying: “I’m not even going to go there”. When it comes to private equity firm Brait, the unwieldy structure the company put in place last year made it all look like a cheap governance parody, with “executive” this and “deputy” that vying for pride of place on the company masthead.

In 2005, Brait appointed former JP Morgan SA head John Coulter to its board as CEO. To accommodate Coulter, it shunted the existing CEO, Antony Ball, to the position of “executive chairman”.

Though King was previously Brait’s chairman, under the new structure he became the “senior chairman”, which he says was a move to “ensure that independent nonexecutive oversight of the board continues”.

Punctuating this bizarre reshuffle that contradicted King code best practice, John Gnodde then became the “executive deputy chairman”. King points out that Brait has since reverted to “best practice”.

“It was a special circumstance… and we believed we’d complied and explained”. He says that when Coulter was brought in, “there was a real concern among overseas investors” that Ball’s experience would be sidelined.

“So they said, why don’t you do exactly what Goldman Sachs did, [by having] a senior executive chairman and executive chairman? So we went the Goldman Sachs route to make our overseas investors happy,” he says.

Again, King argues this was “in the best interests of the company” as Brait was able to reassure investors to the extent that the company raised the largest SA private equity fund yet, which closed last year with R6bn in the trunk. He points out that the structure also complied with the bourses where Brait is listed: Johannesburg, London and Luxembourg.

These issues have been seized on by detractors who question whether King has the right “moral authority” to take a stand on governance issues, and whether there is simply a closed circle of businessmen who have written the codes to suit themselves.

Some ask why King hasn’t simply stood back and let someone else take charge. One international governance expert says “there are accusations that [King's] business dealings may have tainted his work, causing adverse comment in corporate governance circles”.

“Cadbury never referred to his report as the Cadbury report’… but the King report is presented as all about me’. It’s viewed as arrogant,” says the expert.

Markus Reichard, an independent consultant who assisted in building the JSE’s “socially responsible index”, says: “In a way, King has done a lot. He’s a figurehead and provides guidance, but whether he’s the right guy to carry the brand or not, I don’t know.”

Theo Botha, a shareholder activist who has become something of an irritant to JD Group, also points to the fact that the retailer was one of the very few companies that barred journalists from their AGMs this year – a fact that the company put down to a “misunderstanding”.

“King has maintained his silence on this issue. You can’t have a company that uses the media in the good times and bars the media in the bad, especially when the King code says you ought to be open and honest with the media,” he says.

But King’s own views don’t always reign. For example, in earlier debates of the King committee, King argued against disclosing directors’ pay – yet King 2 did go for a recommendation that directors’ remuneration ought to be disclosed.

Nigel Payne, an acknowledged governance veteran of previous King committees, says he supports King as chairman but points out that it’s not King’s report.

“There will be more than 100 people putting it together, including all the professional institutions, so the risk [of any one person dominating the new code] isn’t very big at all,” he says.