Following the announcement from the Industrial Development Corporation (IDC) today, Futuregrowth Asset Management confirms that it will resume lending to the IDC with immediate effect, subject to ongoing public reporting requirements, mutually acceptable and appropriate protections in future legal agreements and Futuregrowth’s ongoing satisfaction with governance structures.
This follows Futuregrowth’s review of the IDC’s governance which sought to obtain a deeper understanding of the IDC board’s independence, autonomy, decision-making rights and commitment to fiduciary responsibility, as well as the IDC’s relationship with its shareholder (the Economic Development Department [EDD]).
Futuregrowth performed a detailed review of the Board, Board Committees and Executive Management with reference to the applicable charters, policies and delegation matrices. In addition, Futuregrowth assessed the IDC’s lending policies and practices in order to gather evidence that decisions are made in accordance with their mandate, established processes and the requirements of applicable legislation.
The due diligence took a dual approach, looking at governance from the shareholder to Board level, and from the Board into the company. Futuregrowth sought to understand the relationship, nature and extent of involvement and support from the EDD, obtain a more in-depth understanding of the IDC’s legislative/governance framework and perform a detailed review of investment policies, practices, and mandates, as well as key decision-making structures and processes.
Futuregrowth evaluated the practical application of the IDC’s policies and mandates, requested evidence of policies in action and reviewed examples of the application of policies.
Futuregrowth found that currently there is a positive and constructive relationship between the Board and the EDD. Futuregrowth considers the 13 member IDC Board to be appropriately constituted with a satisfactory balance of skills, experience and independence. While noting the overall Board strength, Futuregrowth observed the recent news concerning a Board member as an area to monitor.
The IDC has had a Politically Exposed Person (PEP) Policy in place since 2009, which, in its current form, appears adequate in Futuregrowth’s view. The IDC has a mandate to make loans to PEPs and has well developed policies for lending to PEPs, but Futuregrowth notes that such lending can give rise to particular risks. The IDC has taken the decision to disclose the quantum and performance of all deals concluded with PEPs in their Annual Integrated Report and on their website. Further, Futuregrowth notes that the IDC is in the process of strengthening its directors’ conflicts of interest policy.
Futuregrowth recommended certain areas for governance improvement, and these suggestions were received in a spirit of positive intent and co-operation. Recommendations included among others, limiting the authority delegated to certain committees to immaterial matters, amending the board charter to reflect that it operates on a consensus basis and voting thresholds to align with current practices and annual confirmation that board evaluations have been performed.
Further, the IDC has agreed to regular and public reporting on matters of interest, such as Board and sub-committee membership and turnover, significant changes to key policies and charters and the number and quantum of transactions approved per approval threshold level. Such reporting will facilitate monitoring and transparency.
Futuregrowth appreciates the IDC’s proactive and constructive engagement throughout this process, and their stated ongoing commitment to sound and rigorous governance processes and practices.
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Futuregrowth Asset Management has been a leader in transformational and developmental investments for over 20 years via our range of development funds which make a real difference to people’s lives in South Africa while delivering sound investment returns to investors.