Johannesburg - A strong unequivocal commitment to fiscal sustainability announced by the Finance Minister in his Medium-Term Budget statement is to be welcomed, but the decisive test is always seeing words put into action and for government not to waver from its stated path. The Institute of Directors South Africa (IoDSA) says boardrooms around the country should welcome Minister Enoch Godongwana’s sentiments on long-term growth, narrowing the budget deficit and stabilising the worrying trend of rising debt. Notes IoDSA, CEO Parmi Natesan, “In order for business to thrive in South Africa and confidence to increase, strong messages like this assist and go a long way to restoring confidence. However, promises without swift action are hollow and we now look forward to seeing how government plans to deal with the debt issue that remains at worryingly elevated levels. We are also buoyed by the Minister’s concerns over unemployment but again we need to see more detail on the solve.” Natesan says a call for faster implementation of structural reforms to unlock greater private sector investment, economic growth and job creation is also a welcome move, particularly when it comes to private sector participation. “Our members tell us their companies are prepared to act and participate more robustly if over-regulation and red tape are reduced which would then create a smoother and more efficient operating environment.” Natesan says a critical aspect of big infrastructure spend is fiscal accountability. “Big capital projects always carry high potential for fraud and malfeasance. Now more than ever we need the right governance protocols in place and then implemented without fear or favour to make sure allocated funding is responsibly managed and accounted for.” ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in South Africa Company Page
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One of the most persistent challenges relating to governance is the tendency to focus on form rather than substance. In line with King IV, it’s time finally to accept that governance is not an end in itself, but a tool for delivering outcomes, says Parmi Natesan, Executive: Centre for Corporate Governance at the Institute of Directors in Southern Africa (IoDSA) and Professor Deon Rossouw, CEO of The Ethics Institute.
“Organisations only exist in order to deliver on their purpose and, similarly, governance only exists in order to help them do that,” says Professor Rossouw. “Governance got a bad name because people persist in seeing it in terms of compliance, structures and policies. Of course, these things are important only as tools to help deliver outcomes.” This focus on outcomes is very much a feature of King IV, which was designed to link governance practices with four governance outcomes, notes Ms Natesan. “The critical point is that structures need humans to give them life, to use them to deliver the desired results. Governing bodies must therefore ensure that the governance structures are indeed achieving the desired governance outcomes,” she says. King IV identified four governance outcomes: an ethical culture, good performance, effective control and legitimacy. Boards can therefore measure whether the structures they have put in place, and the way they are being used, are effective by measuring the extent to which these outcomes are being attained. Clearly, then, the personal qualities and actions of the members of the governing body are critical in ensuring that the governance objectives are achieved, that substance follows form. King IV retained the four cardinal values that should underpin good governance—responsibility, accountability, fairness and transparency (RAFT)—but added two further ones: integrity and competence. This recognises that governance structures will only be valuable if they are used by people who are prepared to put their own interests aside and act ethically in the best interests of the organisation, beyond mere legal compliance, and who have the requisite knowledge both of the organisation and the industry in which it operates. “It is important to recognise that governing-body members have to cultivate these characteristics in order to make them instinctual,” Professor Rossouw argues. “People aren’t born with integrity, competence or any of the others, they have to be nurtured.” As with any enterprise involving human behaviour, moving from form to substance is no easy task. Some guidelines for assisting are: • Select members of the governing body carefully. It all begins with selection, says Professor Rossouw, so nomination committees must actively seek people with these cardinal virtues. • Orient new members properly. Once selected, it is vital that new members of the governing body are properly educated about what their new role entails, and continually reminded that they are there primarily to serve the best interests of the organisation, not those of any particular stakeholder. • Structure meetings carefully to ensure that members have the right types of conversation, and do not confine themselves to ticking the boxes. Courage becomes important here—not just moral courage but also the courage to take the right risks. • Hold members of the governing body accountable. There are several elements to this. First, peer pressure must be harnessed to create a positive atmosphere in which members continually assess their own performance and that of their fellow members. Courage will also be at a premium here but it is equally important the board is truly diverse, says Ms Natesan. This is needed to overcome the “buddy mentality” in addition to measures like gender, race and age. At the same time, though, it must be recognised that self-appraisal is no substitute for the stakeholders assessment of the extent to which the four governance outcomes have been achieved. Ms Natesan stresses that there is not necessarily more unethical behaviour now, just that it is more visible—something she sees as positive. She argues that, going forward, how governing bodies disclose about governance and its results will become more and more important. The disclosure must convince stakeholders not just that the right governance structures are in place, but that they are delivering results, she says. Looking forward, adds Professor Rossouw, as we move away from compliance to reporting on integrated performance, the triumph of substance over form will be shown when it is clear that the organisation has not only achieved its purpose in the past, but is well-positioned to continue achieving it into the future. ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, juanita@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page In his much-lauded State of the Nation Address (SONA), President Cyril Ramaphosa devoted considerable attention to the challenge of rooting out corruption in government. “This is the year in which we will turn the tide on corruption in our public institutions,” he declared.
In this regard, President Ramaphosa made two key announcements in SONA. Base SOE board appointments on competence The first is that board appointments in the public sector will be based on “expertise, experience and integrity”—and not, by implication, on political connections or amenability to corruption. “This is very good news; the IoDSA has consistently pinpointed the appointment of unskilled people to boards and a lack of due diligence on those appointments, as key weaknesses in our state institutions,” says Parmi Natesan, Executive: Centre for Corporate Governance at the Institute of Directors Southern Africa (IoDSA). “In July last year government gave an undertaking to finalise a framework for board appointments as part of National Treasury’s Inclusive Growth Action Plan. The IoDSA made several recommendations at that stage, and we hope the President’s promise means the framework will be finalised and implemented. We are here and ready to help.” Natesan points out that the ongoing tribulations at most state-owned institutions, as well as within the private sector, strengthen the IoDSA’s argument that building a cohort of professional directors is imperative in order to strengthen our economy’s ability to grow. To that end, the IoDSA has formal Chartered Director (SA) and Certified Director designations that provide a framework for directors to acquire and demonstrate the specialist skills, experience and integrity needed to discharge their duties with mastery. Remove SOE board members from procurement roles Second, the President specifically promised to remove board members from any role in procurement, something that has become commonplace in some state-owned enterprises. Comments Ms Natesan, “To ensure a well-governed, ethical organisation, it is essential that there is role clarity: directors must focus on governance and not get involved in operational matters like procurement. Doing so compromises their independence. Directors have to have unfettered discretion in making decisions in the best interests of organisation—they cannot be influenced by other considerations, such as who should get a certain contract.” Natesan says that boards must develop ways of discharging their oversight role that do not cross the line into operational involvement, especially in areas like procurement, which is a high-risk area for public entities. These might include obtaining assurance from internal and external audit, ensuring that the organisation complies with relevant legislation such as the Public Finance Management Act, and instilling an ethical culture in the organisation through value-based leadership and a code of conduct—backed up by zero tolerance for unethical behaviour. Other tools would include proper oversight by the social and ethics and audit committees, and ensuring that the organisation has robust procurement (and other) policies and procedures. Lead by example Given the ultimate responsibility of governing bodies for the governance of ethics, it is critical that they themselves act ethically. “The essential first step to achieving this laudable goal is to instill leadership that is both effective and ethical (as espoused in the first principle of King IV) across all sectors. If this does not happen, it is pointless to implement governance in a tick-box approach. “The link between ethical and effective leadership is one of the distinguishing features of King IV, and I think recent events have shown us the fundamental truth of this.” The IoDSA has consistently argued that ethical institutions in both the public and private sectors alike are created from the top down, and that an organisation’s directors bear the main responsibility for ensuring that ethics are embedded in its DNA. ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, juanita@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern African Company Page Directors’ duties are largely misunderstood. Recent media coverage of Steinhoff, EOH and Multichoice bring these duties directly under the spotlight.
Parmi Natesan, Executive: Centre for Corporate Governance at the Institute of Directors in Southern Africa (IoDSA), says that in South Africa, directors’ duties as set out in our common law and in the Companies Act include the fiduciary duty to act in good faith and for a proper purpose in the best interests of the company and also acting with due care, skill and diligence. Directors could be subject to criminal sanctions like fines, jail time, and even disqualification from serving as a director in future, if they have failed to perform their duties. However, these duties and related potential liabilities should not prevent directors from taking the necessary bold decisions that are often required to drive growth and success. Business is ultimately all about taking risk in order to gain reward. Equally, it is accepted that directors can take decisions that turn out to be wrong or result in loss. What is commonly known as the Business Judgment Rule essentially outlines how directors can defend their decisions if they are able to demonstrate that they satisfied the obligations of acting in the best interests of the company and with the required care of skill, in that they; took reasonably diligent steps to be informed about the matter and access the correct information, had a rational basis to believe that their decision was in the best interests of the company at the time, and that they had no personal financial interest in the matter. In order to be better informed, non-executive directors, who are not involved in the day to day business of the organisation particularly in large and complex organisations such as those referred to earlier, rely heavily on assurances from management, internal audit, and external audit as well as board committees such as the Audit Committee. They must, however, take reasonable steps to ensure the information is accurate and that they understand it prior to making any decisions. Apart from the law, the governance code in South Africa, King IV, sets out the expected governance best practice. In relation to the allegations at the companies in question, King IV contains specific principles and practices around ethical conduct, good corporate citizenship, compliance with laws, rules, codes and standards, fraud, corruption as well as risk and tax governance. It further outlines oversight and monitoring of implementation and execution by management as one of the four primary governance roles and responsibilities of the board within the dynamic business cycle of the organisation “Good governance does not exist apart from the law and a corporate governance code that applies on a voluntary basis may also trigger legal consequences,” says Richard Foster, IoDSA facilitator. “A court considers all relevant circumstances in determining the appropriate standard of conduct for those charged with governance duties, including what the generally accepted practices are. Given that the provisions of voluntary codes of governance find their way into jurisprudence and become part of the common law, failure to meet an established corporate governance practice, albeit not legislated may also invoke liability,” says Foster. Natesan says that King IV is a useful reference point for governance best practice, if it is applied as intended – i.e. meaningful application in a value adding manner to achieve certain outcomes. “An organisation can tick all the boxes, have all the structures, processes, and documents in place, but that does not mean they have good governance.” In King IV, good governance is defined as ethical and effective leadership that achieves the governance outcomes of ethical leadership, good performance, effective control and legitimacy. In a recent BizNews article, Nic Frangos is quoted as saying, “If you have a CEO with no integrity, King Ten wouldn’t suffice. On the other hand, for someone with the integrity of an Adrian Gore (CEO of Discovery), even King One isn’t required.” A few of the directors serving on the boards of these companies are members of the IoDSA. However, the institute is a voluntary body that has no statutory power to appoint, remove or take punitive action against directors, says IoDSA CEO Angela Cherrington. This responsibility lies with regulators, the courts and other statutory bodies like the CIPC. “The IoDSA can nevertheless revoke membership from individuals if they are found to be in contravention of our member code of conduct. The same applies to those who carry the IoDSA’s Chartered Director SA or Certified Director professional designations. There are currently no Chartered Directors SA on the boards of Steinhoff, EOH and Multichoice.” ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, juanita@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa The ongoing parliamentary enquiry into the SABC has eluded to the suggestion that one of the causes of the public broadcaster’s poor performance was a board that did not possess the right mix of knowledge, skills and experience to be able to discharge its duties effectively. Parmi Natesan, Executive, Centre for Corporate Governance, Institute of Directors in Southern Africa (IoDSA), says that the investigation’s findings make a strong case for the benefits of professionalising directorship.
“The parliamentary enquiry into the SABC demonstrates that the quality of governance exercised by the board has a knock-on effect on a company’s operational effectiveness,” Natesan says. “It’s also clear that board members must have certain knowledge, skills and experience in order to fulfil their responsibilities. To give one example, recent media reports indicate that some of the board members did not properly understand the Broadcast Act, and thus were not in a position to ensure the legal mandate was fulfilled. “However, board members cannot claim ignorance as an excuse, and the onus is on them to be properly informed prior to making decisions.” This kind of situation can be avoided if board members are properly inducted onto the board, and proactively expand their knowledge of the company, the market/legislative regime in which it operates and developments in corporate governance. But they also need to have a good understanding of what their duties and responsibilities as directors are. Angela Cherrington, CEO of the IoDSA, says that because markets change so rapidly and are increasingly competitive, boards are under increasing pressure to maintain the right levels and types of skill, experience and diversity to keep the company on the right course. “Directors play a hugely important role, and their job is becoming much harder. The case for a new breed of professional directors is growing stronger by the day. Companies would be able to assess objectively what skills individuals have, and thus whether they would complement the existing board’s skills. As professionals, directors would also have to commit to a formal, ongoing programme of professional development,” she explains. “Professional directors would be bound by a code of conduct enforced by a professional body.” In response to this growing need in corporate South Africa, the IoDSA launched a professional designation, Chartered Director (SA), or CD(SA). According to Cherrington, this initiative recognises that directors require specialist skills, experience and integrity alongside their purely business skills. The CD(SA) designation also gives directors a way to demonstrate their mastery of the director competencies, and to enhance them through a formal continuous professional development programme. They would have to subscribe to a code of professional ethics. In addition, the IoDSA will soon be re-launching Certified Director, an interim designation on the pathway to CD(SA). This re-introduction aims to capture those individuals who do not yet have the board experience to enter the CD(SA) process, but who have the knowledge necessary to start their directorship journey. The IoDSA administers, and is the custodian of, the both designations. “We were delighted to see that PWC’s Non-executive directors: Practices and remuneration trends report for 2017 predicts that ‘non-executives will become specialised professionals’ in order to meet the challenge of increased business risk,” Cherrington concludes. “The CD(SA) designation provides a framework against which directors can be measured and grown, and it will increasingly become the gold standard for directors in both the public and private sectors.” ENDS MEDIA CONTACT: Cathlen Fourie, 082 222 9198, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa Parmi Natesan, Executive: Corporate Governance on behalf of the Institute of Directors in Southern Africa (IoDSA) has become a member of the 30% Club Steering Committee. Founded in Britain in 2010, and active in South Africa since 2014, the 30% Club aims to achieve a minimum of 30 percent female representation on the boards of listed companies. The Club seeks to harness the influence of influential board members to make gender diversity a strategic initiative. “The 30% Club does not believe that mandatory quotas are the right approach—we focus on catalysing sustainable change through persuasion, and by demonstrating the value that diversity can bring to the boardroom,” says Colleen Larsen CE of Business Engage, a consultancy focused on gender mainstreaming and the custodian of the 30% Club in Southern Africa. “Our approach is a positive one, and it is working.” Larsen says that the drive for gender parity on boards is underpinned by companies’ need to access the best talent; actively recruiting female directors ensures a deeper, broader talent pool for them. Having solid female representation on the board also means that companies are better equipped to relate to the broader stakeholder groups that are a feature of the business world now. Research by McKinsey shows that better gender balance on boards brings companies closer to their employees, shareholders and stakeholders. In fact, a European Commission study suggests that 58 percent of companies that have implemented diversity programmes have realised better employee motivation, while 57 percent have improved customer satisfaction and 69 percent have noted an improved brand image. Women are the driving force behind more than 70 percent of purchasing decisions. The McKinsey research has also established a correlation between a certain level of gender diversity and financial performance. The name of the Club alludes to the presumed critical mass required to change boardroom culture and dynamics, and to begin achieving the benefits of gender diversity. “One big challenge is that board appointments still tend to be made from within the current board members’ own networks, so a conscious effort has to be made to open up the net and look beyond the ‘old boys’ network’ to find aspiring female candidates,” Natesan says. “The other side of the coin is that those women need to be properly equipped to deliver value on boards and that’s where the IoDSA plays a big role. Our director development programmes, based on our Director Competency Framework, and our Chartered Director (SA) designation, offer prospective female directors a way to demonstrate their competence for boardroom positions. Membership of the IoDSA also provides the invaluable opportunity for networking with like-minded senior business leaders as well as the ability to access the latest governance thought leadership in order to keep up to date with date with developments affecting directorship.” ENDS MEDIA CONTACT: Cathlen Fourie, 082 222 9198, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group The Minister of Finance, Pravin Gordhan, has recently renewed his calls for a new board to be appointed at South African Airways (SAA). His comments come as the national carrier’s financial statements are delayed, owing to the Treasury not providing the guarantees needed to convince its auditors that it is a going concern. Minister Gordhan is quoted as stating that the guarantees will only be considered once the airline has a new board and executive team. This‚ Gordhan told a business breakfast‚ would require a “whole new board” of “credible people… with the right balance of skill and exposure”. According to Parmi Natesan, Executive: Centre for Corporate Governance at the Institute of Directors in Southern Africa (IoDSA), “The IoDSA’s Board Appraisal Benchmark Study shows that public sector boards perform less well than those in the private sector. One of the reasons for this, sited by public sector board members themselves, is that board members are often political appointees, and thus lack the necessary knowledge, skills, experience and independence to fulfil their roles adequately.” The IoDSA’s Board Appraisal Benchmark Study concluded that board composition is probably the single most important governance factor in respect of an organisation’s future success. Interviews with members of these boards indicate that key challenges include the fact that incorrect criteria are used in appointing board members, lines of accountability are not clear, and a lack of industry knowledge resulting from the high turnover of ministers, MECs and directors. Need for professional directors “When it comes to appointing new members to the SAA board, it would be wise to ensure they have the correct knowledge and skills—public-sector directors have a tough job and the company’s performance is dependent on their competence,” Natesan says. “Directors generally have such an important role to play, and the issues they face are so complex, that a new cadre of professional directors is required.” In response to this need, the IoDSA has introduced a formal professional designation for directors, the Chartered Director(SA) or CD(SA). In addition, a structured pathway has been designed to enable directors/aspiring directors to acquire the director competencies they need to complement their existing business skills whilst working towards the designation. The CD(SA) designation also enables directors to demonstrate objectively their fitness to serve on a board, and provides a vehicle for continuing professional development. “While the pool of CD(SA)s is still relatively small, the pathway and ultimate designation should be used as a benchmark for competency to serve as a director in South Africa,” says Natesan. “If SAA is to turn the corner, it needs board members with the right knowledge, skills and personal competencies; and a clear understanding of their responsibilities to the organisation, to the state and, ultimately, to the citizens.” ENDS MEDIA CONTACT: Cathlen Fourie, 082 222 9198, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group Directors feel more negative than positive about the local economy, this according to the first edition of the Directors’ Sentiment Index™ Report, just released by the Institute of Directors in Southern Africa (IoDSA). South African economic uncertainty was listed as their top challenge affecting business by the overwhelming majority of the respondents, with exchange-rate fluctuations the next biggest concern. The impact of broad-based black economic empowerment on business and the declining credit rating of the Republic just came in ahead of social and political unrest. By contrast, the economic health of its major trading partners in the developed world are less of a concern, although sentiment remains negative. Other key results from the survey include: * In the main, directors are negative about business conditions, with the impact of red tape and the government on business attracting the most negative ratings. * On a positive note, directors are largely optimistic about the ability of good governance practices to add value to the organisation. * Unethical behaviour (bribery and corruption) are the primary governance challenges facing industry, closely followed by a lack of sustainable thinking and a lack of understanding of the overall benefits of governance. * As regards directorship in South Africa, directors are more positive than negative, particularly with regard to the expected impact of continuous professional development on the board. The latter was particularly evident in the public and non-profit sectors, where positive expectations relating to this factor were significantly higher as compared to the total sample. “The Directors’ Sentiment Index™ research will be conducted annually —over time, we believe it will become a useful barometer of how a broad section of corporate leaders across the private, public and non-profit sectors view the general business climate,” says Parmi Natesan, Executive: Centre for Corporate Governance, IoDSA. “What our corporate leaders think impacts society as a whole, and needs to be understood.” The survey was completed online by 338 members of the IoDSA’s database as well as a specified sample of 103 non-members drawn from a research company’s national panel. The respondent base was 75 percent male and 25 percent female, across all ages—35 percent fell into the 55-plus age group. Seventy-eight percent were executive directors, and 22 percent non-executives. Download the full report by visiting http://bit.ly/DirectorsSentiment ENDS MEDIA CONTACT: Cathlen Fourie, 082 222 9198, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group The hourly rates for non-executive directors serving on boards of various sized companies are similar, but the hours required to effectively perform duties differ significantly, which impacts the total quantum. This is according to the fourth annual Non-Executive Directors’ Fees Guide launched by the Institute of Directors in Southern Africa (IoDSA) in conjunction with EY. The Guide is designed to give companies a guidance for setting non-executive directors’ fees, the time commitment, and number of meetings appropriate to their specific needs. The Guide also indicates the average size of the various board committees. Other important and useful information includes the factors driving fee increases for non-executive directors, supplementary fees, expenses and/or benefits provided for them, and how companies structure fees for their board members. “Non-executive directors have a critical governance role to play, and they bear the same level of risk as executive directors in terms of the Companies Act. The conversation around the fees should therefore never overshadow the focus on the bigger picture – appointments resulting in a balanced and competent board,” says Parmi Natesan, Executive: Centre for Corporate Governance at the IoDSA. At the most general level, she notes, non-executive directors are chosen to provide objective criticism and advice, but they are also valued for the business experience they bring to the board – experience that could help make the company’s success more likely. Increasingly, too, directors with specific skills are sought to complement the skills already offered by other directors, both executive and non-executive. “Choosing, managing and rewarding non-executive directors with the right skills is essential to creating boards that have the right mix of skills to make a difference,” Natesan says. “To attract the right individuals, therefore, companies need to be sure that they are paying competitive rates – and receiving good value from their non-executive board members.” Natesan points out that non-executive directors’ fees are not intended simply to cover their attendance at meetings, but also the time commitments for preparation and follow up as well as to stay up to date with developments within the company. “The Guide will help directors and potential directors to benchmark these time commitments. It will naturally also help Boards to propose realistic and competitive fees for shareholder approval,” says Ray Harraway, director at EY and Chairman of the IoDSA’s remuneration committee forum. “A company’s directors are the ultimate custodians of the shareholders’ investment and their important role is now well regulated. In parallel, all directors are vulnerable to risk and liability– companies need to reward them appropriately for the increased time and effort the role demands. Benchmarking is an essential tool in doing so, and thus in creating an effective board.” The Guide can be downloaded from http://bit.ly/NEDfees2016 ENDS MEDIA CONTACT: Cathlen Fourie, 082 222 9198, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group The Institute of Directors in Southern Africa (IoDSA) welcomes the proposed guidelines for reforming the country’s state-owned enterprises (SOEs) recently released by government. Parmi Natesan Executive, Centre for Corporate Governance at the IoDSA comments: “This initiative is most welcome as key parastatals provide the vital enabling environment for economic growth. The IoDSA has in the past noted that many of the challenges currently experienced by SOEs can be traced to inadequate governance.” As highlighted in a recent article, much of the success of Singapore’s public sector is attributed to its adherence to strict governance guidelines. [1] Board performance is strongly linked to organisation performance, which is why both King III and the Companies Act place such emphasis on governance and the function of boards, Natesan points out. Natesan highlights some of the key governance issues for SOEs, as previously highlighted by the IoDSA and that now form part of the government’s reform plan: Maintain the separation of roles Perhaps one the key causes of SOE malfunction is the undue interference of the state in the running of SOEs. This includes short-circuiting the process for board and executive nominations, and issuing instructions to boards that are based on political rather than economic grounds. “If boards are to be accountable for the performance of the SOE, then they have to have the freedom to exercise their collective judgement in its best long-term interests,” she says. “The shareholder must, of course, spell out what the goals of the SOE are, but then it must allow the board and executive management team to do their jobs. The roles for each player need to be better understood and adhered to.” Ensure boards have the right capacity Natesan points out that boards need to have the right mix of knowledge, skills and experience or they cannot perform their strategic and oversight functions adequately. “Making appointments on political grounds alone has been a recipe for underperformance at best, and disaster at worst. SOEs have a unique economic and developmental role, and that must be incorporated into the skills matrix that guides board composition”, she says. Natesan points out that South Africa does have a shortage of professionally qualified and experienced directorial talent. The IoDSA has already put in place a multifaceted plan to grow the talent pool by offering training related to the 20 competencies of its Director Competency Framework. This Framework will enable directors ultimately to achieve the professional Chartered Director (SA) designation. The IoDSA also offers associate membership to allow up-and-coming directors to upskill themselves and build their networks. Board performance must be evaluated regularly Evaluation is the only way for the state, as the shareholder, to assess whether the board is operating optimally, and to identify areas of improvement. Independently facilitated board evaluations provide the board itself, as well as the state as shareholder, with an objective understanding of how well the board is functioning, and what governance areas need to be addressed. “Governance is receiving such attention globally because it improves performance,” Natesan concludes. “South Africa is a leader in this field—let’s hope that government finally benefits from our home-grown expertise to get our SOEs back on track.” ENDS MEDIA CONTACT: Cathlen Fourie, 082 222 9198, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group [1] Greg Mills, “The profit motive: What Singapore can teach Pretoria about business”, Daily Maverick, 15February 2016, available at http://www.dailymaverick.co.za/article/2016-02-15-the-profit-motive-what-singapore-can-teach-pretoria-about-development/#.VsQ9qvJ97ct. |
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