In his recent State of the Nation Address, President Ramaphosa emphasised the deep negative impact of corruption on the country’s growth and development, with specific reference to the shocking revelations emerging from the Zondo Commission. The President noted that good progress had been made in rebuilding the law-enforcement bodies, and the implementation of a National Anti-Corruption Strategy.

“South Africans need no reminding that corruption is a cancer that is destroying the fabric of our society, and the recent scandals relating to the procurement of personal protective equipment have driven home how brazen the looting has become. But, at the same time, society is cynical about government’s political will truly to bring malefactors to book,” argues Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).

“Accountability is critical to rebuilding trust in the institutions of state and in government itself. It’s critical that the Anti-Corruption Strategy works and is seen to work.”

The IoDSA urges that government needs to consider the following in order to ensure its anti-corruption strategy actually works:

Is it well designed? “It’s important the programme is aligned with legal requirements and stakeholder expectations—it must deliver accountability in line with what long-suffering citizens want,” she explains. “Equally important, the programme must focus on the key risks to ensure maximum impact, and its results must be rigorously measured and reported. Transparency is the twin sister of ethics and accountability.”

Is it being applied in good faith? With the greatest respect, it is easy to set up initiatives but only few actually deliver. Adequate resourcing and a record of swift action taken against corrupt individuals indicate good faith. It must also be clear that initiatives are in place to make ethical behaviour the default setting across government. These would include a visible commitment to ethical behaviour at the highest echelons of government, comprehensive training throughout the organisation and a well-communicated anti-corruption policy. In a sense, government is the board of South Africa Inc, and so is responsible for setting the “tone at the top” and driving it down throughout the country.

Does it work? Any programme is only so good as its results. Government must commit to actively monitoring how well its anti-corruption programme is working based on a consistent set of metrics, one of which should be the incidence of corruption both in terms of value and number of incidents. “Government needs to ensure not only that that monitoring takes place, but that it reviews the results regularly to identify and remediate any gaps,” Ms Natesan notes.

It’s worth reminding ourselves of how serious the consequences of corruption and unethical practices are. They include lack of societal service delivery, and reputational damage to the country and the government, as well as their leaders.

From a governance perspective, corruption is essentially the opposite of good corporate governance i.e. ethical and effective leadership.

“A corrupt country will find it hard to attract foreign direct investment, inhibiting the growth of a tax base government can use to fund social-upliftment projects. Civil claims by parties who suffered loss as a result of corruption are also a possibility,” Ms Natesan concludes. “Of course, individuals convicted of corruption could face criminal charges as well.”

​ENDS

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Testimony at the Zondo Commission relating to the prepayment of R1.68 billion to Tegeta, a company owned by the Gupta family, provoked strong words from Deputy Chief Justice Raymond Zondo.[1] Dr Simo Lushaba, Facilitator of Director Development Programmes at the Institute of Directors in South Africa (IoDSA), says the whole incident illustrates how seriously directors should approach their duties.

“Justice Zondo suggested that the directors were negligent at best. If we take that line of thought to its logical conclusion, they could be at risk of being sued for damages in their personal capacities,” he says. “Directors need to accept that theirs is a very serious job and that the stakes are high. Their only protection against decisions that are proved to be wrong is that they did discharge their duty of care, and made decisions based on a thorough examination of the facts and in the best interests of the company.”

Dr Lushaba pinpoints the lessons for directors as follows:

Understand your primary duty as a director. When individuals accept a board appointment, they are assuming a duty of care towards the entity, not to whoever appointed them or themselves. Their actions and decisions have to be guided by the interests of the company and its stakeholders.

Apply your mind and ask the right questions. In this case, the trigger phrase was “proposed owners”, which should have prompted directors to question why money for a commodity was not being paid to the existing owners. “In any event, you don’t buy something from the owner of the store, you buy it from the store itself,” he comments. “The most basic question was never asked—who owns the coal and why aren’t we paying them?”

Dr Lushaba emphasises that one of the primary duties of a board member is to ask questions and that there is no such thing as a stupid question. Directors are under an obligation to apply their minds to whatever is before them and to adopt a stance one might call “professional scepticism”.

Be courageous in discharging your duty of care. The fact that no directors dissented when approving this prepayment to “proposed owners” indicates that the board dynamics were out of tune. Directors must have the courage not only to ask tough questions but to dissent when a decision they believe to be wrong is adopted—a good director is an independent thinker.

An important corollary is the importance of diversity. Boards will not generate the necessary quality of questioning if they do not contain individuals with different backgrounds, experience and skills.  

A board is a collection of individuals, not a group and, crucially, directors are held individually responsible for the board’s actions.

Understand the interplay between risk and opportunity. One of the then-directors attempted to portray the board’s action as an effort to secure the supply of a necessary raw material. However, what seemed to be an opportunity hid considerable risk. The same point could be made about risks. “One of a board’s key jobs is to understand the risks the organisation faces and protect it from them,” Dr Lushaba concludes. “Directors cannot just look at opportunities.”
 

[1] News24Wire, “Zondo blasts 'negligent' former Eskom board over R1.68bn prepayment to Gupta entity”, Engineering News (11 February 2021), available at https://www.engineeringnews.co.za/article/zondo-blasts-negligent-former-eskom-board-over-r168bn-prepayment-to-gupta-entity-2021-02-11/rep_id:4136.

ENDS

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The Institute of Directors in South Africa (IoDSA) welcomes the President’s emphasis in his State of the Nation Address on the need for competent individuals to be appointed in the civil service. The President argued that professional civil servants were vital in ensuring effective service delivery and restoring public confidence in the government. However, says Parmi Natesan, CEO of IoDSA, there is an equal need for professionalism on the boards of state-owned enterprises (SOEs) which deliver critical services to citizens and the economy as a whole.

“President Ramaphosa repeatedly emphasised the need for well-trained, professional civil servants and ‘capable, experienced and trustworthy professionals’ in order to ensure effective service delivery,” she says. “But when it comes to board appointments at the SOEs, we have experienced that there is considerable room for improvement. We have frequently seen political appointees failing the organisation—much of what is emerging at the Zondo Commission can be traced to inappropriate board appointments.

“Proper due diligence of board appointments will go a long way towards helping get our SOEs back on track, something that’s critical to rebuilding our economy.”

Given the vital role played by non-executive directors, the IoDSA has long promoted the need for creating a deep pool of professional directors whose competencies are objectively certified and who subscribe to a code of professional ethics.

In this regard, the IoDSA introduced the Certified Director and Chartered Director destinations that provide a framework through which directors can acquire the necessary competencies, and demonstrate that they have them. The IoDSA’s Director Competency Framework allows directors and would-be directors to acquire the skills they need to add value to the boards on which they sit. Holders of these designations also have to commit to lifelong education to ensure that they keep up with developments in the field of directorship, and that their existing skills are kept current and that they acquire new ones as necessary.

“Directorship is a professional like any other, and there is an urgent need to have a way of ensuring that only individuals with the right skills (professional and personal) and ethics are appointed to boards, including SOE boards,” she says. “Professional directors can also be held to account by their professional body and disciplined for deviating from the Code of Conduct they signed up to, making accountability much easier to enforce.”

ENDS

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The testimony of Dikeledi Magadzi, Deputy Minister of Transport, at the Zondo Commission has highlighted the fact that many in Parliament do not fully understand their role and responsibilities, says Advocate Fay Mukaddam, Chartered Director and Technical Advisor at the Institute of Directors in South Africa (IoDSA).

Ms Magadzi’s testimony concerned events in 2016 when she was chair of the Portfolio Committee on Transport. At the time, it was alleged that a R51 billion Passenger Rail Agency of South Africa (PRASA) tender had been rigged. Under her watch, the ANC members of the committee quashed a proposed investigation. During the same period, ANC MPs were instructed to vote against a parliamentary motion to investigate the Guptas and state capture.

Her justification for these actions was that she sat in Parliament only as a member of the ANC: I’m not in Parliament as myself, I represent the African National Congress, and will always ensure that I toe the party line, and that is what I did.” Even more tellingly, she said that even knowing what she knows now about the Guptas and state capture, she still believes that what the party instructed its cadres to do was “correct”.[1]

“Ms Magadzi is not an outlier. Many in Parliament simply do not fully understand the role they have to play,” Advocate Mukaddam says. “This is an issue that goes to the heart of governance in both the public and private sectors: understanding what a leader’s role and responsibilities are, no matter the organisation.”

The problem is common in companies, where directors frequently see their role as one of advancing the interests of the stakeholder groups they represent. This a mistaken understanding, Advocate Mukaddam argues.

“No matter how they are appointed, directors have a duty to act in the best interests of the entity itself, and nobody else. Only then are they able to fulfil their real purpose: exercising oversight over the executive and helping the organisation achieve its stated goals,” she says. “In many ways, Parliament constitutes the board of directors of South Africa Inc, with its committees playing a similar role in respect of various state-owned entities. No matter who puts them in Parliament, MPs and members of oversight committees have a primary allegiance to the country and its citizens as a whole.”

While a far-reaching reform of the electoral system is probably going to be necessary in the long term, she continues, we must focus now on educating our parliamentarians on the basics of governance and what their roles and responsibilities are.

“In effect, we need Governance 101, with the King Report as the essential guide,” she says. “We don’t need new frameworks or position papers—we already have everything we need. We must implement what we have and ensure that those that fall short suffer the consequences.”
​
[1] Jan Gerber, “’I represent the ANC, and I will always toe the party line’—Magadzi tells Zondo Commission”, News24 (8 February 2021), available at https://www.news24.com/news24/southafrica/news/i-represent-the-anc-and-i-will-always-toe-the-party-line-magadzi-tells-zondo-commission-20210208.

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The recent testimony at the Zondo Commission by Dudu Myeni (former Chair of the SAA Board) and Yakhe Kwinana (former Chair of SAA Technical) should be a wake-up call both for directors and the government, says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA). “Directorship is profession like any other and those taking up board seats must have the correct skills combined with independence in order to fulfil their duties,” she says. These fundamentals are:

Duties. The primary duty of directors is to act in the best interests of the company in good faith. In addition, they must act with care, diligence and skill. They are required to understand what skills they need and to acquire them if they are lacking. “This is non-negotiable—one simply cannot serve as a director if one doesn’t understand what the basic fiduciary duty is, and what skills are required,” she argues. “Board members also need other technical competencies that they should acquire.”

Advocate Fay Mukaddam, Chartered Director and Technical Advisor, IoDSA adds: “Based on board evaluations the IoDSA does, it’s clear that many board members haven’t even read the applicable legislation and/ or regulations, or even King IV,” she says. “Having a degree, great technical competence or having filled a senior management role does not necessarily make you a good director.”

Conflicts of interest. Because the conflict of interest is poorly understood, it could not be applied appropriately. For example, it appears to be believed that if an individual declares a conflict of interest, she can simply continue to participate in the matter. The truth of it is that if one has a material interest in a matter, one cannot be objective and must therefore recuse oneself.

Personal risk to the board member. As noted above, board members must execute their duties fully by acting in the best interests of the company with all due diligence, skill and care. If they do not, they expose themselves to enormous risk. They can be held personally liable for decisions taken without due care, and can suffer irreparable reputational damage—or be barred from acting as a director, as has happened to Ms Myeni, who was declared a delinquent director by the High Court earlier this year. 

“Directors should understand how deep this end of the pool is before they accept an appointment,” Advocate Mukaddam says.
​
The solutions to this dire state of affairs are clear. Government must perform due diligence on board appointments to ensure the right combination of skills, knowledge and experience, as well as the ability to exercise independent judgement. Directors should be obligated to belong to a professional body like the IoDSA which can hold members to a code of conduct, and should obtain the professional certifications to act as a director. The Chartered Director (SA) and Certified Director designations certify that an individual has a certain level of skills based on a competency framework and, most importantly, is required to keep those skills current via continuous professional development.
“How much more needs to go wrong before government changes its thinking?” Ms Natesan asks.
 
ENDS

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The Institute of Directors in South Africa (IoDSA) and the International Women’s Forum South Africa (IWFSA) have announced a long-term partnership aimed at developing the next generation of ethical and effective women leadership. The new partnership’s first project is a custom programme for IWFSA’s Young Leaders Connect initiative, the IDEAL Board Leadership Programme. The Young Leaders Connect is an initiative by IWFSA in pursuing its strategic priority of leadership development. The IoDSA designed the IDEAL Board Leadership Programme to help potential and new board members, and those wishing to make themselves available for board positions, acquire the necessary foundational skills.

IDEAL stands for Identify, Develop, Empower, Accelerate and Leadership, encapsulating the aims of the Young Leaders Connect initiative.
 
“The IoDSA has been a strong advocate for greater gender diversity on boards for many years, not least because genuinely diverse organisations perform better and are more profitable. However, sitting on a board in today’s complex socio-economic environment is challenging and directors must have the right skills, hence our drive to professionalise directorship,” says Parmi Natesan, CEO, IoDSA.
 
“The IDEAL Board Leadership Programme will equip tomorrow’s female leaders to take advantage of the real opportunities out there by being able to demonstrate they have the skills boards are looking for.”
 
The IDEAL Board Leadership Programme will consist of three modules that will count towards the IoDSA’s Certified Director (SA) designation. The IoDSA also offers a Chartered Director (SA) designation. Both offer ways for directors to acquire and demonstrate skills falling within the IoDSA’s Director Competency Framework, and thus provide a way to demonstrate holders have the right skills.
 
“We are very excited to have entered into this partnership with the IoDSA, which is aimed at the long-term development of a new generation of ethical women leaders,” says President of IWFSA, Irene Charnley. “As convenor of the King Committee and custodian of the King Reports on corporate governance, the IoDSA is highly regarded both in South Africa and globally. Its championship of a wider pool of properly qualified, professional directors, in particular, makes it an excellent partner in providing a training platform for the Young Leaders Connect programme.”
 
Futhi Mtoba, the Chairperson of IWFSA leadership committee directing the Young Leaders Connect says that the IDEAL Board Leadership Programme is an exciting development. “We see this programme as a great opportunity for our young women to begin acquiring the hard skills they need to make a real contribution to boards in both the public and private sectors. Young women have so much to offer, and a programme like this will empower them to take their rightful place, literally giving them a seat at the table.”
 
Notes for editors
Young Leaders Connect (YLC) focuses on identifying and developing aspiring young women leaders into ethical leaders. The YLC Lead Programme has four components:

• Mentorship and coaching programme
• Entrepreneurship programme
• Board leadership programme
• Digital conversation series

ENDS

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The Institute of Directors in South Africa (IoDSA) has welcomed the news that government officials will have to attend online ethics training as part of a concerted effort to professionalise the public service. However, says Parmi Natesan, CEO of the IoDSA, it must be recognised that ethics is only part of what is needed.

“The Department of Public Service and Administration is to be congratulated on this initiative, but one also needs to be aware that ethics training is not a silver bullet, as the true test will be the resultant practice and enforcement thereof. Ethics has to also be seen as part of a broader governance framework and this kind of training will only yield results if it is complemented by compulsory training in other governance areas,” Ms Natesan explains.

Aside from recommending a broader training approach to include other important governance topics, thought needs to be given to what it takes to create a professional public service. Professional organisations around the globe have certain things in common, two of the most important of which are continuous professional development and a code of conduct to which their members can be held accountable.

“Professionals have to keep up with developments in governance and their area of expertise—nothing stands still. A true professional thus need to commit to continuous professional development provided by the relevant professional body,” she says. “As important, true professionals need to be accountable for their actions, and that’s arguably especially true for public servants. It’s thus important that they sign up for a code of conduct to which they can be held accountable.

“For all these reasons, we would urge the Minister to take an integrated approach in order to build a professional public service successfully.”

She goes on to argue that special attention needs to be paid to the training of leaders within the public service—there is clear evidence that the “tone at the top” influences the culture and attitude of the entire organisation quite profoundly. As the IoDSA has pointed out on numerous occasions, the nomination process for public officials, particularly those within state-owned enterprises, should follow a transparent and rigorous process as outlined in King IV in order to ensure that leaders not only have the right skills and experience but also understand their duties to the organisation.

The IoDSA’s recent paper, “Challenges facing Public Sector Boards”, advocates that leadership appointments should be subject to an objective due diligence process conducted by a competent third party. This is vital because, as King IV emphasises, ethical and effective leadership go together.

“It’s common cause that the public service has a critical role to play in ensuring a capable state that can deliver on its commitments to the citizenry. The move to professionalise the public service is welcomed, but a multi-faceted approach is essential,” Ms Natesan concludes.

ENDS

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A recent tweet made by a director of Cricket South Africa relating to a cancelled sponsorship highlights an issue for South African boards: the risk represented by social media. Social media have become a key communications channel, but they pose particular risks for organisations and especially their directors, says Parmi Natesan, CEO, Institute of Directors in South Africa (IoDSA). 
 
“The bottom line is that directors have to accept that once they take up a board position, they will be seen as representing the organisation in the world of social media. The social media world has its own rules and culture, and there’s no distinction between public/professional and private roles,” she says. “Directors’ duties to act in the best interests of the organisation, with due care, skill and diligence are paramount, and it should never be forgotten that they can be held personally liable for not fulfilling these duties.”
 
Those using social media need to take the time to gain the necessary skills to communicate in an environment in which context is completely absent. Observations that might be unexceptionable in the real world can be perceived quite differently in the online world—and perception is everything in the virtual world. Board members cannot afford not to be proficient in social media themselves, and must give careful thought to their role in the organisation more generally.
 
Because mishaps can cause grave reputational damage in the blink of an eye, social media should be considered in the risk management process with a corresponding policy to manage them, just as is the case with traditional media, Ms Natesan argues. Social media policy and official activity is all too often relegated to the marketing department, and seen as the preserve of younger, more junior staff members. At the very least, the board must ensure that a social-media policy is in place and has been approved by the board, and that all staff members and directors understand what it means for them.
 
A key challenge is that social media often requires swift action, so policies must be carefully crafted to provide a framework within which everybody associated with the organisation can work, with provision made for the rapid vetting of potentially damaging tweets. Ms Natesan recommends that directors should restrict their social media comments to business and financial matters of a general nature and that if they feel there is a specific issue that needs addressing, they should take it to the social and ethics committee, the board or the official spokesperson.
 
“Directors need to be careful that they do not break the bonds of collegiality and confidentiality that are fundamental to an effective board by speaking out on a controversial issue unilaterally,” she says.
 
Many social media policies also fail to provide any framework in terms of which transgressors will be disciplined. It is therefore recommended that social media policies are linked to the IT use policy and the disciplinary code.
 
ENDS

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The recent appointment of former ANC Youth League leader, Magasela Mzobe, to chair the interim board of Umgeni Water has elicited negative comment. Dr Simo Lushaba, Facilitator of Director Development Programs at the Institute of Directors in South Africa (IoDSA), says that more public transparency is needed on these appointments in order to build stakeholder trust and, ultimately, give the appointees the best chance of succeeding in their new positions.

“The appointment of board members and key executives to state-owned enterprises (SOEs) presents a significant governance challenge because these appointments are made by the state as shareholder and not by the accounting authority (board), which would be governance best practice,” Dr Lushaba says.

“King IV’s Sector Supplement for SOEs recommends that ‘The SOE and the executive authority should be transparent regarding the processes followed for the nomination, election and appointment of governing body members.’ If ministers are not transparent about the reasons they appoint people to board or executive positions, the public may jump to the unfortunate conclusion that the appointments are political, especially given what has been going in our SOEs for too long.

“Perception is critical when it comes to building and/ or restoring trust.”

Principle 7 of King IV says that “The governing body [i.e. board] should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.” In its Recommended Practices, the King Report makes it clear that the governing body should ideally have the responsibility for ensuring it has the right composition of members to discharge its duties.

However, SOEs represent a special case because their founding legislation typically gives the government as sole shareholder the power to appoint board members and, often, senior executives. Consequently, in its Sector Supplement for SOEs, King IV makes the recommendation noted above that the governing body/ accounting authority and shareholder should work together and in a transparent way to follow governance best practice as closely as possible.

“If this course is not followed, the board is placed in the untenable position of being held accountable for the organisation’s performance but with little or no control over who sits on the board or in the executive suite,” Dr Lushaba points out. “The IoDSA’s recent paper, ‘Challenges facing public-sector boards’, identifies board composition as a key issue for SOEs and, of course, the position of chair is particularly important. In this instance, the Minister’s spokesperson has said that this appointment was made in line with King IV, but in fact this is questionable. As noted, King IV’s Sector Supplement for SOEs highlights the need for transparency and collaboration between the shareholder and board, and simply saying the Minister took King IV into account is just not good enough.

“I would respectfully remind Ministers that King IV’s principles are framed in terms of outcomes, not boxes to be ticked and that the reaction to this particular appointment shows that the desired outcome of restoring trust and legitimacy may not have been achieved. This is a great opportunity to lead from the front and set the tone for a new and improved approach to SOE governance based on achieving the outcomes set out in King IV.”

ENDS
 
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The furore around the awarding of a contract to a politically connected individual’s company shows that government has not yet accepted its role as custodian of good governance for South Africa Inc—and the extent of public disenchantment with perceived corruption. That this flouting of basic governance principles around conflicts of interest was shown by people in the highest echelons of government in a matter directly related to a severe national crisis was especially worrying, says Advocate Fay Mukaddam, Chartered Director and Technical Advisor at the Institute of Directors in South Africa (IoDSA).

The scandal involves the awarding of a R125 million contract for personal protection equipment to a company owned by Madzikane Diko, the husband of the Presidential Spokesperson, Khusela Diko. The Dikos are close friends of Gauteng Health MEC Bandile Masuku, who is leading the province’s response to COVID-19, and his wife, City of Johannesburg MMC, Loyiso Masuku.

“That this tender for vital personal protective equipment was bid for, and granted, despite a clear conflict of interest is hugely disappointing, and points to a cynical disregard for the most basic rules of governance,” she says. “Leaders cannot take refuge in claims of ignorance or that they did not think things through: the rules are very clear here, and our leaders are expected to follow them. Following proper due diligence processes is critical when awarding tenders, of course, but when these are short-circuited as they were because of the urgency, we have to rely on leaders to do the right thing.”

Vikeshni Vandayar, Executive: Governance and Corporate Services at the IoDSA, says that public servants need to recognise that they have a duty to act in the best interests of SA Inc., and that government’s money derives directly from taxpayers and they thus have a duty to ensure it is managed effectively to the betterment of South Africa Inc and its citizens.

“One could say that public servants have what amounts to a fiduciary duty to the public when it comes to disbursing public funds. Government is ultimately the custodian of governance for the country as a whole— the improper application of COVID-19 funds is having a direct and calamitous effect on frontline medical staff and their patients,” she says. “If a board does not provide ethical leadership and set the tone, the whole company will suffer; the same is true of the state. An incident like this compounds the socio-economic crisis we are facing, and directly impacts government’s credibility around service delivery.”

Advocate Mukaddam says that while it must be recognised that people have to earn a living, perception was important. One of the trade-offs inherent in good governance is that those with connections to state officials may not enter into business relationships with the state. These conflicts of interest must not only be identified by role players, but they also need to be resolved satisfactorily; it is important, too, that transgressors are seen to be held accountable.
​
“It’s common cause that corruption has infected the body politic to an unbelievable extent, with grave consequences for the social compact generally, and for service delivery in particular. One can take some heart from the fact that the ANC has forced Ms Diko and both Masukus to take a two-week leave of absence and appear before the party’s Integrity Committee, while the Chair of SCOPA is calling for a criminal trial,” she says. “Swift action will help, but the credibility of the provincial and national government, and particularly their response to the pandemic, has been damaged.

“Poor governance and unethical leadership have consequences.”

ENDS

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