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

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

The appointment of the Presidential State-Owned Enterprise Council should be welcomed. A key area of its focus should be the governance challenges faced by SOEs.

By Parmi Natesan, CEO, Institute of Directors in South Africa (IoDSA) and Dr Simo Lushaba, Facilitator of Director Development Programs, Institute of Directors in South Africa (IoDSA

On 11 June, the Presidency announced the appointment of the Presidential State-Owned Enterprise Council (PSEC) to support government’s efforts to “reposition state-owned enterprises as effective instruments of economic transformation and development”. The Council’s mandate, says the release, “…includes strengthening the framework governing SOEs including the introduction of an overarching Act governing SOEs and the determination of an appropriate Shareholder Ownership Model”.

We see this decision as a milestone in the vital process of addressing the complex governance challenges faced by SOEs.

Over the past few decades, the effects of SOE malfunction have become clear. There is consensus that a lack of effective governance lies at the root of the failure of our key SOEs; this point was recently reiterated most forcefully in the judgement delivered by Judge Ronel Tolmay in the Dudu Myeni case.

However, this generalised acceptance that governance is a challenge for our SOEs needs to be informed by a more detailed understanding. The IoDSA has considerable experience in this area, having conducted governance training, board evaluations and governance advisory work at SOEs over several decades. Our paper on “Challenges facing public-sector boards” distils that experience.

Blurred roles
One of the most intractable challenges is evident from the text of the Presidency’s announcement quoted above: the role of SOEs in supporting government policy and the creation of an appropriate Shareholder Ownership Model. Unlike private corporations, SOEs have one shareholder. The shareholder (Government represented by the relevant minister) has all the power, and can often act unilaterally in making appointments and in forcing decisions that do not necessarily advance the interests of the SOE in the fulfilment of its mandate.

This upsets one of the fundamental girders of good governance as set out in the King Reports on Corporate Governance: that the directors are ultimately responsible for the strategy and governance of the organisation, and that the board appoints the executives and holds them accountable. Public-sector boards thus sometimes find themselves responsible for crucial governance decisions like executive appointments despite having little or no control of the appointment process.

More specifically, this fundamental governance weakness can be seen in two key challenges identified in our paper.
The first of these is a lack of role clarity when it comes to the relationship between the board, management, and the shareholder. Often, the shareholder exploits its dominance to take too direct a role in the overseeing of the organisation. Thus, we often find that SOE boards show undue deference to an assertive shareholder and are unable to fulfil their duties and exercise oversight independently.

Another consequence of shareholder overreach is that CEOs frequently feel beholden to the minister, who appointed them, rather than to the board.

A related issue is the nomination of directors to SOE boards by stakeholder groups; such directors frequently perceive their role to be to protect the interests of the stakeholders that nominated them rather than discharging their duty to the SOE itself.

One solution is for the proposed overarching SOE Act to set out a workable governance model, and place limits on the powers of the shareholder. This act could be the arbiter of good governance for the public sector. King IV, and especially its public-sector supplement, offers good advice about how to solve the governance conflicts in the public sector and would form a useful resource when drafting this act.

Finding the right people
Directors carry onerous responsibilities and potential liability under the Companies Act and common law. Board composition is always a key determinant of the board—and thus organisational—performance. Given the uniquely difficult challenges inherent in public-sector directorship alluded to above, the calibre and skills of the individuals selected for these boards is critical.

Industry skills and experience are obviously criteria that need to be considered, but directors also need a deep understanding of governance and how it works. Personal qualities are also vital: directors need to be courageous enough to look behind the façade and courageous enough to speak unpopular truth, they have to be ethical people whose conduct embodies the ethics that should be entrenched within the whole organisation.

Directors are often intimidated by the overwhelming authority of the shareholder and its representatives and express fear of the reprisals that could result from speaking truth to power. Mechanisms to protect those promoting good governance and ethical conduct must be established if SOEs are to be reliably well-governed.

All too frequently, nominations to the boards of SOEs are made directly by the shareholder, and sometimes other stakeholders, without taking the necessary qualities and skills into account. The nominations process for board vacancies is critical and should be governed by the proposed act. The act also needs to address the issue of fixed-term appointments, which may see many members of an SOE board being “rotated” at the same time, resulting in a loss of institutional memory and an interruption in governance continuity.

In view of the expanding portfolio of skills and competencies directors require in an extremely challenging business and social environment, not forgetting the imperative that directors hold to the highest ethical standards, the IoDSA has been championing the professionalisation of directorship for some years. Our two certifications, Chartered Director SA (CD(SA)) and Certified Director (Cert Dir) offer a way for individuals to demonstrate that they have the necessary skills to discharge a director’s duties and responsibilities. In addition, those holding these certifications are bound by the IoDSA’s Code of Conduct and can be disciplined in terms of it.

Critically, and in common with all professional designations, Chartered and Certified Directors must undertake continuous professional development to ensure that their skillset remains relevant.

The PSEC has its work cut out for it and we wish it well. We hope it will call on the IoDSA and other governance and ethics bodies to help it put the necessary governance principles in place to get our SOEs back on track.

ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

The Institute of Directors in South Africa (IoDSA) has released a research report investigating the processes for recruiting, selecting and appointing non-executive directors in South Africa. The report is structured to offer practical assistance to prospective non-executives who want to understand what organisations are looking for, and what the processes leading up an appointment are. It also offers guidance for nominations committees.
 
Dr Ven Pillay, an IoDSA member and the main author of the report, says that the processes by which organisations fill non-executive board positions need to be made more transparent, especially when selecting independent non-executive directors. “The place to start is the nomination committee, which has a critical role to play in ensuring the credible composition of the board through an open, transparent and formalised appointment process; a process that needs to be adhered to without undue influence from dominant members of the board or executive, political parties, or anyone else who seeks to have a strong influence over the decisions of the board” she says.
 
A key finding of the report is that organisations still rely heavily on internal networks to source non-executive candidates: 75% of respondents use the current board’s network, while 48% rely on personal recommendations from the executive committee or other trusted sources.
 
It seems that boards continue to favour this approach because of the need to ensure a good cultural fit but it makes it hard for them to achieve genuine diversity.
 
“Board appointments are generally understood to be unattainable without the support of influential social and/or political networks; the lack of access to these networks creates a barrier for new entrants who may have a meaningful contribution to make to the effective functioning of a board,” Dr Pillay comments. “There is a new cohort of potential directors waiting in the wings, and companies must seek out and appoint active, independent, ethical, knowledgeable and skilled directors who exhibit diversity of thought and experience, and demonstrate courage in the board room. None of these qualities are negotiable!”
 
Vikeshni Vandayar, Executive: Governance and Corporate Services, IoDSA, says that the research should be seen within the context of the IoDSA’s ongoing efforts to improve governance in South Africa and to create a bigger pool of qualified candidates for non-executive roles. 
 
“As the Dudu Myeni case shows, the quality of an organisation’s non-executive board member has a direct impact on its sustainability. This report goes a long way towards unpacking what boards are looking for and how they go about filling these positions, and it is complemented by the IoDSA’s one-day training ‘So you want to be a non-executive director’. In response to demand from our members, we will also soon launch one-on-one coaching for would-be non-executive directors,” Ms Vandayar says.
 
The IoDSA NED Nomination Process Research Report is available at here.
 
ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

The Institute of Directors in South Africa (IoDSA) welcomes the ruling by Judge Ronel Tolmay in the action brought by the Organisation Undoing Tax Abuse and the South African Airways Pilots’ Association against the former chairperson of the South African Airways board, Dudu Myeni. Judge Tolmay found that Ms Myeni had comprehensively failed to fulfil her duties as a director and ordered that she be declared a delinquent director for life, and she was further ordered to pay punitive costs. The Judge also referred the judgment and evidence led to the National Prosecuting Authority for investigation regarding possible criminal conduct.

“Judge Tolmay’s far-reaching judgment is timely for a number of reasons, not least because it finally tests in court the IoDSA’s long-standing contention that directors must inform themselves properly about the nature and extent of their duties, or put themselves in peril,” says Advocate Fay Mukaddam, Chartered Director and technical advisor at the IoDSA. “It is also clear from the evidence led that the courts will rely not only on legislation but also the King Reports on Corporate Governance — together, these provide a sound framework to guide directors in fulfilling their fiduciary and other duties satisfactorily.” “Directors have a critical role to play, and they can only do it if they are fully conversant with what their legal and fiduciary obligations entail.”

The judgment also made the important point that directors cannot use collective decision-making as a way to evade individual responsibility.

Parmi Natesan, CEO of the IoDSA, emphasises that the Myeni case shows how important it is for organisations to appoint suitably qualified people to boards, and to ensure that they keep up to date with the latest thinking and are regularly appraised. In the words of the judgment at 276: “To serve on a Board of an SOE should not be a privilege of the politically connected. Government has, as custodian of the common good, an obligation to ensure that suitably qualified people, with integrity, are appointed in these positions.”

The same point holds true for the private sector as well, Ms Natesan adds. For many years, the IoDSA highlighted the need to deepen the pool of directorial talent, introducing two formal professional designations to advance this process: the Chartered Director (SA) and Certified Director. To gain these certifications, individuals must acquire the skills identified in the IoDSA’s Director Competency FrameworkTM and follow a programme of continuous professional development. They also must commit to be bound by the IoDSA’s Code of Conduct.

“The IoDSA believes this judgment should act as a clarion call for directors and would-be directors to take steps to ensure they are properly educated in all aspects of the director’s role,” Ms Natesan concludes. “We need professional directors and, as the custodian of the King Reports, and promoters of good governance generally in this country, the IoDSA has all the programmes in place to create them.”

ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

Although it’s recommended in King IV, succession planning is often neglected because it’s an uncomfortable subject. The COVID-19 crisis should act as a wake-up call for organisations to ensure not only that they have a plan to govern an orderly succession for key senior posts, but also an emergency back-up plan, says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).

“The current crisis should remind governing bodies that in addition to key management positions like the CEO and CFO, succession planning should also cover key board positions, including the chair of the board and chairs of board committees,” she says. “For example, the current COVID-19 crisis raises all sorts of issues for corporate succession plans. What if the CEO contracts the virus, or the CFO is forced to self-isolate? Organisations need to have not only a long-term succession plan but an emergency backup plan as well.”

She argues that a crisis such as this places unusual strains on the entire leadership team. One contributing factor is the protracted nature of the crisis, others include the need to completely reorganise the workforce to enable remote working, adopt new management practices suitable to a dispersed workforce, and conduct an urgent review of the business model and strategy. Moreover, all of these would have to be continuously reviewed as the crisis unfolds.

At the same time, of course, leadership is more important than ever during a crisis. If any of the leadership team is forced to take time out (because of overstraining or actual illness), the impact is extremely pronounced—as we saw when the British Prime Minister Boris Johnson was admitted to hospital with the virus and the Foreign Secretary took on his role.

“Organisations should have a full succession plan for each senior management position, which includes both an emergency and a long-term plan,” she says. “It is also worth pointing out that the emergency plan is likely to nominate an in-house resource, and effort should be put into giving those individuals the mentoring and training needed, including crisis response management.”

ENDS
 
MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

The COVID-19 emergency has prompted much media coverage, panic in some quarters and severe market falls. At a time like this, it is vital that organisations act rationally, says Parmi Natesan CEO: Institute of Directors in South Africa (IoDSA).
 
“Boards are responsible for developing strategy and ensuring an organisation is sustainable. An unfolding global emergency like this is not the time to formulate new strategy. Like all crises, this one will pass and a steady hand is what is needed,” she says. “Boards must offer rational leadership that builds on their existing strategy to steer the organisation through these choppy waters.”
 
Ms Natesan advises boards to consider the following points in responding to the crisis:

• Potential impact on the organisation’s ability to function. While the COVID-19 emergency may not have an immediate impact on the organisation, it is important to look at the possible medium and long-term effects. Among these could be the impacts on the organisation’s extended supply chain and thus its ability to achieve its goals. These impacts could be - difficulty in accessing products or components, or employee absenteeism. Boards should look at what their core products or services are and what the critical dependencies are.

As part of this analysis, the board should consider the impact on the six capitals—Human, Financial, Social and Relationship, Manufactured, Intellectual and Natural—that every organisation depends on.

“Every organisation and industry sector has its own characteristics, and so the impacts of a global health pandemic such as this one, will be unique,” Ms Natesan comments.

• Assess the business continuity plan. Once the potential impact of the emergency on the organisation’s ability to function have been established, the board should assess whether the business continuity plan is able to mitigate the risks sufficiently, or whether it needs to be adjusted.
• Update the risk register. If the risk posed by this emergency is deemed strategic, the risk register should be updated and mitigating controls put in place.
• Develop a crisis communication plan. An organisation’s ability to recover when any risk materialises is hugely dependent on how it communicates with stakeholders. To be effective, crisis communications need to be well planned in advance.

“Risks do materialise, and when they do, boards should resist the opportunity to make snap decisions based on saturation and often exaggerated media coverage. This is the time to make sure that the existing strategies are fit for purpose, and then to act in line with them,” Ms Natesan concludes.

ENDS
​
MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

One of the elephants in the room at this year’s State of the Nation Address (SONA) was the conspicuous absence of any mention of the need to appoint the right people to the boards of state-owned enterprises (SOEs). This is worrying because the President spoke at some length about the need for SOE boards to be based on “expertise, experience and integrity” (SONA 2018) and “credible, appropriately experienced and ethical directors” (SONA 2019), says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).

“Why no mention of SOE boards and the importance of ethical and effective leadership this year? The President said that 2020 would be the year of getting the fundamentals right, but one cannot think of a more fundamental building block than the quality of an organisation’s leadership. As we all know, the crisis at our SOEs has deepened in the past three years, and the quality of the state’s appointments to the boards of some key SOEs remains a concern,” she says.
Government’s ability to turn thoughts and plans into reality also becomes questionable. A clear example of this gap between intent and implementation is the inexplicable delay in publishing the long-promised framework for the appointment of directors to SOE boards. Government committed to finalising the framework by March 2018, and the IoDSA enthusiastically supported this move, giving input into the much-needed piece of work. The framework was approved by Cabinet late in 2018, but the final version has still not been released for implementation.

The framework is of vital importance because the state, as sole shareholder, has the power to appoint directors, and often executives, at SOEs. These appointments are sometimes based on patronage and/ or political expediency rather than what the SOE in question actually needs to fulfil its mandate. To address this, Government should adopt the best practice recommendations outlined in King IV.

“SONA 2020 stressed that the priority was to stabilise the SOEs but it’s hard to see how this can happen if they do not have boards with the right skills, experience and independence. Public confidence is critical in supporting any economic recovery, and that will rely on general acceptance that SOEs have the right leadership, both at board and executive level, and that the lines of accountability are clear,” comments Ms Natesan. “The IoDSA urges Government to take the steps needed to solve the leadership and governance crisis at our SOEs, and give its efforts to return them to effectiveness and provide them the best chance of success.”

ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  
 

Closing off the recent annual ANC lekgotla, President Ramaphosa warned against party leaders interfering with the boards of state-owned enterprises (SOEs). This is welcome statement given the extent of the crises at various SOEs, and the impact they are having on the economy, says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).

“One of the primary reasons for the state of our key SOEs is poor governance, with the lack of role clarity between shareholder and board a primary concern,” she says. “The President’s call provides a welcome opportunity for both SOE boards and Government as shareholder to reflect on their roles.”

In a recent paper, “Challenging facing public sector boards”, the IoDSA identified a lack of role clarity as one of the main issues affecting board performance. The paper states that “Many of the challenges around public sector board performance can be traced to overreach by the shareholder.”

As sole shareholder, Government is in a position to exert control over the board in a way that is virtually impossible in the private sector.

However, argues Dr Simo Lushaba, a Chartered Director co-author of the IoDSA’s paper, the shareholder would be well-advised to adopt best practice in the way it interacts with the board.

“The shareholder has to accept that it must balance its policy goals with the need to ensure that the SOE is governed effectively, and thus able to perform as desired. That means appointing people to the board who have the requisite professional and governance skills, as well as the integrity needed to provide ethical and effective leadership,” Dr Lushaba says. “It also means giving the board the space to exercise oversight of the executive and the company as a whole, without undue interference.”

The IoDSA advises the shareholder to take advice from the board when it comes to appointing new members, and conduct the nomination process in a highly transparent manner.

At a practical level, the IoDSA recommends that boards insist on a detailed Shareholder Compact that defines the role, responsibilities and authority of both shareholder and board. It is also desirable to retain the services of an independent governance expert to provide training.

“SOE boards must accept that they have a fiduciary responsibility to the organisation, not the shareholder who appointed them. They must push back when the shareholder encroaches on their rights or prerogatives,” Dr Lushaba concludes. “The consequences of allowing purely political considerations to override everything are there for all to see. SOEs are the nation’s crown jewels. As their shareholder, Government should put in place effective mechanisms to protect the independence of our SOEs, and uphold their good governance, in order to protect them from the undue exertion of political power by the shareholder and poor leadership from the directors. If they do not, we will never be able to bring ourselves back from the brink.”

ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

The tragic drowning of a Parktown Boys’ pupil on an orientation camp attracted national attention—and should prompt the governing bodies of all schools to take a long, hard look at their governance processes, says Parmi Natesan, CEO, Institute of Directors in South Africa (IoDSA).
 
“Aside from the human tragedy of this incident, it is also a major setback for the school, which has suffered acute reputational damage and the collapse of its relationship with its stakeholders, most notably parents,” she says. “The school governing body is analogous to a company’s board of directors, and they have the responsibility for ensuring everything is in place to ensure the institution’s long-term sustainability.”
 
The IoDSA has long believed that while governance in schools is critical, it is often poorly understood and thus neglected. School governing bodies need to take governance seriously in order to discharge their duties effectively, and provide the kind of leadership that will allow schools to navigate their risks, and respond appropriately when a risk does materialise.
 
Ms Natesan says that members of school governing bodies have the same responsibility that a board of directors has towards the school, taking into account the stakeholders (parents, learners, donors and the state in the case of public schools).
 
“By adopting good governance principles, school governing bodies will improve the quality of leadership, decision-making and strategic vision they can offer, to the institution’s ultimate benefit,” she argues. “A well-thought-out and properly executed governance strategy will also build the confidence of stakeholders in the institution.”
 
Another key benefit of strong governance is a better understanding of the risks that threaten the school, how to mitigate them and how to respond effectively when they materialise, adds Muhammad Seedat, Chair of the IoDSA, who has extensive experience as a member and chair of school governing bodies.
 
“The governing body bears the ultimate responsibility for ensuring that the school not only understands the risks that it faces, but also how to mitigate them. For example, has it put a risk register in place along with policies to mitigate the identified risks?” he says. “King IV recognises that risk and opportunity are often two sides of the same coin; in this case, the opportunity is to ensure that this kind of disaster does not happen.”
 
Mr Seedat further argues that school governing bodies also have to accept that risks do materialise, and that it is vital they have policies and procedures in place to ensure the school’s response is effective on all fronts. A concern in the current case is the lack of comment from the governing body.
“Crisis communication is essential in helping an organisation recover from a disaster, and the governing body must ensure a strategy is in place,” he says. “Stakeholders have a legitimate need to be kept informed, and effective communication shows that the school recognises its accountability, and willingness to take the right actions.”
 
The IoDSA’s guide, Governance in Public Schools, is available on its website to help school governors in applying King principles. Please visit https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/01E7EA8E-CA19-4F70-B99A-50A0362028FC/Governance_in_Public_Schools_-_2nd_Edition.pdf.
 
ENDS
 
MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

South African boards should be looking carefully at King IV’s guidance on board composition and  director independence rather than simply trying to impose a one-size-fits-all rule, says Richard Foster CD(SA), a governance advisor, professional non-executive director and Institute of Directors in Southern Africa (IoDSA) facilitator. An overemphasis on independence can actually rob boards of institutional knowledge and experience.
 
The issue of director independence recently hit business headlines with no fewer than eight members of the Comair board resigning in the past year. The departure of at least four of them has been linked to concerns about their independence expressed by Bidvest.
 
“Principle 7 of King IV was carefully constructed to indicate that optimal board composition required a balance to be struck between knowledge, skills, experience, diversity and independence.
Independence has to be seen within the context of the total composition of the board and its ability to achieve the goal of good governance,” he says. “King IV”s approach is pragmatic and outcomes-based, and does not lay down a fixed rule that no director can be considered independent after a nine-year tenure.”
 
By contrast, the governance codes in the United Kingdom and certain countries in the European Union both prohibit directors from serving longer than a nine-year term.
 
King IV specifically states that independent non-executive directors may serve for longer than nine years if a vigorous assessment is conducted annually to establish that the director “exercises objective judgement and there is no interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to influence unduly or cause bias in decision-making” (Recommended Practice 29).
 
“The litmus test must always be the individual director’s contribution to the board, not his or her length of service,” Foster argues. “By the same token, a wholesale rotation of the board unless particular circumstances dictate , risks losing institutional memory, which in turn could compromise the board’s ability to govern effectively.”
 
Another consideration is that long-tenured directors can actually make a positive contribution to the organisation’s performance. Research shows that in the United States, where there are no explicit term limits for directors, 24% of independent directors have “continuously served in the same firm for fifteen years or more”. The research shows that firms with one such long-tenured director “exhibit superior performance, a lower risk of outside litigation, and higher disclosure and information acquisition”.[1]
 
Foster adds that there are no hard-and-fast rules. Some directors can retain their independence over many years, while others remain valuable but might need to be reclassified simply as ‘non-executive” over time.
 
Given the concern that many institutional investors feel about the independence of non-executives, Foster says that boards should take steps to evaluate the independence of long-serving directors rigorously, and to communicate both their methodology and the reasons for their conclusions.
​
“Disclosure is one of the pillars of King IV because it supports the imperative to apply the practices not for their own sake, but to achieve the outcomes outlined in its 17 Principles,’ he says. “Having a good succession plan in place is further evidence of ongoing and meaningful evaluation, as are structured opportunities for key institutional shareholders to meet with independent directors.”
 
Vikeshni Vandayar, Executive: Governance and Corporate Services at the IoDSA, says that the Institute is currently developing an online tool that organisations can use to probe the independence of their governing bodies. “Assessing independence is part of our board appraisal process, but we have realised that there is a need for standalone product to guide boards. There are many dimensions to independence, and they are affected by the legislation and governance codes that apply.”

[1] Stefano Bonini, Justine Deng, Masica Ferrari and Kose John, “On long-tenured independent directors”, SSRN Electronic Journal, January 2017, available at https://www.researchgate.net/publication/317058944_On_Long-Tenured_Independent_Directors. 
 
ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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