Presenting his report on the audit outcomes for national and provincial entities for the 2018-19 financial year, the Auditor-General, Kimi Makwetu made a call for greater accountability in an effort to stem a continuing increase in the amount of irregular and fruitless and wasteful expenditure that is draining the fiscus and impeding service delivery. Dr Simo Lushaba, a Chartered Director and facilitator at the Institute of Directors in South Africa (IoDSA), agrees that this trend will only be reversed if there are genuine consequences for directors and executives when adverse audit outcomes occur.

“At most, directors or executives are redeployed into other positions across the state system, a sort of pretend termination that is actually no consequence at all,” says Dr Lushaba. “We need civil society to step up and exert pressure on government to hold boards and executive committees to account.”

The Auditor-General’s report stated that irregular expenditure that did not comply with legislation or procurement processes increased from R51 billion to R62.6 billion. Fruitless and wasteful expenditure—money that has been lost to government—also rose to R849 million, for a cumulative five-year total of R4.6 billion.

Parmi Natesan, IoDSA CEO, says that the problem is a complex one and needs a multifaceted approach. A key challenge is that many board and executive appointments are made on political grounds, and that many appointees lack the necessary skills to implement the Auditor-General’s recommendations effectively.

“This speaks to the nomination process of executives and board members, an issue that we have raised time and again,” she says. “Government, as the powerful single shareholder, really needs to take the recommendations of King IV to heart and make these appointments with the best interests of the entity in mind. In similar vein, public-sector boards must actively engage with the shareholder to ensure that individuals with the right skills are appointed.”

She points out that the IoDSA offers Certified Director and Chartered Director designations that can only be obtained if individuals meet certain requirements based on the IoDSA’s Director Competency Framework. To maintain their status, Certified and Chartered Directors have to commit to continuous professional development to keep their skillsets current, and to the IoDSA’s Code of Conduct.

“These certifications thus offer government a credible way of identifying individuals with the necessary skills, but also individuals who can be disciplined by the IoDSA should they act improperly in any way,” she says. “The buck ultimately stops with the board, so directors have a compelling duty to ensure that they collectively have the right skills on both the board, and also specifically in relation to these findings, the audit committee.

“Another big push towards accountability is the growing use of Section 162(5) of the Companies Act to take directors who do not act in the best interests of the company to court. If declared delinquent, the director would no longer be able to act in a similar position for a specified time period. The Act applies to state-owned companies, so could be used the hold their directors to account,” she ends.

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 Southern Africa Company Page   

The ransomware attack suffered by the City of Johannesburg today sounds a clarion call for boards to revisit their technology governance strategies and take a more holistic view of technology and the risk it poses, says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).

“Cyber-attacks like this one represent a huge and present risk for all organisations in both the public and private sectors—the City is effectively unable to do business until its systems are restored, and vital corporate and customer data could be lost or compromised,” she says.

According to Marlon Moodley, IT Governance facilitator for the IoDSA, because technology now provides the underlying platform for most business in both the public and private sectors, directors’ responsibility in terms of technology governance is more important than ever before. Globally, directors of both public and private entities are not taking adequate steps to acquire broader skills to understand crucial developments in the fast-moving technology space.

In particular, he strongly argues that directors must beware of taking too narrow a view. Technology pervades every facet of business, and thus its governance must take a similarly holistic view. Financial governance and risk assessment looks at the whole organisation, and the same approach should be followed when it comes to technology. For example, servers are not the only vulnerability—cybercriminals can penetrate corporate IT systems via the multitude of devices in use inside and outside the working environment, as well as through exploiting vulnerabilities in human behaviour. A compromised device is a backdoor into the corporate environment. And a compromised IT environment puts every facet of the organisation at risk.  

Data represents a key collateral risk. Hackers often post or sell corporate data on the Dark Web, so technology and data governance overlap to a great degree, he notes. South Africa, along with a growing number of countries, has tough data-privacy laws with stiff penalties.

“Because of technology’s pervasiveness, directors should make sure they acquire a broader understanding of technology and the trends driving it. But they should also be calling in experts to advise them. The key here, though, is to ensure that both they and the experts take a holistic view that encompasses the entire technology environment and its operational impact, including on sensitive data,” he says.

“Directors also need to ensure that adequate business continuity arrangements are in place. If the corporate IT systems are not usable, there should be an alternate data centre with a clean, reliable replication of the IT environment.”

Ms Natesan concludes that boards in both the public and private sectors face similar challenges relating to technology governance, and that the tendency to take too narrow a view of technology needs to be shifted.

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 Southern Africa Company Page  

The delinquency provisions in the Companies Act are emerging as a key remedy against misconduct by directors in both the public and private sectors.

“What we have seen recently is that these delinquency provisions are increasingly being used to hold directors to account for misconduct,” says Parmi Natesan, CEO of the Institute of Directors in South Africa. “Directors must take note of this, because the penalties are extremely severe.”

In the current battle between Peter Moyo and Old Mutual, the former has instituted action to have the entire board of the company declared delinquent. In the case of the SABC, a news report speculates that the board could be declared delinquent en bloc because they have allowed the corporation to continue trading although it is insolvent.  The Public Investment Corporation (PIC) successfully applied to have two directors it had appointed to the board of VBS Mutual Bank declared delinquent. The court agreed, and the Financial Sector Conduct Authority also disbarred Ernest Nesane, the former executive head of legal at the PIC, and Paul Magula, the former executive head of risk, from practising as investment professionals.[1]  Another instance is the action brought by the Companies and Intellectual Property Commission (CIPC) to have Phumlani Zwane, former director of nuclear services group Nectsa, declared delinquent. This successful application is the first to involve a state-owned entity, and declared Mr Zwane delinquent twice over.[2]

The Companies Act defines various instances of misconduct by a director that could render him or her liable to be declared delinquent by the court. These include consenting to serve as a director while already disqualified or under probation.  Other misconduct that would make a director vulnerable to being declared delinquent includes gross abuse of his or her position, taking personal advantage of information or opportunities that came to his or her attention by virtue of his or her position as a director; or inflicting harm on the company or one of its subsidiaries through gross negligence, wilful misconduct of breach of trust in relation to the director’s fiduciary duties. Provision is also made for barring repeat offenders from holding a directorship again.

The consequences for being declared delinquent could include immediate removal of a director, prohibition from serving as director in future, and severe reputational damage.

A wide range of individuals or juristic persons can bring legal action to declare a director delinquent. They include the company itself, its shareholders, unions, other directors or the company secretary or other prescribed officer.

“A company’s directors bear ultimate responsibility for its success, and they are under an obligation always to act in the company’s best interest. That is a very great responsibility, and comes with great opportunities to make a difference. At the same time, though, failure to discharge that responsibility also comes with heavy sanction,” Ms Natesan concludes.

[1] Warren Thompson, “PIC’s VBS directors declared delinquent”, Business Day (26 August 2019), available at https://www.businesslive.co.za/bd/national/2019-08-26-pics-vbs-directors-declared-delinquent/.
[2] Xolisa Phillip, “High court brings chartered accountant to book”, Daily Maverick (26 August 2019), available at https://www.dailymaverick.co.za/opinionista/2019-08-26-high-court-brings-chartered-accountant-to-book/.

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 Southern Africa Company Page  

The accidental release last week of some 240 tons of toxic effluent into the Msunduzi River in Pietermaritzburg should alert governing bodies to the importance of identifying and addressing environmental and social risk in all their activities, says Karin Ireton, Chair of the Sustainable Development Forum at the Institute of Directors in Southern Africa (IoDSA).
​
According to News24,[1] a suspected burst valve caused storage tanks at Willowton Oil Mills to collapse, and discharge their contents into the Baynespruit tributary of the Msunduzi. The Msunduzi, site of the famous Duzi canoe race, is part of the uMngeni river system. The contamination has already caused the death of thousands of fish as well as livestock, and communities downstream have been advised not to use water from the river for any purpose until it is declared safe.
 
“It is essential that companies plan for worst-case scenarios and implement controls that will prevent contamination of our water courses. Water is essential to all life, and as South Africa is an arid country we must protect it and use it wisely at all times,” says Ms Ireton. “Pollution such as has been seen in the Pietermaritzburg area is not only a breach of regulation but has a long-term and highly significant impact on aquatic life and surrounding communities. It is time for companies to integrate fully the costs of their operations on natural capital, such as water, wetlands, biodiversity as well as the social impact on the impacted communities.
 
“Sadly, this incident is not unique. Other river systems in the country are in crisis and ongoing pollution of the Hennops River, the Vaal River and several others poses major long-term risks for the citizens of this country, exacerbated by failing municipal waste-water treatment facilities and poor waste-management practices by citizens and municipalities."

Parmi Natesan, IoDSA’s CEO, says that this incident once again highlights the fact that all organisations are dependent on the broader context in which they operate.
 
The International Integrated Reporting framework lists six capitals on which businesses rely: Human, Social and Relational, Manufactured, Intellectual, Environment and Financial. The important concept that business exists within, and depends on, a supporting environment is described as the “triple context” of the economy, society and environment in the King Reports on Corporate Governance. King IV indicates that these should not be seen—and reported on—as a whole.
 
“The old view that companies use only financial capital has been superseded by the understanding that all organisations also utilise a range of common resources to deliver value for their shareholders,” Ms Natesan says. “This is why King IV requires members of the governing body to ‘take responsibility for anticipating, preventing or otherwise ameliorating the negative outcomes of the organisation’s activities and outputs on the triple context in which it operates, and the capitals that it uses and affects”.”[2]
 
Because of an organisation’s intimate interrelationship with society and the environment, King IV advocates the concept of corporate citizenship. This means that organisations have both rights and responsibilities as regards society and the natural environment on which both depend. To give effect to these rights and responsibilities, the Companies Act makes it mandatory for certain organisations to form social and ethics committees.
 
King IV further recommends that even organisations that are not obligated to form such committees should put in place a formal mechanism for overseeing and reporting on “organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships”.[3]
 
“A key insight of King IV is that risk and opportunity are two sides of the same coin. It’s thus critical that governing bodies understand how the organisation creates value, but also the potential negative impacts it might have on the various capitals on which it relies,” Ms Natesan concludes. “The governing body bears ultimate responsibility for ensuring that effective plans are in place to mitigate risk and, if it materialises, to minimise its effects. Organisations without such plans risk regulatory sanction and a potential fine, but the longer term risk of a weakened social licence to operate could be even more harmful.”

[1] Nokuthula Khanyile, “Toxic sludge chokes Duzi”, The Witness (15 August 2019), available on https://m.news24.com/SouthAfrica/News/toxic-sludge-chokes-duzi-20190814.
[2] IoDSA, Report on Corporate Governance for South Africa 2016 (King IV), Recommended Practice 1(c)(iii).
[3] King IV, Recommended Practice 68. 
 
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 Southern Africa Company Page  

To mark Women’s Month, the Institute of Directors in Southern Africa (IoDSA) is offering women a golden opportunity to gain the skills and networks needed to make their mark in South Africa’s boardrooms. Parmi Natesan, CEO of the IoDSA, says that in order to ensure that boards become more gender balanced, women need to make sure that they are very well positioned to take advantage of increased opportunities to serve on corporate boards in both the public and private sectors.
​
“As a result of increased pressure, as well as regulatory requirements, like the JSE requiring companies to have and report on their policy on the promotion of gender diversity at board level, we can expect more and more opportunities to open up for women in South Africa’s boardrooms—but it’s essential that there is a sufficiently large pool of qualified female talent to draw on,” she says. “That’s the motivation behind our offer of a 30% discount on membership of the Institute, and the same discount on our “Being a Director” training package, booked exclusively by women during the month of August.”

“We chose 30% because we are members and supporters of the 30% Club, which aims to improve gender balance on boards.”

Governance codes like King IV emphasise the need for boards to engage more deeply with their stakeholders in order to make better business decisions. Women, who make up more than half the population, and who exert enormous influence over purchasing decisions in their families and, increasingly, in the educated workforce and corporate world, are thus a critical stakeholder group. Research also increasingly links gender diversity and financial performance, a better record on sustainability, and a greater contribution to global GDP. As a result, the business sense of including more women on boards is thus no longer questionable.

Ms Natesan says that the 30% offer covers two important areas for aspirant female directors.

Membership of the IoDSA will open up access to its thought leadership and guidance, and will also provide a platform for networking with like-minded people. Building strong networks is vital in ensuring that one hears about board vacancies early on, and that one’s name is known in boardrooms when potential appointments are discussed.

“However, while a good network is invaluable in getting one into the right interviews, one also has to be able to demonstrate the right skills. Our focused director training leads to the Certified Director designation, which signals to the market knowledge of corporate governance,” says Ms Natesan. “Those women who take up this offer are putting themselves on the pathway to becoming truly professional directors.”

 “There is no doubt that the demand for female directors is only going to grow. The IoDSA is committed to ensuring that those ambitious women who want to be part of this boardroom revolution are equipped to do so,” she ends.
 
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 Southern Africa Company Page  

The appointment of Eskom Chair, Jabu Mabuza, as interim CEO has provoked many questions, particularly from a governance point of view. While it is true that governance best practice is to keep the positions of CEO and Chair separate, there could be some justification for the move—provided that the right safeguards are put in place, says Parmi Natesan, CEO of the Institute of Directors in Southern Africa, the custodians of the King Reports on Corporate Governance.
 
Principle 10 of King IV states: The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibilities.
 
“King is clear that the roles of the CEO and Chair are quite distinct, and that good governance requires them to be kept rigorously separate. The Chair leads the Board in exercising oversight over management, and should be independent, while the CEO leads the management team. The CEO and his or her team are accountable to the board, and this separation of powers is vital to ensure the necessary checks and balances are in place,” she says.
 
“However, King IV also makes it clear that governance is not a matter of blind compliance either—the board must exercise its judgement to come up with solutions that are in the best interests of the organisation, and will lead to a stated and desired outcome.”
 
Ms Natesan goes on to say that while governing bodies need to have the freedom to consider what would be best for the organisation, they must also take care to communicate their reasoning to stakeholders—transparency is critical in demonstrating that the board has exercised its judgement.
 
In the circumstances in which Eskom finds itself, appointing the Chair as CEO as an interim measure, with the purpose of creating a stable transition period until a new CEO is appointed, may be in the best interests of the organisation. However, this is not an ideal situation, clearly, and we urge that the following two issues are properly addressed.
 
First, in order to maintain accountability while Mr Mabusa holds both roles, there should be clear steps taken to ensure that the lead independent director plays an active role where necessary.
 
Second, it must ensure that the process of appointing a new CEO is transparent and, critically, that it is concluded within the short-term period as stipulated. To have to extend this temporary arrangement would not be ideal from a governance perspective.
 
A final point to be made is that succession planning for key management roles needs to be made a top priority. Ideally, somebody within the organisation should had been groomed to assume the CEO role, even temporarily in an emergency such as this.
 
“The way this three-month period is handled will show whether the individuals in power are acting decisively in the best interests of the organisation,” she 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 Southern Africa Company Page  
 
 

The recent news around Old Mutual’s decision to terminate the contract of its CEO, Peter Moyo; and his response regarding the Chairman Trevor Manual, has once again put conflicts of interest into the spotlight. While not wanting to prejudge this particular issue, we are reminded that these are not simple matters.
 
Conflicts in the boardroom need to be carefully managed to ensure they do not put either the director or the organisation at risk—or create a negative public perception. And the fundamental key to managing conflicts of interest is open, full and candid disclosure and appropriate management.
 
That’s according to Parmi Natesan, CEO, Institute of Directors in Southern Africa (IoDSA), who explains that a conflict of interest arises when there is tension between competing interests, whether they are personal, financial or other. These conflicts might be real, potential or perceived; perceived conflicts can be as reputationally damaging as real ones and should also be managed.
 
Where conflicts are pervasive, handling them is simple: they should just be avoided rather than managed. For example, a director should not serve on the boards of two competing companies.
 
Other conflicts can be manageable because they are not as pervasive. “In the case where there is such a conflict, and the parties still want to work together, it is highly advisable to put comprehensive safeguards in place,” says Natesan.
 
These safeguards include identification and appropriate management of conflicts by the Chair and company secretary, as well as comprehensive and timely disclosure from the conflicted individuals themselves,” Natesan points out.
 
Directors have a duty to avoid or manage conflicts of interest. This, for example, requires directors with an interest in a matter to be discussed by the board, to declare that interest at first instance.
 
The declaration should include any material information known to the director, as well as disclosure of any observations or pertinent insights if requested to do so by other directors.
 
If a conflict is declared, the Chair should ensure that this is minuted, and then lead a discussion about the implications and steps needed to manage this conflict, in order to comply with all the relevant legal regulations as well as governance policies in play. 
 
Where considered necessary, the conflicted individual should leave the meeting and take no further part in the discussion/decision relating to this matter.
 
There are consequences for failing to manage conflicts effectively, as she makes clear, which go beyond reputational damage. “Any decisions which flow from conflicted interests which weren’t managed may be regarded as void. This can lead to legal action and if a director relies on the business judgment rule to defend a decision, they should demonstrate that any conflicts of interest were appropriately managed,” she adds.
 
 “The reality is that conflicts of interest are a fact of business life. Their existence doesn’t necessarily mean impropriety – but failing to declare and manage them means impropriety is likely to be strongly suspected. The consequences can be severe, and thus members of governing bodies should follow these steps to ensure that they and the organisation are protected,” 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 Southern Africa Company Page  

SOE boards: It matters who gets appointed and how they get appointed

Chief Justice Mogoeng Mogoeng, during his address at The Directors Event in Sandton, highlighted the issue of board and other leadership appointments in the public sector.  “I think we should begin to think about tests that people must be subjected to before they can be elevated to positions of high responsibility,” he said.
​
“It is the president who appoints people who head state-owned companies or enterprises. If you appoint a rotten apple at any level, you don’t even have to split hairs to understand what is going to happen to that entity.”

According to Parmi Natesan, CEO of the Institute of Directors in Southern Africa: “The Chief Justice’s statement brings to the fore two major challenges in director appointments in the public sector; flaws in the appointment process and leadership competencies not being sufficiently considered.”

The appointment process
In the private sector, a nominations committee – or failing that the board themselves – would typically be responsible for conducting a due diligence on prospective non-executive directors and making recommendations to the shareholders for appointment. Appointment of executives, on the other hand, would be the responsibility of the board alone.

By contrast, director appointments in the public sector are largely led or solely influenced by one single individual – the relevant Minister – especially in the case of non-executive directors. Whilst executives like the CEO are interviewed and shortlisted by the board, there is often still interference with this process during the initial recruitment process.

"It is critical that the Ministers ensure that thorough due diligence are performed and that existing boards are consulted to determine the skills and experience needed before making any non-executive director appointments,” recommends Natesan. “It is equally critical that Ministers allow the board to appoint executives without undue influence.  In addition, Ministers should consider a staggered rotation process to provide continuity and institutional memory within boards.”

According to the King IV report on corporate governance, the board should consider the collective knowledge, skills and experience required by the board, the diversity of the board, whether the candidate meets the appropriate fit and proper criteria before nominating a candidate for appointment.  This thorough consideration is sometimes lacking in the public sector, in favour of political pressure.

"Although the Minister is under no legal obligation to consider the recommendations made by a board or a nominations committee, it would serve the organisation well if the processes for nomination, election and ultimately, the appointment of members to the board are transparent and sufficiently aligned to the needs of the organisation.”
 
Leadership competencies
Appointments in the public sector are sometimes based on political connections rather than the necessary knowledge, experience and integrity.

“Boards are only as good as the people who serve on them,” explains Natesan. “One of a Minister’s key responsibilities is therefore to appoint effective and ethical individuals to the boards they oversee. This is absolutely critical for the success of these entities.”

“It would serve any public sector organisation well if its board members possess the relevant competencies that meet the needs of the organisation and the role board members are required to play in meeting those needs. This would lead to public trust in the appointment process and the individuals themselves.”

“During 2018, government gave an undertaking to finalise a framework for board appointments to state-owned entities, as part of National Treasury’s Inclusive Growth Action Plan,” says Natesan. “The IoDSA made several recommendations related to our director competency framework at that stage, and we keenly await the release of finalised guide.”

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 – the very tests needed prior to individuals being elevated to directorship positions.

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 Southern Africa Company Page 

Photo: GCIS
​
The recent announcement of President Ramaphosa’s new cabinet provides a good opportunity to reflect on the critical role of ministers in the governance of the public sector. Parmi Natesan, CEO of the Institute of Directors in Southern Africa (IoDSA), says that the work the IoDSA has done in the public sector over the years reveals some common governance challenges.
 
“We have conducted training and board evaluations, and performed governance advisory functions for public sector entities over many years, and there are common governance challenges that crop up,” she says. “Based on this, we have some constructive advice to the new cabinet, that will hopefully help them avoid these common pitfalls.”
 
The first point to make, Ms Natesan believes, is that ministers should realise the extent of the power they have as representatives of the sole shareholder, enabling them to play a much more active role than shareholders in the private sector. It is thus very important that they understand their role fully, and beware of allowing only political or other considerations to guide their actions.
 
“Boards are only as good as the people who serve on them—therefore one of a minister’s key responsibilities is to appoint effective and ethical individuals to the boards they oversee. This is absolutely critical for the success of these entities,” she explains.
 
Because of their overwhelming power, ministers should be careful not to undercut the boards they appoint and thus rendering them ineffective. A board that cannot set its own course cannot in the end be held truly accountable, she argues. She cites a recent editorial in the Financial Mail saying that the current CEO of Eskom is leaving the job “not because he has failed in his duties, but because the shareholder would not let him and his team do the job for which they were hired.”[1] Governance best practice, as enshrined in the King Codes, is that boards, including those in the public sector, should be in a positon to exercise their judgement independently without undue influence, in the best interests of the organisation, and to the benefit of all stakeholders—not just the shareholder.
 
“This relationship between an all-powerful shareholder and an independent board is a delicate one, and ministers should try to get it right. Only then can they truly hold a board accountable for its decisions and the performance of the organisation--without encroaching on its role,” she says.
 
Another common governance challenge is that the minister often appoints senior executives directly, thus creating a lack of clarity in terms of reporting lines, and making it difficult for boards and management to work constructively together. Management should be accountable to the board. The board should therefore be intimately involved in the nominations and appointment process, even if the minister makes the final decision.
 
“In announcing his new cabinet, President Ramaphosa said that his government will only succeed if the ministerial appointees are ‘capable, efficient and ethical’.[2] The IoDSA salutes him for making the link to ethical and effective leadership as espoused by King IV —it is a very good start to what we hope will be a successful term in office – and we are here to offer our help,” she concludes. “We congratulate the new ministers, and wish them well in the huge task they have before them. Public sector entities have a vital role to play in our country, and getting them back on track will be central to achieving the desired goals. If they make ethics and effectiveness the cornerstone of what they do, the omens look good.”
 
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 Southern Africa Company Page  

[1] “Why Phakamani Hadebe really threw in the towel”, Financial Mail (30 May 2019), available at https://www.businesslive.co.za/fm/opinion/editorial/2019-05-30-editorial-why-phakamani-hadebe-really-threw-in-the-towel/.
[2] “Cyril Ramaphosa's new cabinet, in his own words”, TimesLive (29 May 2019), available at https://www.timeslive.co.za/politics/2019-05-29-in-full-cyril-ramaphosas-new-cabinet-in-his-own-words/. 

Governing bodies, and the role they play, are under the spotlight like never before. How should members of governing bodies ensure that they are covering all the bases?
 
By Parmi Natesan
 
Thanks to the litany of recent governance failures, and the high-profile scandals in the private and public sectors, governance has shot up the public agenda. One of the common conclusions to be drawn is the truth of the old adage that “the fish rots from the head”. For those in leadership positions, and particularly those on governing bodies, the pressure is mounting as the court of public opinion, as well as the courts themselves, should increasingly hold them accountable for the shortcomings of the organisations they lead.
 
The question this raises, of course, is what issues should governing bodies be considering to ensure that they are on the right side of history?
 
A paper by the Corporate Governance Network, a special interest group of the Institute of Directors in Southern Africa (IODSA) sponsored by PWC, argues that these issues can be grouped into three broad themes: introspection about the governing body itself, understanding the context in which the organisation operates, and realising their organisation’s place within (rather than without) society.
 
The first theme, Looking within, acknowledges that the governing body will not fulfill its corporate governance mandate, or indeed its other roles, if it does not have the proper skills and experience to draw on.
 
The central issue here is the quality and composition of the governing body. Because of its key roles in setting strategy and ensuring governance, the governing body is often seen as one of an organisation’s “most critical strategic assets”, according to Vanguard CEO, William McNabb (Vanguard is a major US investment fund). It’s thus vital that it has the right mix of skills and experience in the light of its current and future needs. Succession planning and the management of talent and skills are vital components of this.
 
Director independence is clearly a critical enabler of an effective governing body. Governing body members have to be able to exercise judgement effectively—and be seen to be able to do so.
 
A final issue within this theme is the need for the governing body to pay more attention to how it oversees corporate culture. It is clear that corporate culture both on the governing body and the organisation as a whole provides the growth medium for certain kinds of behaviour—good and bad.
 
Steering through choppy waters
The second theme that should concern governing bodies relates to the business and socio-political environment in which the organisation operates. As a general observation, it is clear that organisations have to deal with unprecedentedly swift change. Innovation and its flipside, disruption, have become the defining characteristics of the 21st Century. The acronym VUCA—volatile, uncertain, complex and ambiguous—is often used to characterise the modern business environment and its risks.
 
This change frequently comes on the back of technological advances which often have unintended and unanticipated consequences. At present, cybersecurity and privacy threats are among the most serious, but governing bodies must ensure that they are equipped to govern all risk in this shifting context.
 
A related issue is how to define and ensure long-term value creation and sustainability. Risk is one factor, but others include investment in R&D, corporate culture, incentives and skill retention. At the same time, environmental, social and governance (ESG) factors are becoming more important to stakeholders, among them institutional investors.
 
The final theme relates to the rebuilding of trust within the broader context. Governance failures and irresponsible business practices have eroded the trust that stakeholders have in organisations—corporate governance has a critical role to play in rebuilding that trust. Issues that need attention in this context include the governance of ethics, stakeholder communications and crisis management, remuneration, and fostering trust between the governing body and management.
 
While this set of issues is by no means intended to be exhaustive, grouping them into themes will prompt governing bodies in creating their own long-term agendas.
 
Whatever the specific issues that are identified by individual governing bodies, they are bound to present a daunting prospect. A second Corporate Governance Network paper on the importance of mentorship for governing bodies, and how to make it happen, offers part of the solution. By learning to leverage the experience of others, whether governing body colleagues or not, governing bodies can avoid making the same mistakes and benefit from others’ successes.
 
ENDS
 
 MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@thatpoint.co.za, www.atthatpoint.co.za
 
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