According to a recent news article[1], Lifeline Ekurhuleni experienced challenges in forming a stable and credible board of directors.  "Having an capable board is absolutely essential for the effective functioning, oversight and control of an organisation," says Parmi Natesan, CEO of IoDSA. "When a board is effective, it significantly boosts an organisation’s ability to deliver on its objectives and maintain stakeholder trust."

The news article refers to ongoing challenges at Lifeline Ekurhuleni regarding the election of their board, noting that irregularities and issues with the nomination process have previously hampered board elections.” It describes an incident where board candidates were absent at an initial meeting intended to establish the governance structure, resulting in the meeting needing to be rescheduled. Given that every candidate missed the initial meeting date, it is unclear whether they were fully informed of their obligation to attend, which raises concerns regarding the communication process.  Additionally, it was reported that during the nomination period, technical issues caused the nomination submission method to be changed from email to WhatsApp, with not all the candidates being notified about this change, leading to claims that some candidates, despite applying, were not included in the original list.

Natesan points out that King IV clearly emphasises the need for a formal, rigorous, and transparent board nomination process. This approach ensures candidates selected are well-equipped to fulfil their responsibilities and meet the needs of the board.  It also provides credibility to the process and ultimately trust in the candidates being put forward for election.

The report further states that selected board members would now undergo vetting and training through the Department of Social Development (DSD).  Natesan, however, questions whether candidates were sufficiently vetted prior to their recommendation to the board.  Due diligence during the initial nominations process, prior to selection, is absolutely critical to ensure that candidates have the knowledge, skills and experience needed to perform their duties well.  It also provides some level of assurance regarding the lack of reputational risk by association with the prospective candidates.

Regarding the planned training by DSD, Natesan stresses the importance of clarity about its scope.  "Director training should explicitly cover crucial governance elements such as directors’ legal duties, strategic oversight, and accountability," according to Natesan. In order to be assured that board members are fully aware of their responsibilities and able to fulfil them, such training should be in line with King IV, which establishes the standard for efficient corporate governance.

Crucially, a major funder's remarks in the news report suggest that Lifeline Ekurhuleni must raise its governance standards in order to maintain financial support. This demonstrates unequivocally the growing significance of sound governance. Organisations need to understand that stakeholders are becoming increasingly aware of governance issues, especially funders. "Financial support and organisational sustainability can be directly threatened by poor governance practices," cautions Natesan.

The IoDSA strongly advises organisations to implement the recommended governance practices, such as a transparent and clear nominations process, rigorous due diligence procedures before appointment, and then extensive training programs for directors once appointed. Natesan concludes, "Good governance not only ensures board stability but also significantly mitigates reputational risks, enhancing trust and confidence among stakeholders."

[1] Fresh start for LifeLine Ekurhuleni as new board takes the helm | African Reporter

ENDS

MEDIA CONTACT: Stephné du Toit, [email protected], 084 587 9933, www.atthatpoint.co.za
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The draft of the new version of the King Code – which positioned South Africa as a global leader in corporate governance just over three decades ago – is now available for public comment. The King V Draft is a revised and streamlined update of King IV. The King Committee and the Institute of Directors in South Africa (IoDSA) invite comments until the close of business on 4 April 2025.
​
“King V considers both local and global developments since King IV was launched in 2016, and incorporates critical shifts such as the recent amendments to the Companies Act, evolving practices in remuneration governance, global developments in sustainability reporting, and the rapidly advancing technological landscape,” says Ansie Ramalho, Chair of the King Committee. Corporate governance is a critical tool for strengthening public and private institutions, to the benefit of the entire economy. She says it’s therefore crucial to update the guiding standards for corporate governance to ensure they remain relevant and effective.

As another key objective, King V intends to make it easier for organisations to interpret and apply the outcomes, principles and practices of good governance. Simplifying the Code will render it more user-friendly and accessible to a wider range of stakeholders. This involved, among others, the use of plain language, streamlining content and changes to the presentation of the Code and its supporting and ancillary documents. For example, the 17 principles in King IV have been reduced to 12. Also, the use of graphics and design elements has been cut down to help reading-impaired individuals and to align the style with regulatory drafting conventions. In addition, the King V Code will be presented as a stand-alone document and no longer as part of a report with the Code and its ancillary documents accessible from a single website.

The final objective was to develop a standardised approach to the disclosure of the Code's application to assist organisations with internal monitoring and disclosure of implementation of practices as well as to enhance accountability and comparability across different organisations. “This is helpful to regulators, shareholders and other users of reports on corporate governance,” says Parmi Natesan, CEO of the IoDSA. “However, we are also of the view that the newly established disclosure template provides organisations with the added advantage of facilitating and clarifying their disclosures on their governance practices on an apply and explain basis.”

Apart from these objectives, there are no significant deviations from King IV, adds Ramalho. Organisations that are already applying King IV should find the transition to King V relatively straightforward.

King V continues in its application beyond listed companies, to include state-owned enterprises, local government, non-profits, SMEs, and institutional investors such as pension and retirement funds and life insurers.

An open and transparent King V consultation process is important to ensure diverse input from business leaders, government and the public. Members of the public may comment in their personal capacity or on behalf of organisations, on the understanding that their comments will be published and attributed accordingly. All comments are to be submitted using the online form available on the IoDSA website, and no hard copy or late submissions will be accepted.

ENDS
 
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​The 2025 State of the Nation Address (SONA) showed touches of Groundhog Day, the film that replays the same scenario over and over again. President Cyril Ramaphosa’s promise of “a state that is capable and competent, underpinned by a professional public service” sounded like a repeat. While the Institute of Directors in South Africa (IoDSA) welcomes these intentions to restore good governance and professionalise the public sector, it notes that the President has now promised the same thing in many successive years. “This track record of empty promises makes us feel like we will just hear the same again at next year’s SONA without seeing any change,” says Parmi Natesan, CEO of IoDSA.

In this year’s SONA, Ramaphosa spoke of building a state with “leaders who are prepared to serve our people with complete dedication, and public servants who are ethical, skilled and properly qualified”. He added, “To achieve these objectives we are strengthening the role of the Public Service Commission in the appointment of the key people who direct the affairs of our state such as Directors-General, Deputy Directors-General, Chief Executive Officers of SOEs and board members and other senior positions.”

However, this approach is unlikely to bring the desired improvements in leadership and governance, because the Ministers will still have the power to make board appointments, which historically has seemed to be according to political lines and patronage. To ensure that SOE board members are indeed “ethical, skilled and properly qualified”, the IoDSA strongly recommends thorough due diligence in the appointment process, in line with the principles of King IV.

“King IV advocates for a competency-based approach to board composition, ensuring that directors collectively have the knowledge, skills, experience, and personal qualities necessary for effective governance and oversight,” says Natesan. “Furthermore, the IoDSA’s formal Chartered Director and Certified Director designations provide a framework for directors to acquire and demonstrate the specialist skills, experience and integrity needed to discharge their duties with mastery, in line with its Director Competency Framework.”

The IoDSA has, over many years, advocated for improvements to the nominations process, as well as the professionalisation of board members in the public sector in general. SOEs, in particular, play a critical role in the South African economy and society; and need to be governed well. “We even provided extensive input to the Department of Public Services and Administration many years back on a guide to the appointment of SOE directors – a step we were confident would make a positive difference – but unfortunately we are not aware of it ever being approved or applied,” says Natesan.

“South Africa cannot afford another cycle of unfulfilled promises. Instead of annual SONAs filled with familiar commitments, the country needs tangible action,” she cautions. “Professionalising the public sector and enforcing rigorous, competency-based board appointments is a crucial step towards realising the capable and competent state that the President envisions. Without decisive implementation, governance failures will persist, and trust in leadership will continue to erode. It is time for action, not just words.”

ENDS

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Embellishing your CV with a qualification that you haven’t earned is unethical, but many South Africans get away with it. A high-profile case of a director with an apparently fraudulent PhD – who was fined R500 000 and banned from holding a JSE directorship for five years – indicates a shift towards more accountability. “Whether this sanction is adequate may be debatable, but it sets a powerful public example that this kind of misrepresentation won’t be tolerated,” says Professor Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA). “We welcome seeing tangible consequences like this, as not nearly enough South Africans are being held accountable.”

Economist Thabi Leoka served as an independent non-executive director on the boards of several JSE-listed companies and as a member of President Cyril Ramaphosa’s Presidential Economic Advisory Council, when her alleged CV fraud was exposed. More recently, the JSE censured and penalised her for submitting a director’s declaration (as required by the JSE listings requirements) and thus being a party to the dissemination of information into the market, that falsely confirmed having a PhD in Economics from University of London.

Social media users seem to defend her, arguing that “certificates, degrees and diplomas are just pieces of paper” and “if she was able to perform her duties, what’s the problem?”. Natesan warns that this mindset reflects a broader societal issue where the ends are seen to justify the means, undermining the principles of accountability, integrity, and transparency. All these are essential for building trust in leadership and institutions.

She adds, “Misrepresentation of qualifications may also disadvantage other candidates who may have been better qualified but missed opportunities due to unethical practices. This perpetuates inequality and sends the message that deceit is acceptable for personal gain.”

Not many South Africans seem to be aware that the National Qualifications Framework Amendment Act makes it a criminal offence, punishable by up to five years in prison, to falsely or fraudulently claim a qualification registered with the National Qualifications Framework or any accredited body.

Obviously, the primary concern lies with the director who was dishonest in her CV, but the companies that didn’t verify her qualifications are also at fault, according to Natesan. “Performing due diligence on any appointment, especially senior ones, is basic good governance,” she says. Listed companies are required to apply King IV, which directly recommends the verification of qualifications, amongst other due diligence processes, prior to nomination.

“Directorship is a position of trust and responsibility”, says Professor Natesan. “While it’s vital that board members have the right skills for the organisation’s needs, it’s equally important to ensure that the board members have the highest ethical standards. The legitimacy of a leader is not just about performance but also about the trust they inspire among stakeholders. When a leader is found to have falsified their qualifications, it erodes trust in their organisation and can tarnish its reputation, even if they were competent in their role.”        
 
Ironically, having a PhD is not mandatory for obtaining a directorship, so the censured director could very well have been appointed to those boards on the strength of her existing qualifications and experience, had she only been truthful. 

ENDS

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The Companies Amendment Act extends the time bar to hold directors accountable from 24 to 60 months, or even more with good cause. Professor Natesan says, “It’s a definite move in the right direction, but I question whether it is enough.”

The amendment is a direct result of the Zondo Commission of Enquiry into State Capture’s finding that directors of captured state-owned entities (SOEs) had not been properly held accountable. It called for an amendment of the Companies Act to extend the period in which an application for an order declaring a person delinquent can be brought “as it can take a number of years for the facts of delinquency to be uncovered”. The Companies Amendment Act amends the Companies Act of 2008 to extend the 24-month time bar to launch proceedings to 60 months – and gives the court the power to extend this period further where good cause is shown.

“Directors, along with other prescribed officers in companies, can be held accountable for a considerable period after they have committed the alleged offences,” notes Prof Natesan. “This is something that the IoDSA has long championed. We commend the extension of the timeframe but want to emphasise that this is not the whole answer.”

Belts and braces needed
The reality is that the cost and length of time it takes to bring an application of director delinquency to court deters companies from making use of this remedy. With no fast or easy means to address delinquency, directors who are guilty of gross misconduct are often simply removed from a board. However, without censure or statutory action, they continue to serve on other boards. So the misconduct, corruption and maladministration continue – and that is very costly for everyone.

In her presentation to the Parliamentary Portfolio Committee, she proffers a comprehensive solution: the establishment of a statutory professional body to which all directors would have to belong in order to have a license to practice.

Such a professional body would govern the office of directorship, guiding the profession and setting and maintaining standards for ethical and professional practice.

“As things now stand, the IoDSA is a voluntary professional body for directors and so its mandate to take disciplinary action is limited to its members,” says Professor Natesan. While every effort is made to advocate publically for good governance and directorship,  this is not enough to hold directors accountable.

By contrast, a statutory professional body would require all directors to become members in order to practice. The new body would ensure standards are upheld, that knowledge and skills are vetted and kept up to date and that directors abide by a code of conduct, failing which their license to practice could be removed.  Ultimately this would result in a quicker and less costly manner to hold directors accountable.

The IoDSA has established a Director Competency Framework, which identifies 15 technical knowledge and application competencies and 15 personal attributes and behaviour competencies needed to serve as a director. It has also developed two director designations—Chartered Director and Certified Director—both recognised by the South African Qualifications Authority, to enable directors to gain, prove and maintain the necessary competencies.

“The Zondo Commission’s findings show just how badly directorial misconduct affects a company, and how important it is to be able to hold rogue directors to account in terms of a rigorous, professional standard,” concludes Professor Natesan. 

“I believe it is time for South Africa – company stakeholders, owners, boards and professionals – to harness the momentum established by the Zondo Commission and the new Companies Amendment Act and take a stand to professionalise directorship.”

INFO BOX
What, exactly, is delinquency?
As the IoDSA’s guidance paper on director delinquency notes, delinquency arises when a director breaches his or her fiduciary duties towards the company being served. If material acts of misconduct can be proved, as listed in Section 162(5) of the Companies Act, the director can be declared delinquent by the High Court and precluded from continuing to act as a director for seven years or more. This statutory enforcement, which can be lifelong, is not intended to be a remedy for a trivial misdemeanour but rather for gross abuses of the fundamental trust inherent in the position of a director – i.e., unlawful conduct committed wilfully or recklessly. Probation orders, which can reach five years, can also be made by courts against directors for material breaches of the standard of conduct required of a director, either with intent or through gross negligence.

What is expected of a director?
Legal duties require directors to exercise their powers and perform their functions in good faith, for a proper purpose and in the best interest of the company and with the utmost degree of care, skill and diligence that may be reasonably expected of a person in the position of that director and from a person with the general knowledge and specific skills of that director. Section 76 of the Companies Act partially codifies these common law duties of directors and sets out the prescribed minimum standard of conduct for all directors and prescribed officers. It includes, amongst others, the prohibition of directors from using their position to gain personal advantages or to harm the company.
Links

• IoDSA Director Competency Framework
• IoDSA’s Guidance Paper on Director Delinquency

ENDS

MEDIA CONTACT: Stephné du Toit, [email protected], 084 587 9933, www.atthatpoint.co.za
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We are not doing enough to hold delinquent directors accountable—and that’s having a knock-on impact on the overall state of governance.

Authored by: Vikeshni Vandayar, Executive: Governance and Corporate Services at the IoDSA

The King Codes, the Companies Act and the common law all set high standards for directors because of the huge influence directors have over the oversight and performance of an organisation, be it a private, public or non-profit entity. As the Zondo Commission’s report and a number of high-profile cases have shown, directors who do not do their jobs with due care and skill, or who are willfully dishonest or grossly negligent, can severely damage a company, causing huge negative impacts on all its stakeholders not to mention the negative impact the mala-administration of state-owned companies has on the South African economy.

South African Airways, Eskom, Steinhoff and Tongaat Hulett are just some of the big names scarred by directorial misconduct.

As King IV puts it, directors have to provide leadership that is both ethical and effective—the strong implication is that they are two sides of the same coin—at a recent IoDSA webinar held to discuss a guidance paper on director delinquency, issued by the Institute of Directors in South Africa (IoDSA) in collaboration with Organisation Undoing Tax Abuse (OUTA) and Bowmans, Richard Foster (an IoDSA Governance Specialist) said that accountability was critical to this kind of leadership.

For this to happen, he said, we need to have good governance codes in place, a solid legal framework, effective regulators and an independent, competent judiciary—all of which we are fortunate to have. The main recourse available is to have directors who do not fulfil their fiduciary duties declared delinquent or at least placed on probation. Probation orders last for a maximum of five years, while those for delinquency last for a minimum of seven years and up to the lifetime of the director depending on the severity  —as we saw with the late Dudu Myeni, former chair of SAA.

However, getting a director declared delinquent is a demanding process and can be expensive. As a result, Vanessa Jacklin-Levin a Partner at Bowmans, says many companies take a commercial decision and often come to a settlement with a rogue director to have him or her leave the company versus bringing a director delinquency application. Whilst this may be an effective route for the company to quickly remove such a director, she warns that it still allows that person to continue to hold directorships in other companies and to carry on with misconduct or bad behaviour elsewhere. As such the problem persists.

Advocate Stefanie Fick, the Executive Director of Accountability and Public Governance Division at OUTA (which instituted a delinquent case against the late Dudu Myeni) says that the private and public sectors should step up and take action. “People must know they cannot get away with failing to discharge their fiduciary duty,” she says. This being an imperfect world, though, given the risks and expense of holding a director to account, it seems more likely that NGOs like OUTA will have to lead this particular fight. In that case, the IoDSA’s paper argues, companies must support organisations like OUTA and the Companies and Intellectual Property Commission (CIPC) to undertake that effort should they not be willing to take on this challenge.

An important point is that directors and companies themselves must understand what a director’s responsibilities are, and what their fiduciary duties entail. It’s worth noting that the courts have increasingly seen the King Codes as a yardstick against which directors’ conduct can be measured. Directors of all organisations in South Africa should therefore understand King IV and its recommended practices in depth.

The IoDSA’s drive to professionalise directorship has never seemed more important. Properly qualified and professional directors will at least understand exactly what is expected of them—and the drive to have a licence to operate and to remain relevant will make it easier to remove a director should they lose such licence as a result of their misconduct, making the need to go the legal route less pressing, says IoDSA Executive Director Vikeshni Vandayar.

For South Africa to overcome and break the vicious cycle of corruption and maladministration, it is imperative to hold directors to account and to ensure such individuals found guilty of gross misconduct are not able to serve on any other board. “The overarching principle of a declaration of delinquency is to safeguard companies, investors, and other stakeholders including the South African public, from company maladministration and corruption,” says Vikeshni Vandayar. Taking this stand together with the professionalisation of directorship, she says, promotes effective corporate governance overall and sends a clear message that individuals in positions of trust will be held accountable for their actions and any individual wishing to serve as a director must maintain the highest standards concerning their duties.

ENDS
 
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The recent SENS announcement by a JSE-listed company that it had appointed an alternate director raises an important issue: while the Companies Act allows for the appointment of alternate directors, is it good governance? Professor Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA) says the pros and cons need to be weighed up carefully.

“In certain situations, the appointment of an alternate director may be necessary, but in the end, it should not be a common practice for a number of good reasons,” she says.

In terms of section 1 of the Companies Act (71 of 2008), an alternate director may be elected or appointed to substitute for a particular director of the company. As a director, he or she would have the same responsibilities as the primary director.
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This already points to a potential problem because it will be difficult for an alternate to be kept up to date with the company and its strategy, as well as its markets over extended periods. It’s, therefore, best to see the appointment of alternate directors as a limited measure to be taken in specific circumstances; for example, when a director is not available for a limited period owing to travel or illness, and he or she has special expertise that is considered crucial.

“In such an instance, an alternate with the same special expertise could play a valuable role in ensuring the absence of the primary director does not have a significant adverse effect,” says Natesan. “But the basic principle is that a director should only accept an appointment if he or she is fully committed and available to fulfil his or her responsibilities. Relying on alternate directors too heavily can create issues around accountability and interfere with board dynamics.”

In addition, Natesan adds, frequent use of alternate directors can lead to inconsistent decision-making and a lack of continuity in strategic oversight. Good governance depends on a board that works well together and whose members build up a deep knowledge about the company and its issues. It is not realistic to expect alternate directors to acquire this detailed, in-depth understanding through their sporadic involvement, even if they are on the distribution list for board-related communications, minutes and information.

When a board determines that appointing an alternate director makes sense, Natesan says that best practices should be followed. Clear policies defining the role, responsibility and limits of alternate directors must be drafted so they are properly integrated into the board’s activities. The need for such alternates should be regularly reviewed by the board—if the need becomes lengthy, then it might be time to consider a replacement.

A robust succession plan should be in place to replace any directors who become frequently unavailable with somebody with a similar skills profile who does have the capacity to serve fully.

“While alternate directors can provide a solution in certain situations, relying on them as a standard practice may not align with the principles of good governance. Companies should prioritise appointing directors who are fully committed and available,” concludes Natesan. “If alternate directors are used, policies must be in place and regular reviews should be conducted to determine if a more permanent solution is needed.”

ENDS

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President Ramaphosa’s announcement of the multiparty cabinet of the Government of National Unity (GNU) has been broadly welcomed as a move towards a more inclusive government that could make progress in addressing the multiple challenges the country faces. There’s no denying that this is an historic moment, says Professor Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA), but the right choices need to be made.
 
“It’s very heartening that the President has committed the GNU to professionalising the public service based on ‘integrity and good governance’, and that they intend appointing people who are ‘committed, capable, hard-working and also have integrity’,” she says.
 
These criteria outlined by the President align well with the qualities of ethical and effective leadership outlined in King IV: integrity, competence, responsibility, accountability, fairness and transparency.
 
“These are noble intentions, but time will tell whether the right people have been appointed and whether the results truly benefit of South Africa Inc and its citizens,” Natesan adds.
 
Principle 1 of King IV says, “The governing body should lead ethically and effectively.” King IV’s linking of ethics and effectiveness is an important connection that is all too often forgotten, she notes. Such an approach is also consistent with s 195 of the South African Constitution, which states, amongst other things, that ‘a high standard of professional ethics must be promoted and maintained’. 
 
It is thus critical to have the right people in leadership positions of our country and of our public sector entities. Principle 7 of King IV spells it out: the governing body must possess the “appropriate balance of knowledge, skills, experience, diversity and independence”, and its practices provide recommendations for how to achieve this.
 
It’s equally important that the executive team is also appointed based on their competence and moral compass; and with the needs of the organisation and its strategic goals in mind.
 
For many years, the IoDSA has been urging the public sector to adopt the principles of good governance as outlined in the King Reports. State-owned enterprises (SOEs) have experienced challenges because appointments to both their boards and executives have been made largely on political grounds rather than merit. By exploiting its position as the single and thus powerful shareholder, and the inadequacies of some of the founding legislation, government has been able to side-step the principles of good governance as outlined in King IV.
 
“Only if the new government commits itself to good governance and professionalising the public service will it be able to deliver on its mandate of, amongst other things, much-needed improvements in service delivery . The IoDSA has long argued that professionalising directorship is a key step in the journey towards better governance and thus better-performing organisations,” Professor Natesan concludes. “I strongly urge the newly appointed ministers, their deputies and the leadership of SOEs and other public-sector entities to reaffirm their commitment to King IV’s principles—they are the key to turning the optimism of the current moment into reality.”

ENDS

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During March 2024, the Department of Basic Education will be overseeing elections for school governing bodies, as it is required to do every three years. The Institute of Directors in South Africa (IoDSA) is urging parents and other stakeholders eligible to actively participate in the voting process.

“School governing bodies have a vital role to play in ensuring that our public schools are properly governed and thus more successful—if the education system continues to produce substandard outcomes, our common future is compromised,” says Professor Parmi Natesan, CEO of the IoDSA. “Good governance has been shown to improve performance in organisations of all types, school governing bodies included.”

According to the Minister of Basic Education, Angie Motshekga, research shows that schools with active governing bodies excel across several metrics, including academic performance, learner well-being and community engagement. They also report a 20% higher pass rate than schools with lower engagement by the governing body.  Additional benefits include a significant decrease in vandalism and truancy.

Governance is all about providing a framework for ethical and effective leadership to ensure the organisation (in this case a school) is sustainable over the long term. Broadly speaking, the school governing body fulfils the role of the board of directors in a company and is responsible for setting strategy and ensuring the executive is held accountable for implementing it.

The benefits of a school governing body adopting good governance include improved leadership, decision-making and strategic vision; better monitoring and mitigation of risks; and increased confidence on the part of internal and external stakeholders (such as pupils, teachers, parents, local communities and the Department itself).

“As in the broader political sphere, the first step to realising the benefits of good governance is to ensure that the best possible governing body is elected. Having the right skills on board is critical. Given the benefits that flow from an active governing body with the right mix of skills the school needs, it is concerning that turnout at these elections is reported at the 40% level,” says Professor Natesan. “Parents and other stakeholders who want to see a particular school succeed must take an active role, and ensure that people who are skilled and ethical are elected with the strong mandate that comes from a high voter turnout.”

 “A crucial step is for parents and other stakeholders to get involved and vote for the school governing body they want to see,” ends Natesan.

ENDS

MEDIA CONTACT: Stephné du Toit, [email protected], 084 587 9933, www.atthatpoint.co.za
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Recent news reports that a high-profile individual was removed from a Board, allegedly because one of her qualifications had been misstated, is the latest in a line of similar incidents.  However, the director in question has reportedly indicated that her qualification is legitimate, and that the confusion arises from the fact that she changed her name at some point. Whatever the case, questions around the validity of directors’ qualifications should not come up after appointment.

According to Professor Parmi Natesan, CEO of the Institute of Directors in South Africa, “Performing due diligence on any appointment in any organisation, and especially senior appointments, is basic good governance. Given the huge responsibility that directors carry, and their importance to the organisation, they of all people need to be thoroughly vetted before appointment,” she says.

Research by the IoDSA shows that board composition probably has a greater impact on the future success of an organisation than any other aspect of governance. It therefore follows that ensuring the board members have the right skills for the organisation’s needs is vital, in line with Principle 7 of King IV: The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.

Equally important is ensuring that the board members have the highest ethical standards.

Recommended Practice 19 specifically advises that “candidates’ backgrounds should be independently investigated, and their qualifications should be independently verified”. Despite this, recent news reports indicate that a number of organisations on whose boards the director served have never vetted her qualifications as this was either not felt necessary or was not a requirement.

Professor Natesan says that failure to perform this item of governance housekeeping makes an organisation vulnerable to reputational damage, while longer-term harm could be caused by the unqualified director’s inability to provide the quality input needed.

The due diligence process should be formal, transparent and rigorous, the IoDSA says. It must begin with ensuring that the potential director meets the criteria for serving on the board as determined by applicable legislation and the organisation’s founding documents. This typically includes identification, qualification, reference and even credit checks.

In addition, the board needs to interrogate the candidate’s knowledge of, and experience in, directorship. It’s no longer enough to be a subject-matter expert—modern-day directorship requires a range of professional directorial skills. It’s also important to assess whether the potential director has the right personal qualities, which would include integrity, honesty, curiosity, courage, teamwork, communication skills and so on. In addition, care should be taken to ensure that any potential director would fit with the board’s culture and dynamic, and has a genuine interest in the organisation and what it does.

“An organisation that does not perform this routine vetting of directors prior to appointment risks eroding the trust that shareholders, potential investors and other stakeholders have in its wider governance, and thus in its potential to succeed,” she argues.

ENDS
 
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