Conclusions and recommendations made in part one of the state capture inquiry report align closely to a letter sent by the Institute of Directors South Africa (IoDSA) to the Zondo Commission in September 2021. The letter included recommendations on director competencies as well as the nomination and selection of directors.
 
Section 580 of the state capture inquiry report mentions that the appointment of board members to SOEs “has proven to be problematic and does not represent the “robust and transparent” process recommended by King IV”. It also highlights the common “disjuncture between the fiduciary duties of SOE board members and the profile, skills and expertise of incumbents”.
 
Section 582 and 583 further explain why “the national interest demands that state owned enterprises operate under efficient and professional leadership which requires that the appointment procedure is transparent, not driven by party political interests but made in accordance with objective criteria”.
 
King IV makes a few important recommendations relating to the governance of the nomination
process. The first of these is Recommended Practice 15: “the processes for nomination, election and ultimately, the appointment of members to the governing body should be formal and transparent”.
 
Recommended Practice 16 states that “before nominating a candidate for election, the governing body should consider the collective knowledge, skills and experience required by the governing body, the diversity of the governing body, and whether the candidate meets the appropriate fit and proper criteria”.
 
“While we welcome the alignment between the conclusions of the report and what the IoDSA has been saying for years, we are anxious to see the implementation of the recommendation on the professionalisation of directors,” says Parmi Natesan, CEO of the IoDSA.
 
Professionalising directorship will not automatically eliminate incompetent or corrupt directors any more than professionalising medicine or engineering achieved that goal. It will, however, provide an objective framework for ensuring that directors have the required skills in terms of an objective competency framework, and that they can be disciplined in terms of a professional Code of Conduct.
 
Alongside the professional skills a modern director needs, it is vital that individuals who serve as directors possess the necessary personal qualities. Directors should above all be ethical, independent and courageous. Courage and independence are particularly necessary because directors must put the interests of the organisation first, and this may mean going against the interests of the parties which appointed them or, indeed, their own interests.
 
“Our highly respected director development programmes, Certified Director (SA) and Chartered Director (SA) designations, and governance advisory services are available immediately to support the implementation of the recommendations made by the Commission,” says Natesan.
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@atthatpoint.co.za, www.atthatpoint.co.za
 
For more information on the IoDSA please visit:
Website: https://www.iodsa.co.za/
Twitter: https://twitter.com/the_iodsa
LinkedIn: https://www.linkedin.com/company/institute-of-directors-in-southern-africa
Facebook: https://www.facebook.com/TheIoDSA

More laws and regulations are not going to solve the many problems business—and the country—face. Only changed behaviour will do that.
​
Authored by Parmi Natesan, CEO, Institute of Directors in South Africa (IoDSA)
 
Reading through the proposed amendments to the Companies Act again, it struck me that they are symptomatic of a general South African problem: too much regulation, too few results. No doubt some of these amendments are necessary, but will they actually address the big issues that concern us all?
 
It’s doubtful. We already have a huge legal superstructure, and yet corruption, corporate wrongdoing and all sorts of other shenanigans continue to dominate the headlines.
 
Rules are obviously important. But no matter how well drafted or necessary, they will not be effective if they are out of sync with the surrounding culture, and if they are not implemented by people with the right skills and attitude, with visible consequences for transgressions.
 
In addition, if there are too many onerous laws and regulations then businesses (and citizens, in the end) begin to find them burdensome and turn either to mindless compliance or outright circumvention.
 
One example that will prove my point is the proposal to mandate the disclosure of pay gaps between the highest and lowest earners. The intent—addressing the social inequality prevalent in the country—is certainly necessary, but this is a complex issue not solvable simply by a set of rules.
 
One might argue that if the wage gap is the outcome of a faulty economic system, then fixing it requires the fundamentals to be addressed—simply disclosing the wage gap in isolation is futile. Disclosure needs to be complemented by policy change and a mechanism for monitoring how the gap has changed over time. We also need to agree that a wage gap will always exist, but what the parameters of an acceptable wage gap look like.
 
As it now stands, the current proposals risk a slew of unintended consequences. One is the real possibility that they would simply speed up the brain drain as top executives move to jurisdictions where earning high rewards is less complicated or threatened. The proposals could also prompt companies to restrict the hiring of junior employees and outsource lower paid employees in order to improve the gap between highest and lowest paid. Some companies could even relocate to avoid rules that are perceived to make doing business more difficult. Losing companies and executives, not to mention jobs and taxpayers, would surely be an unintended—and highly negative—consequence. 
 
One final point that needs to be made. With the latest official unemployment figures standing at 34.9%, focusing on the wage gap seems a little unbalanced given that a third of our people are without any job at all.
 
Changing hearts and minds
The phenomenon of overregulation is widely recognised as something that needs to be solved. President Ramaphosa has set a target for South Africa to better its ranking in the World Bank’s Ease of Doing Business Index, from 82 to 50.
 
Part of the solution is surely to cure our addiction to solving problems by making new laws, and rather find ways to change how organisations and the people within them think and behave.
 
Corporate governance codes provide a useful example of an alternate approach. Having started off with a somewhat compliance-based approach, the King Reports on Corporate Governance have mutated into something quite different: King IV has moved decisively from being a set of “rules” that ought to be complied with (often while circumventing the spirit of the rule) to a set of outcomes that are aspirational.
 
In parallel, the emphasis has shifted to requiring an explanation of which recommended practices have been applied in order to achieve each principle, and away from the simple implementation of static requirements.
 
Substance over form, in other words.
 
King IV thus ultimately aims to change the culture of the organisation, and how it does business. We are not there yet, of course, but if stakeholders and the overall social context demand it, it will happen. A prerequisite will be that corporate and government leaders begin to embody a culture based on ethical and effective leadership that in the end supersedes the “rules”.
 
The importance of the outcomes-based approach embodied in King IV can hardly be overstated. One of its main advantages is that it is non-prescriptive and flexible, allowing organisations latitude in how they go about applying the code’s principles so long as they explain what their thinking was and what progress they have made. Unfortunately, since its launch, we have not seen disclosure with the depth intended by the Report.
 
To conclude, I want to emphasise that a solid body of good laws remains an essential foundation for a vibrant economy and a just society, but it cannot succeed unless the surrounding culture also changes. Instead of putting more laws on the statute books, government should be focused on making it easier to do business and supporting efforts to change the culture that pervades business, and the nation at large. Absent that, we will not address the real issues—inequality, financial inclusion, environmental stewardship and so on—while risking a further contraction of the economy with everything that would entail.

ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@atthatpoint.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 decision by the board of Absa to remove Sipho Pityana has provoked an enormous amount of controversy and a great deal of debate. Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA) says that the public needs to ensure it understands the law relating to the removal of a director, but that it also takes into account the complexities of the decision process the board would have undertaken.
 
“The legality of Mr Pityana’s removal from the Absa board will be decided in reference to the stipulations of the Companies Act, which provides the conditions under which such an action may be taken,” she says.
 
In terms of the Companies Act, there are two ways to remove a director. One is for the shareholders of the company to adopt an ordinary resolution at a shareholders’ meeting. The persons entitled to exercise voting rights in the election of a director would be eligible to vote in this matter.
 
Alternatively, as was the case in this instance, the board can remove a director via a board resolution if a director or shareholder has alleged that the said director has become ineligible or disqualified from sitting on the board; is so incapacitated that he or she cannot perform directorial functions and is unlikely to regain that capacity within a reasonable time; or has neglected or been derelict in performing his or her directorial functions.
 
In both cases, the affected director needs to be given notice of the meeting and the content of the resolution, as well as reasonable opportunity to make a presentation prior to the vote taking place.
 
“We live in the Age of Social Media, and we are often quick to form and then voice strong opinions. In this instance, the Companies Act lays down the framework under which a director may be removed from office; and there is a due process to be followed,” she says. “In addition, even after the decision, the director concerned has the right to apply within 20 business days to a court to review the determination of the board.”
 
We will now wait and see how this further legal process unfolds. This is a highly complex case, with many issues to be taken into consideration. One thing is clear though—boards have to take tough decisions if they believe it is in the best interests of the company, while staying within the lines of the law. Whether this was the case is a matter for the experts to decide, and we should let them do so.
 
ENDS
 
MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@atthatpoint.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  

Johannesburg - A strong unequivocal commitment to fiscal sustainability announced by the Finance Minister in his Medium-Term Budget statement is to be welcomed, but the decisive test is always seeing words put into action and for government not to waver from its stated path.
 
The Institute of Directors South Africa (IoDSA) says boardrooms around the country should welcome Minister Enoch Godongwana’s sentiments on long-term growth, narrowing the budget deficit and stabilising the worrying trend of rising debt.
 
Notes IoDSA, CEO Parmi Natesan, “In order for business to thrive in South Africa and confidence to increase, strong messages like this assist and go a long way to restoring confidence. However, promises without swift action are hollow and we now look forward to seeing how government plans to deal with the debt issue that remains at worryingly elevated levels. We are also buoyed by the Minister’s concerns over unemployment but again we need to see more detail on the solve.”
 
Natesan says a call for faster implementation of structural reforms to unlock greater private sector investment, economic growth and job creation is also a welcome move, particularly when it comes to private sector participation.
 
“Our members tell us their companies are prepared to act and participate more robustly if over-regulation and red tape are reduced which would then create a smoother and more efficient operating environment.”
 
Natesan says a critical aspect of big infrastructure spend is fiscal accountability.
 
“Big capital projects always carry high potential for fraud and malfeasance. Now more than ever we need the right governance protocols in place and then implemented without fear or favour to make sure allocated funding is responsibly managed and accounted for.”
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za,  www.atthatpoint.co.za
For more information on the IoDSA please visit:
Website:  www.iodsa.co.za
Twitter:  @The_IoDSA
LinkedIn:  Institute of Directors in South Africa Company Page  

THE upcoming local government elections are unquestionably one of the most important in South Africa’s recent democratic history and the Institute of Directors South Africa (IoDSA) joins a widespread call to urge voters to turn out in their numbers.

The Institute’s CEO Parmi Natesan says, “There is sufficient evidence to suggest that many municipalities in South Africa are either failing or close to a state of complete collapse. Poor service delivery has a direct impact on jobs and sustained growth and its only through the ballot box that people can make their dissatisfaction heard and to effect change where necessary.”  From a governance perspective, the voters are, after all, key stakeholders in these entities and thus need to hold the leadership to account.

According to the office of the Auditor General, less than 40 of the country’s 278 municipalities are said to be on a sound financial footing and should this trendline continue the risk to investment will continue unabated as well as putting increasing strain on the national fiscus as well as South Africa’s sovereign risk.

Fay Mukaddam, a governance specialist with the IoDSA notes, “There is no doubt that the country has reached another growth and development crossroads and failure to get local government moving in the right direction will have negative consequences for years to come.  And it’s at this level where the crisis is most pronounced.  If a municipality is unable to effectively offer the most basic of services, there is an immediate negative sentiment created and this has rapid knock-on effect on the creation of new jobs.”

A case in point says the IoDSA was the recent case of dairy company Clover’s decision to relocate its cheese factory from the town of Lichtenburg in the Ditsobotla Municipality due to poor service delivery for number of years. Over 400 – permanent and temporary - jobs were lost which could have been saved had there been more attention focussed on basic issues like garbage disposal and road maintenance.

The Institute says for business to remain focussed and competitive; it must have a constant symbiotic and trusting relationship with local government and part of the compact is making sure a sustainable operating environment is delivered all year round.

Mukaddam says while the Clover example was a high-profile and well documented issue, there are many other businesses in South Africa that are experiencing similar frustrations and that the November 1 election can be a time for businesses to send a clear and unambiguous message to failing municipalities that they have run out of runway.

The IoDSA says it also acknowledges that poor service delivery and inefficient municipalities cannot be an overnight fix and that current problems are in many cases historical. Part of the dilemma according to the Bureau for Economic Research at Stellenbosch University lies with mangers and staff who often lack technical insight; and in the way that tender specifications are drawn up. An additional problem is that many smaller and poorer municipalities do not have a proper tax base.

Natesan concludes, “We acknowledge these are deep-rooted problems which result daily in poor management of operational budgets; a failure in many cases to spend capital budgets as well as wasteful and irregular expenditure. And while change might occur at the political level, that doesn’t mean that problems like this will disappear immediately. There is also a vital need for functional and effective change at the governance and administrative level but that the November 1 poll is the starting point.”

ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za,  www.atthatpoint.co.za
For more information on the IoDSA please visit:
Website:  www.iodsa.co.za
Twitter:  @The_IoDSA
LinkedIn:  Institute of Directors in South Africa Company Page  

Cricket South Africa (Cricket SA) has lurched into yet another crisis with the Members’ Council rejecting the interim board’s proposal that the new board be composed of a majority of independent directors. The move by the Council goes against widely-accepted international best practice, including the King IV Code on Corporate Governance, and is probably indicative of the lack of trust between the Members’ Council and the Cricket SA board, says Ansie Ramalho, Technical Facilitator at the Institute of Directors in South Africa and Chair of the King Committee on Corporate Governance in South Africa.
 
“The challenge that Cricket SA faces is common in the non-profit sector, small businesses and even some state-owned entities, where boards are often dominated by representatives of key stakeholders such as donors, communities, beneficiaries or investors. Stakeholder representivity might seem like a good idea as it gives stakeholders a say at the highest level, but in fact it is not ideal,” she explains. “Directors have a primary duty to the organisation itself—in this case Cricket SA—and not to the Members’ Council or other stakeholder groupings. Usually, the interests of the organisation and its key stakeholders are aligned but there are situations in which the short-term interests of a particular stakeholder may conflict with longer-term considerations relating to the organisation’s sustainability. So-called representative directors are often mandated to promote a particular agenda at the board which also increases the potential for conflicts of interests.”
 
For this reason, good governance practice for a company such as Cricket SA would be to have a majority of independent non-executive directors who are better placed to take a more objective view of issues, and to put the interests of the organisation first. This was also a recommendation by the Nicholson Commission of Enquiry in its 2012 report on maladministration at Cricket SA.
 
Ms Ramalho also argues that there is a good case to be made for the appointment of professional, career directors who have the governance and oversight skills necessary to discharge their fiduciary duties competently. The dilemma of non-executive directors is that they do not have the benefit of day-to-day knowledge of the organisation, and thus suffer from a “knowledge deficit” when compared with executives.
 
“Being an expert at wielding the tools of governance and oversight compensates for the asymmetry of information between non-executive directors and executives. Merely representing a stakeholder grouping or having had a successful career as an executive are not in themselves adequate for offering rigorous and objective oversight,” she says. “If the directors are not sufficiently independent and fully qualified to offer oversight and look after the organisation’s long-term interests, the whole system of checks and balances is rendered ineffectual.”
 
Ms Ramalho suggests that, the primary focus of the Members’ Council should be to ensure that Cricket SA has the best possible board, composed of directors with the ability to hold management to account competently and without bias. It is after all ultimately the responsibility of Members’ Council to elect the board members and it is therefore within its power to insist on a rigorous selection process that delivers this outcome. “That is the only way to ensure Cricket SA is governed with its long-term interests—and the interests of the game as a whole—at the forefront,” she urges.
 

News reports indicate that the suspended board of North West Cricket might be facing an application by parent body, Cricket South Africa, to have them declared delinquent directors. While the facts of the matter have yet to be tested in court, being declared delinquent is a serious issue and all directors should take note, says Advocate Fay Mukaddam, Chartered Director and Technical Advisor at the Institute of Directors in South Africa (IoDSA).

“On the face of it, this seems to be an issue that does not appear to revolve around looting or corruption such as we see on vivid display at the Zondo Commission. Rather, the issue here seems to be maladministration and the misappropriation of funds,” she explains. “This was only possible if the board failed in its primary responsibility to exercise oversight effectively, and that’s why it and its chairman may potentially be held liable.”

The basic facts are that Cricket South Africa made funds available for upgrading a stadium. An investigation by Deloitte showed that R2.2 million of the R10 million received had been used not on the stadium but on operational matters.[1]
According to Advocate Mukaddam, this misappropriation of funds should have been picked up by the board in the course of its normal oversight activities.

“In other words - and this is a point the IoDSA has always stressed - directors need to have the right skills in order to discharge their fiduciary duties. Being a successful businessperson or professional, or just a good person, is no guarantee you will be a good director,” she says. “Directors bring their existing skills, experience and personal qualities to the table, to be sure, but they also need to learn how to be directors. It’s for that reason that we introduced our Certified Director and Chartered Director designations to provide directors with a way to acquire the necessary directorial skills.

“Directors don’t have to be bad apples to be held liable for not fulfilling their duties—if they can’t or don’t do their job, they can also be held liable.”

Cricket South Africa placed North West Cricket under administration in 2018 on the basis that its administrative, governance and financial functions were not satisfactory,[2] a lack for which the board is ultimately responsible.

If found to be delinquent, directors face the prospect of fines or even jail time and being barred from serving on a governing body for a length of time or forever.

[1] Tiisetso Malepa, “North West Cricket board directors could be declared delinquent”, TimesLive (16 March 2021), available at https://www.timeslive.co.za/sport/cricket/2021-03-16-north-west-cricket-board-directors-face-delinquency/.

[2] Cricket South Africa press release, “CSA appoints administrator for North West Cricket”(13 December 2018), available at https://cricket.co.za/news/27470/CSA-appoints-administrator-for-North-West-Cricket.

Institute of Directors in Southern Africa & The Ethics Institute

​Eskom’s decision to pursue disciplinary action against its suspended acting-CEO, Matshela Koko, raises important governance and ethical issues that directors and executives should consider carefully, say Parmi Natesan, Executive: Centre for Corporate Governance at the Institute of Directors in Southern Africa (IoDSA) and Professor Deon Rossouw, CEO of The Ethics Institute (TEI).
 
“Mr Koko stands accused of influencing the awarding of lucrative contracts to a company in which his stepdaughter is a director. While we should be careful not to prejudge this specific case, conflicts of interest like this represent a major hazard for board members and executives, if they are not managed correctly from the start. All of us should see Mr Koko’s predicament as a wake-up call to make sure our own houses are in order,” says Natesan.
 
The first point to make is that a senior executive like Mr Koko is both an employee of the company; and a deemed director or prescribed officer in terms of the Companies Act. Such a person is thus bound both by the internal policies of the company and the legal requirements of the Act. As regards the former, it would be necessary to see whether any company policies were breached in the way the contracts were awarded, and whether Mr Koko was himself involved in this process, and whether he disclosed his interest appropriately.
 
“It needs to be made clear that claiming ignorance is not a good enough defense.  As  a senior executive, Mr Koko should have investigated actively the interests of any of his related parties, even to the extent of requesting them in writing to inform him if they had any interests in organisations doing business with the company,” she explains. “This would show that he took reasonably diligent steps to be informed. One should never lose sight of the fact that as a senior executive, he has to set an example to the rest of the organisation and protecting its reputation.”
 
 
 
Natesan notes that conflicts of interest are to be expected in business, and do not necessarily constitute evidence of any impropriety: the key issue is how they are handled. King IV thus recommends that members of governing bodies should declare their financial, economic and other interests, and those of their related parties, at least annually. In the same vein, each board or board-committee meeting should be prefaced by a formal declaration of any specific conflicts of interest relating to the agenda.
 
Professor Rossouw points to the fact that humans are naturally inclined to act in their own interests or in the interests of their immediate family and friends. While the Companies Act and governance codes like the King Reports are examples of legal and voluntary constraints to the pursuit of self-interest, they will ultimately prove ineffectual unless the individuals concerned act ethically.
 
“I find it significant that the very first principle of the King IV Code on Corporate Governance emphasises that members of governing bodies, both individually and collectively, should act in an ethical manner. In unpacking what is meant by ethical behaviour, the Code starts by focussing on the personal integrity of members of the governing body. They are reminded that as directors, they must act in the best interest of the company, and that they must deal with conflicts of interest appropriately. King IV sees integrity as a characteristic that should be cultivated and exhibited, so that directors develop the inclination to act in the company’s best interests, not their own” he says.
 
“By sensitising directors not only to actual conflicts of interest but also potential or perceived ones, ethics plays a crucial role in avoiding the reputational damage and financial costs when a conflict of interest is found, or even suspected not to have been handled correctly —as we see in the case of Mr Koko.”
                                                                                        
ENDS

 
MEDIA CONTACT: Carla Coetzee, 072 112 8347, carla@thatpoint.co.za, www.atthatpoint.co.za
 
For more information on the IoDSA please visit:
Website:  www.iodsa.co.za
Twitter:  @The_IoDSA
LinkedIn:  Institute of Directors in Southern African Company Page  
 
 For more information on The Ethics Institute please visit:[DR1] 
Website: www.tei.org.za
Twitter: @EthicsInst
LinkedIn: The Ethics Institute Company Page

Government’s undertaking to finalise a board-appointment framework for state-owned entities (SOEs) by March 2018 is warmly welcomed by the Institute of Directors in Southern Africa (IoDSA). The move is one of the key steps outlined in Government’s Inclusive Growth Action Plan, which was released by the National Treasury on 13 July 2017. The Plan is intended to kick start economic growth, end the recession and stave off further downgrades. 

“State-owned entities are key enablers of economic growth, particularly in South Africa, and the IoDSA has repeatedly argued that their lack of performance is linked to imperfect governance, particularly when it comes to appointing directors,” notes Parmi Natesan, Executive: Centre for Corporate Governance at the IoDSA. “We will certainly be making our specialist expertise in this area available to Government going forward, as it works to create the framework for appointing SOE board members.”

Natesan says that the IoDSA has already interacted with the Department of Public Service and Administration in this regard, and has made several recommendations for its consideration. As the torchbearer for corporate governance and the convenor of the King Committee, the IoDSA will certainly hold itself ready to contribute further as Government gets down to the details of the proposed framework. 

The IoDSA has long argued that “board composition probably has the greatest single impact on the future success of an organisation”, to quote its recent board appraisals benchmark study. 

Directors need to have the requisite knowledge, skills, experience and personal qualities, and should be appointed through a formal, independent process. This is critical in any organisation, but particularly for SOEs because of their influence on the rest of the economy, and the difficulty of keeping political and economic goals separate. 

As the IoDSA has pointed out before, it is critical that the state as shareholder and the board understand their respective roles, and that undue political interference in the appointment of board members is avoided. Boards cannot be held accountable for the SOE’s performance if they are unable to exercise their judgement freely and in the best long-term interests of the organisation, Natesan says. 

Another critical factor is the need for demonstration of appropriately skilled and experienced directors. To help resolve this, the IoDSA is playing a leading role by providing training related to each of the 20 competencies identified in its Director Competency Framework. It has also introduced the professional Chartered Director (SA) designation in 2013 and more recently the Certified Director designation, in a bid to professionalise the directorship role, providing directors with a way to ensure they build the right competencies; and organisations with a way to ensure they are getting the directorial talent their boards require to function effectively. 

The final piece of the puzzle is regular, objective assessments of board performance. 
“The IoDSA is committed to improving corporate governance across South Africa. Effective corporate governance can improve organisational performance over the long term, which has socio-economic benefits for the country as a whole, but it will also contribute to reversing the perception of corruption that is swamping our public life,” Ms Natesan concludes. “While the IoDSA is a non-statutory, voluntary body and cannot act directly to penalise improper conduct, we have a key role to play in building awareness, providing training and guidelines, and influencing governance policy. We believe this element of the  Inclusive Growth Plan offers a great opportunity for us to do so.”
ENDS

MEDIA CONTACT: Carla Coetzee, 072 112 8347, carla@thatpoint.co.za, www.atthatpoint.co.za 

For more information on the IoDSA please visit:
Website:  www.iodsa.co.za
Twitter:  @The_IoDSA
LinkedIn:  Institute of Directors in Southern African Company Page