Koko matter has lessons for directors and execs
Tuesday, 25 July 2017
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.”