It’s past time to regulate directorship

The Zondo Commission’s Reports are surely a turning point. Directors are critical to a company’s success, and they must be regulated like any other professionals.

Authored by: Parmi Natesan, CEO, Institute of Directors in South Africa (IoDSA)

Doctors, financial advisors, auditors, accountants and many others all have professional bodies that set the standards for the profession and hold its members accountable for their conduct. Because these professionals deal with important areas of our personal and collective lives—health, finances and so on—it’s important to ensure that only those who are both properly skilled and are considered “fit and proper” are allowed to practice.

It beggars belief that this approach is not followed when it comes to directorship. As the Zondo Commission has confirmed in graphic detail, if an organisation’s directors are not competent and do not have the organisation’s best interests at heart, the consequences can be dire. And yet, because directors are not compelled to be members of the professional body in order to practice, they can be appointed with no assurance as to their knowledge and experience, nor their commitment to good governance.

More to the point, they cannot easily be held accountable—a lengthy and expensive court case is needed to find a director delinquent and thus disbarred from practising as one. The Dudu Myeni case was heartening, but it took some time to bring to court; if she had been a member of the IoDSA, she could have been held accountable much more rapidly, even more so if membership of the IoDSA conferred a licence to practice.

For many years, the IoDSA has been arguing that directorship is long overdue for professionalisation, and we have done the necessary groundwork. We have created 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. We have created two director designations, both recognised by the South African Qualifications Authority, to enable directors to gain, prove and maintain the necessary competencies.

But, and this cannot be emphasised enough, individuals do not need to hold one of these designations or be a member of the IoDSA to serve as directors, and so we cannot hold them to account.

A quick scan of recent media reports makes the powerful point that the overwhelming majority of questionable directors are not members of the IoDSA and do not hold any of its professional designations. The two former AYO directors publicly censured by the JSE and the six former Tongaat directors in the dock are none of them members or designation holders of the IoDSA.

The same trend is evident in the Zondo Reports. The three reports already published name a large number of people for investigation and possible prosecution by the National Prosecution Authority (NPA). Of the implicated, high-profile directors in the first two Zondo Reports, only one is a member of the IoDSA, and does not hold one of our director designations. (We are still working through the third Report to see if this trend continues.) We are following our disciplinary processes in relation to this one individual, but regrettably the rest cannot be held accountable by the IoDSA.

Meanwhile, the country will have to wait for the NPA to conduct its investigations and to prosecute in the courts if they find it warranted. Do I have to remind readers how slowly—and expensively—those particular wheels turn?

A much more efficient and effective way would be to require all directors to be members of the IoDSA and to hold one of its professional designations. They could be disciplined and sanctioned where appropriate much more quickly. In severe cases, a director found to be in contravention of the IoDSA’s Code of Conduct could have his or her licence to act as a director revoked, which would be highly likely have a deterrent effect.

The IoDSA has been advocating the need for directors to be regulated by a credible professional body like the IoDSA for many years—most recently when the Companies Act Amendment Bill was released for comment last year, as well as in its letter to the Zondo Commission earlier this year. The Commission’s work has shown us just how crucial it is to have competent and moral directors. We need to make sure we have them, and setting up a proper regulatory framework is the only way.