Authored by: Dumisani Mngadi, Analyst: Monitoring and Evaluation at the Parliament of South Africa
The Group of Twenty (G20) came up with broad principles of corporate governance that each country could customise and adapt to their environment. The aim of the G20/OECD Principles of Corporate Governance was professional corporate governance: to treat business role players equally and not according to their ability.[1]
Every G20 country has its own corporate governance systems in place. The South African economy is dominated by foreign investors – multinational companies. These companies follow and implement their governance models in Africa. For them to achieve their goal of profit maximisation, they apply agency theory – they appoint a prominent or influential national figure to their board of directors (BOD) to represent their business interests in African business transactions.[2]
South African government departments and state-owned enterprises (SOEs) usually appoint experienced board members, who draw their experience from various multinational governance models,[3]are
certified by the standards of a specific governance model and have served on multinational boards. Such individuals can, however, represent institutional governance risk; an implied governance behaviour risk influenced by foreign governance models.
When these directors serve on SOE boards, they often have only the business and shareholders’ interests at heart not stakeholders’ interests. The South African governance model, however, has both social and capital elements, and, as such, SOEs have a
dual mandate, which is what King IV™ encourages through its principles.[4]
Competing ideologies of governance models The contradictions of different governance models originate in agency theory, shareholder theory and stakeholder theory. Agency theory and shareholder theory emphasise profit maximisation and investors’ profit; stakeholder theory, however, highlights the impact corporate governance has on all identifiable stakeholders.
Summary of governance models and management
Model
Governance structure
Management structure
Type of board
Anglo-Saxon
Non-executive directors
Executive director
One tier: BOD
Germanic
Supervisory board – BOD and other
Management board
Two tiers: Supervisory board and management board
Islamic
Shariah supervisory board – BOD and other
Executive director and compliance unit
Two tiers: Shariah supervisory board and Shura board
South African
Executive directors and non-executive directors, (seven types of directors)
Executive directors
One tier: BOD
A pragmatic approach to the South Africa context is that SOEs need a two-tier board system with two interdependent oversight and accountability bodies that have different roles. The supervisory board should equally represent shareholders and stakeholders. The management board should consist of external subject matter experts (to deal with audit, risk, finance, social, remuneration and ethics matters) who act on behalf of shareholders (value maximisation) and stakeholders (benefit maximisation). The management board should report directly to the supervisory board.
Recommendations to enhance corporate governance in the legislative sector A similar approach could be cascaded to other spheres of government. The legislative sector, which is political and administrative in nature and design, should employ a two-tier committee approach to enhance administrative independence. The administration can thus set up independent governance structures to assist in ensuring effective accountability, oversight and monitoring.
Legislative oversight committee A committee to oversee the implementation of the strategic plan in line with the constitutional prescripts and programmes of the legislature. The members should be selected on an equal basis from the represented political parties.
Administration and management committee This committee should monitor and oversee the administration of the legislature. It will account directly to the legislative oversight committee on key operational deliverables. The selection and appointment of independent external experts will fall within the ambit of the administration and it must be in line with the King IV™ practice, code and principles. Key subcommittees, such as audit, social, and remuneration, should form part of this committee.
Email to a Friend