Zondo Report demonstrates the chair’s vital governance role

On one level, the Zondo Report reads like an over-the-top morality tale about the perils of poor governance. In this morality tale, the villain is frequently the chair of the captured state-owned enterprise (SOE). This is particularly ironic because it is the chair who is supposed to be the apex of the governance structure, the very person charged with ensuring the organisation is run on ethical and effective lines, says Parmi Natesan, CEO, Institute of Directors in South Africa (IoDSA).

“When one reads what went wrong at South African Airways, South African Airways Technical, the Passenger Rail Agency of South Africa, Transnet and others, it seems that a chair played a crucial role in either facilitating corruption or actively participating in it,” she says. “The Zondo Report is at once an indictment of these leaders but also a powerful demonstration of how important the chair’s role is—and thus how important it is to understand how chairs are supposed to act.”

The final Zondo Report contains two graphic illustrations of the ways in which chairs can cause damage. In relation to the former chair of South African Airways, the report says: “Ms Myeni knowingly misrepresented to the Minister of Public Enterprises that the Board of SAA had taken two decisions when it had not. Those misrepresentations caused financial losses to SAA. It is likely that her conduct constitutes the crime of fraud.”^[1]

In relation to another SOE chair, it states, “Ms Yakhe Kwinana, received payments from JM Aviation around the time that these decisions were taken. The payments were likely kick-back payments to these officials.”

As a leader of the governing body, the chair plays a crucial role in the ability of the organisation to set and realise its strategic goals. The chair should be independent and non-executive. In line with its non-prescriptive approach, King IV does not provide detailed guidance on what the proper role of the chair should be; that has been fleshed out in Practice Notes created by the IoDSA.^[2]

The chair’s core role is to lead the governing body. The performance of the governing body is thus ultimately the responsibility of the chair; conversely, the chair needs to enjoy the confidence and support of his or her board colleagues. As such, he or she is accountable to the board.

“Clearly, an incompetent or unethical chair can compromise the whole governance structure. In that case, though, it becomes incumbent on the board to raise the alarm even if, as in the case of our SOEs, best-practice governance is not followed because of the overwhelming power of the state as the sole shareholder,” she explains.

Given the importance of the chair’s role, King IV took the innovative step of recommending that a lead independent director be appointed in every case, even if the chair is deemed independent. According to Ansie Ramalho, Chair of the King Committee, the thinking of the King Committee was that a lead independent was necessary to strengthen the effectiveness and independence of the board. Having a lead independent director offers support for the chair in that the incumbent in this position could serve as a sounding board if called upon by the chair. At the same time, having the position in place is a mitigation against the possibility of a rogue or domineering chair, says Ramalho. In particular, the lead independent oversees the regular evaluation of the chair’s performance and acts as a conduit between the rest of the board and the chair in the event of there being an issue of some sort between the chair and board.

“One might well imagine that if the SOE boards had a strong lead independent director, there might have been some change of reining in rogue chairs,” Ms Natesan ends. “In any event, a read through of the Zondo Report is convincing evidence that it’s vital to have a good governance structure in place, and that begins with the right chair.”

[1] Judicial Commission of Inquiry into State Capture Report: Part VI. Vol 4: All the recommendations, p 4, available at Home - Commission of Inquiry into Allegations of State Capture