SONA leans heavily on corporate governance
Tuesday, 20 February 2018
In his much-lauded State of the Nation Address (SONA), President Cyril Ramaphosa devoted considerable attention to the challenge of rooting out corruption in government. “This is the year in which we will turn the tide on corruption in our public institutions,” he declared.
In this regard, President Ramaphosa made two key announcements in SONA.
Base SOE board appointments on competence
The first is that board appointments in the public sector will be based on “expertise, experience and integrity”—and not, by implication, on political connections or amenability to corruption.
“This is very good news; the IoDSA has consistently pinpointed the appointment of unskilled people to boards and a lack of due diligence on those appointments, as key weaknesses in our state institutions,” says Parmi Natesan, Executive: Centre for Corporate Governance at the Institute of Directors Southern Africa (IoDSA).
“In July last year government gave an undertaking to finalise a framework for board appointments as part of National Treasury’s Inclusive Growth Action Plan. The IoDSA made several recommendations at that stage, and we hope the President’s promise means the framework will be finalised and implemented. We are here and ready to help.”
Natesan points out that the ongoing tribulations at most state-owned institutions, as well as within the private sector, strengthen the IoDSA’s argument that building a cohort of professional directors is imperative in order to strengthen our economy’s ability to grow. To that end, the IoDSA has formal Chartered Director (SA) and Certified Director designations that provide a framework for directors to acquire and demonstrate the specialist skills, experience and integrity needed to discharge their duties with mastery.
Remove SOE board members from procurement roles
Second, the President specifically promised to remove board members from any role in procurement, something that has become commonplace in some state-owned enterprises.
Comments Ms Natesan, “To ensure a well-governed, ethical organisation, it is essential that there is role clarity: directors must focus on governance and not get involved in operational matters like procurement. Doing so compromises their independence. Directors have to have unfettered discretion in making decisions in the best interests of organisation—they cannot be influenced by other considerations, such as who should get a certain contract.”
Natesan says that boards must develop ways of discharging their oversight role that do not cross the line into operational involvement, especially in areas like procurement, which is a high-risk area for public entities. These might include obtaining assurance from internal and external audit, ensuring that the organisation complies with relevant legislation such as the Public Finance Management Act, and instilling an ethical culture in the organisation through value-based leadership and a code of conduct—backed up by zero tolerance for unethical behaviour. Other tools would include proper oversight by the social and ethics and audit committees, and ensuring that the organisation has robust procurement (and other) policies and procedures.
Lead by example
Given the ultimate responsibility of governing bodies for the governance of ethics, it is critical that they themselves act ethically.
“The essential first step to achieving this laudable goal is to instill leadership that is both effective and ethical (as espoused in the first principle of King IV) across all sectors. If this does not happen, it is pointless to implement governance in a tick-box approach.
“The link between ethical and effective leadership is one of the distinguishing features of King IV, and I think recent events have shown us the fundamental truth of this.”
The IoDSA has consistently argued that ethical institutions in both the public and private sectors alike are created from the top down, and that an organisation’s directors bear the main responsibility for ensuring that ethics are embedded in its DNA.