Recent reports have pointed to issues ranging from alleged corruption involving municipal officials, to disputes between councils and administration, to community dissatisfaction over service delivery and tariff increases. While each case has its own facts, collectively they underscore the importance of sound governance frameworks at local government level.

“The governance of municipalities may be different from that of companies, but the principles of accountability, ethical leadership and effective oversight remain the same,” says Parmi Natesan, CEO of IoDSA.

The recently issued King V guidance note on the application of governance principles to municipalities highlights that the municipal council is the focal point of governance and retains overall accountability for governance and the proper management of the municipality by virtue of its constitutional authority.

Natesan explains that this places a significant responsibility on councillors. “Councillors have a primary duty to act in the best interests of the municipality and the community it serves, regardless of political affiliation. This is critical, particularly in an election year when political considerations may come to the fore.”

King V further emphasises that ethical leadership is not optional. It notes that municipalities should adhere accountability, transparency and high ethical standards in public administration.

A key governance challenge in municipalities is the relationship between the council and administration. While the municipal manager may act as the accounting officer, the council should ensure that the respective roles and decision-making powers of the council and management are clearly defined.

“This clarity of roles is essential,” says Natesan. “Where there is confusion or overlap between political leadership and administration, it can lead to instability, poor decision-making and ultimately service delivery failures.”

The guidance also highlights the importance of appointing capable and ethical individuals to municipal councils. While councillors are elected through a legislated process, political parties carry a responsibility to ensure that those deployed possess the necessary skills, competence, integrity and commitment to act in the best interests of the municipality and its community.

Natesan notes that this is particularly relevant in the current environment. “The calibre of individuals serving on municipal councils has a direct impact on governance outcomes. Poor governance at local level affects communities most directly, whether through service delivery failures, financial mismanagement or erosion of public trust.”

Another critical area is accountability to stakeholders. The King V guidance paper notes that municipalities do not have shareholders in the traditional sense, but instead serve communities, particularly tax and rate payers that fund their activities.

“This makes governance in municipalities even more important,” says Natesan. “The community is effectively the main stakeholder, and there should be meaningful engagement, transparency and responsiveness to community needs.”

The guidance note also stresses the importance of robust systems for risk management, compliance and assurance, given municipalities’ use of public funds and their service delivery mandate. It notes that strong governance supports better planning, reduces the risk of maladministration and enhances the legitimacy of local government in the eyes of citizens.

Natesan concludes: “As the country approaches local elections, it is important that governance remains at the centre of discussions around municipalities. Strong governance is not just about compliance – it is fundamental to service delivery, accountability and restoring public confidence in local government.”

The strength of the newly launched King V Code lies in its flexibility and proportionality as these enable tailored governance solutions – and discourage tickbox compliance. “King V reflects the King Committee’s continued commitment, already established in King IV, to engage with the fundamentals of contemporary governance concerns rather than through prescriptive detail,” says Ansie Ramalho, King Committee Chair. The Institute of Directors in South Africa (IoDSA) and the King Committee have issued the following guidance papers to assist organisations in getting started with implementing the new Code in their unique context. 

Guidance on monitoring and enforcement of King V
This guidance focuses on the key players in the governance ecosystem and their roles in ensuring that King V is applied as intended. If the stakeholders in the accountability ecosystem fail to adequately fulfil their monitoring and/or enforcement roles, it could significantly erode their collective ability to effectively hold organisations accountable. This failure could potentially affect not only organisations, but also the overall economic stability, market trust, and the public confidence in governance systems.

Specifically, this means: Boards and committees should rigorously monitor governance practices; regulators should integrate King V into their enforcement frameworks and hold companies accountable; shareholders should actively engage and exercise their rights responsibly; assurance providers should maintain professional scepticism; and public, media, NGOs and civil society groups should remain vigilant and vocal. It's only through this collaborative effort that King V can achieve its full potential. 

General guidance on how to apply King V mindfully
The recommended practices in King V are not intended to be implemented as if they were rules. They were designed so that governance practices can be adapted to realise value for the organisation in its context. Therefore, King V (like King IV) recommends the scaling of governance practices according to proportionality considerations. These include factors such as: the size of operations of the organisation, the nature and complexity of the business model, and the economic, social and environmental impact of the organisation. 

This general guidance focuses on the governing body’s duty to consider and exercise its judgement in determining how the governance practices are to be applied to meet the unique requirements of the organisation. Importantly, the rationale for these decisions should be clearly explained in a way that stakeholders can understand. This will allow them to assess the quality of governance at the organisation. 

Specific guidance on applying King V to different sectors 
The essence of King V, as represented by the envisaged governance outcomes and the principles, is universally applicable. What changes across sectors is mainly how these principles are achieved, which specific terms are used and how the practices are to be adapted to align with regulatory requirements and the conditions specific to that sector. This guidance clarifies sector-specific terminology and highlights common governance nuances for different types of organisations. 

The following categories were selected, as they represent a wide range of sectors and governance environments, and allow insights to be extrapolated to similar contexts: municipalities, state-owned entities, small and medium enterprises, non-profit organisations, retirement funds, and public higher education institutions. Those organisational types not explicitly covered by dedicated guidance are advised to draw on (and apply) the general guidance as well as the specific sector guidance that most closely resembles their own unique governance context. 

The absence of bespoke guidance for a particular sector does not mean King V is less relevant to it. On the contrary, any entity – regardless of size or sector – should work toward aligning with King V and use guidance as provided as a practical illustration of how this can be achieved.

ENDS

King V is available on the IoDSA website: https://www.iodsa.co.za/king-v 

Other media releases on King V:

King V Disclosure Framework: Driving consistency and comparability to governance disclosures:
https://www.iodsa.co.za/news/714081/King-V-Disclosure-Framework-Driving-consistency-and-comparability-to-governance-disclosures.htm 

King V released: A new governance Code to navigate an increasingly complex landscape:
https://www.iodsa.co.za/news/713677/King-V-released-A-new-governance-Code-to-navigate-an-increasingly-complex-landscape-.htm 

Possibly the most groundbreaking change in King V is the standalone Disclosure Framework that outlines how and what organisations need to disclose on their application of King V. Any organisation wanting to apply the new Code is required to use this framework and publish their governance disclosures in accordance with its specifications. “The primary intention behind the Disclosure Framework is to assist organisations in providing a meaningful and qualitative account of their implementation of King V,” says Ansie Ramalho, Chair of the King Committee. “By standardising the format and content of governance disclosures, the Framework promotes greater transparency, consistency and comparability across organisations.”

All disclosures should be made in relation to a specified reporting period and be reviewed at least annually, according to Ramalho. The Disclosure Framework should be published on the organisation’s website alongside the other external reports issued by the organisation.

Accessibility

Crucially, the Framework provides a single source for all the recommended practices relating to disclosure on King V. In King IV, these were included under each principle in the Code, while the format and some of the content of disclosure was up to the users. “As a result, the governance reporting often came across as boiler plate and too general ,” says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA). King IV introduced the “apply and explain” requirement that was enhanced in King V, which according to Natesan requires “specific exception reporting on why companies chose not to apply a certain practice, with the rationale for it and also what compensating practices they put in place to still achieve the principle.”

Previously, it was not clearly evident which practices organisations put in place to govern each area, and which ones they chose not to apply. The new Disclosure Framework is expected to bring consistency and comparability into these disclosures. Natesan says, “It will help stakeholders make an informed assessment of whether they are satisfied with how the organisation has applied King V and also make it easier to hold organisations accountable after things have gone wrong.” The Disclosure Framework will furthermore assist users of King V in tracking their application, she says, while also increasing the visibility and, hopefully, the engagement on corporate governance practices between governing bodies and executive management.

Endorsements

Numerous regulatory and oversight bodies have welcomed King V and the Disclosure Framework, which will help with its implementation and monitoring.

Specifically, the Financial Sector Conduct Authority, National Treasury, the Auditor-General SA, the Independent Regulatory Board for Auditors, the Companies and Intellectual Property Commission (CIPC) and the Johannesburg Stock Exchange (JSE) have endorsed the Disclosure Framework.

Rory Voller from the CIPC says, “We have seen the shift on enhanced disclosure worldwide as well as registrars playing a more significant role in shaping a jurisdiction’s governance framework. Therefore, the disclosure framework is not only timely but indeed appreciated.”

Andre Visser, JSE Director of Issuer Regulations, says the Framework brings structure and comparability to what used to be fragmented. “For regulators, it makes monitoring far more effective. For investors, it creates consistency so they can make better decisions. Importantly, it also helps stakeholders play a stronger oversight role, because the information is easier to interpret and benchmark,” he says. “And there’s real value in other regulators, whether in financial services or the public sector, looking at adopting or referencing this approach, so that the benefits extend across the broader economy.”

ENDS

King V is available on the IoDSA website: https://www.iodsa.co.za/king-v 

Other media releases on King V: https://www.iodsa.co.za/news/713677/King-V-released-A-new-governance-Code-to-navigate-an-increasingly-complex-landscape-.htm 

A new iteration of South Africa’s internationally acclaimed King Codes on Corporate Governance – King V – has been released on 31 October 2025, replacing King IV in its entirety. It will take effect for financial years starting on or after 1 January 2026, with earlier adoption being encouraged.  

The review comes three decades after the first King Report was introduced (in 1994) to promote corporate accountability and ethical leadership in the new democratic South Africa. Named after Prof Mervyn King, the principle-based, voluntary framework has become a global benchmark for governance. It has undergone several revisions to remain fit for purpose: King II (2002), King III (2009), King IV (2016), and now King V (2025). The Institute of Directors in South Africa (IoDSA) owns the copyright of all King Reports.

Why now? 
In the country’s turbulent, rapidly evolving business environment, committing to good corporate governance has become essential. “South African organisations needed an up-to-date, robust benchmark for ethical and effective leadership that equips them to respond swiftly to emerging risks, opportunities and stakeholder expectations, while maintaining strategic coherence and adherence to ethical standards,” says Ansie Ramalho, Chair of the King Committee on Corporate Governance. 
 
A changed local and global landscape in the nine years since the launch of King IV put a spotlight on the need for a Code to guide organisations in tackling governance challenges related to anything from the climate crisis, geopolitical conflicts and artificial intelligence, to remuneration governance and regulatory changes. Ramalho says, “Our revision had three overarching goals: i) to align the Code with evolving regulatory and governance developments; ii) to simplify and clarify its structure and content; and iii) to standardise disclosure in support of accessibility, transparency and consistency.” 

The final King V Report was released months after the King Committee, which consists of industry body representatives and independent experts, rigorously assessed the extensive public commentary received on the King V draft.

What’s new? 
King V builds on the foundations of King IV, which simplifies the transition. The revised Code uses plain language and has minimised jargon wherever possible to make the technical content more user-friendly. In line with this, the principles that outline the desired governance objectives have also been simplified and consolidated (from 17 in King IV to 13 in King V). 

“Additional refinements include clearer considerations for determining the independence of governing body members and strengthened requirements for independent representation of members on risk and social and ethics committees,” says Ramalho. 

The King V Report has been deconstructed into four standalone documents for ease of reference: King V Code, King V Glossary, King V Foundational Concepts, and King V Disclosure Framework. “Each element is now directly accessible via a single webpage, eliminating the need to navigate through a lengthy consolidated document,” says Parmi Natesan, CEO of IoDSA. “The Disclosure Framework – which is now a requirement for any organisation that wishes to claim application of King V – is a gamechanger, as it standardises the form and content for corporate governance reporting and will improve transparency, consistency and comparability.”  King V is also supported with guidance papers to assist with application and implementation. 

Together, the documents form a cohesive framework to shape corporate governance in South Africa. “We are very proud of this milestone, which is set to make a positive impact on how good governance, as espoused by King V, will be applied,” says Natesan.

King V is available on the IoDSA website: https://www.iodsa.co.za/king-v 

According to a recent media report[i], the Minister of Tourism has allegedly threatened to dissolve the SA Tourism board over what has been described as an unlawful meeting during which it appears to have been resolved that the CEO of the organisation would be suspended following various allegations.

"The stability and proper functioning of a governing body is fundamental to good governance within any organisation," says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA). Boards in general should not be put in a position where they are unable to act and fulfil their duties.

The article states that the board meeting in question was said to be unlawful or ultra vires, as only the chairperson of the board could convene a special board meeting in terms of the organisation's board charter. However, the appointed chairperson had already stepped down from the board at the time. Natesan notes, "When a chairperson steps down, continuity mechanisms should exist. The guiding policies and processes should provide for someone to act in this key leadership role so that the functioning of the board can continue seamlessly. In fact, King IV specifically recommends that governing bodies should designate a lead independent director to lead in the absence of the chair, amongst other duties."

While a board charter documents the role, responsibilities, membership requirements and procedural conduct of the Board, it cannot override the board’s statutory and fiduciary duties in terms of the law. A governing body must still be able to exercise its responsibilities to act in the best interests of the organisation, even if the chairperson is unavailable or no longer serving in the position. In this instance, the interpretation of the charter appears to be form over substance. One must consider the intention of the provision in the board charter – surely it was never intended that the board’s ability to function would collapse simply because the chairperson stepped down. Good governance requires that continuity mechanisms are in place so that the board can continue to carry out its duties effectively.

The news report also refers to the board’s decision to suspend the CEO. In this regard, Natesan explains: "King IV is clear that the governing body should appoint the CEO and that the CEO should be accountable to the governing body. It naturally follows that the board may also, in its discretion, suspend or remove a CEO, provided this is carried out in line with fair labour practices."

In addition, the article infers that the CEO had previously suspended the company secretary without the board's support. Natesan comments: "In terms of King IV, the governing body should have primary responsibility for the removal of the company secretary. The company secretary should have a direct line of accountability to the board, typically via the chairperson. Therefore, while the CEO is an employee of the organisation, it stands to reason that decisions around the suspension or removal of the company secretary should involve the board, not the CEO acting alone."

Finally, on the reported ministerial threats to dissolve the board, Natesan cautions: "While Ministers acts as shareholder representatives for government, shareholders appoint boards to provide oversight and act in the organisation’s best interests. It is concerning if any boards feel that fulfilling their statutory duties could lead to their dissolution. Effective governance requires that boards be empowered and trusted to carry out their roles without fear."

[i] News24, City Press: “Patricia de Lille threatens to dissolve SA Tourism board,” 16 August 2025

Even the creative reframing of the withdrawal of 20 Sector Education and Training Authorities (SETA) board chair appointments – as an example of democracy in action – can’t disguise the fact that governance failures like these could be easily avoided. “This isn’t rocket science,” says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA). “The public sector needs to get its nomination processes up to scratch. There is no excuse for not appointing the right people in the first place.”

Political motivation
So, where does the problem lie? The Higher Education Minister was publicly called out for appointing prominent ANC politicians and others linked to the as SETA board chairs. Among mounting pressure, she decided to “recalibrate the process” and form an independent panel to oversee the new nominations and recommend suitable candidates. This time, she said in a statement, the process would focus on merit, competencies, and relevant experience, while also ensuring a balanced representation regarding race, gender, youth, and persons with disabilities.

According to media reports, the ANC welcomed the decision as a principled act and reaffirmation of the party’s commitment to ethical governance and democratic accountability. In line with this PR strategy, President Cyril Ramaphosa is reported as suggesting that South Africans should be grateful to have a government that listens when it has made mistakes.

Clear guidelines
While Natesan agrees that restarting the nominations process is the correct approach to rectify the flawed initial process, she is concerned about a possible clash between so-called cadre deployment and a fair transparent process. “Who actually knows what their new process is?” she asks. “What we need is transparency and a clear guideline used in all public sector board appointments to ensure good governance and improve organisational oversight. The criteria for appointing senior roles should no longer be politically motivated.”

She points out that the IoDSA provided extensive input to the Department of Public Services and Administration into the planned update of the “Handbook for the appointment of persons to boards of state and state-controlled institutions”, but this was not approved by Cabinet. “We were hopeful that an updated handbook may make a positive difference, but unfortunately, it doesn’t seem that a sound nominations process was applied in the SETA appointments or by the public sector in general,” says Natesan.

Getting it right
The SETA board chairs should have started serving their five-year term on 1 April 2025, overseeing their organisation’s mandate of addressing the mismatch between the available skills and those required by the labour market. In her statement, the Minister tried to defend her previous chair appointments, listing their academic degrees and areas of expertise without mentioning any actual board experience. Yet King IV makes it very clear that chairs require not only the right skills but also the right experience, in addition to being independent. “This recommendation is designed to ensure that decisions are made in the best interest of the organisation, rather than being unduly influenced by a single shareholder,” says Natesan.

It's encouraging that the Parliamentary Portfolio Committee on Higher Education still expects the Minister to account for the original appointment process, including the composition and credibility of the panel tasked with making these recommendations.

“We can only repeat our pleas to strengthen the nominations process and the professionalisation of board members in the public sector,” says Natesan. “The framework and guidance for appointing the right people, based on competency rather than political connection, are readily available. They just need to be applied.”

According to a recent news article^[1], Lifeline Ekurhuleni experienced challenges in forming a stable and credible board of directors.  "Having an capable board is absolutely essential for the effective functioning, oversight and control of an organisation," says Parmi Natesan, CEO of IoDSA. "When a board is effective, it significantly boosts an organisation’s ability to deliver on its objectives and maintain stakeholder trust"

The news article refers to ongoing challenges at Lifeline Ekurhuleni regarding the election of their board, noting that irregularities and issues with the nomination process have previously hampered board elections.” It describes an incident where board candidates were absent at an initial meeting intended to establish the governance structure, resulting in the meeting needing to be rescheduled. Given that every candidate missed the initial meeting date, it is unclear whether they were fully informed of their obligation to attend, which raises concerns regarding the communication process.  Additionally, it was reported that during the nomination period, technical issues caused the nomination submission method to be changed from email to WhatsApp, with not all the candidates being notified about this change, leading to claims that some candidates, despite applying, were not included in the original list.

Natesan points out that King IV clearly emphasises the need for a formal, rigorous, and transparent board nomination process. This approach ensures candidates selected are well-equipped to fulfil their responsibilities and meet the needs of the board.  It also provides credibility to the process and ultimately trust in the candidates being put forward for election.

The report further states that selected board members would now undergo vetting and training through the Department of Social Development (DSD).  Natesan, however, questions whether candidates were sufficiently vetted prior to their recommendation to the board.  Due diligence during the initial nominations process, prior to selection, is absolutely critical to ensure that candidates have the knowledge, skills and experience needed to perform their duties well.  It also provides some level of assurance regarding the lack of reputational risk by association with the prospective candidates.

Regarding the planned training by DSD, Natesan stresses the importance of clarity about its scope.  "Director training should explicitly cover crucial governance elements such as directors’ legal duties, strategic oversight, and accountability," according to Natesan. In order to be assured that board members are fully aware of their responsibilities and able to fulfil them, such training should be in line with King IV, which establishes the standard for efficient corporate governance.

Crucially, a major funder's remarks in the news report suggest that Lifeline Ekurhuleni must raise its governance standards in order to maintain financial support. This demonstrates unequivocally the growing significance of sound governance. Organisations need to understand that stakeholders are becoming increasingly aware of governance issues, especially funders. "Financial support and organisational sustainability can be directly threatened by poor governance practices," cautions Natesan.

The IoDSA strongly advises organisations to implement the recommended governance practices, such as a transparent and clear nominations process, rigorous due diligence procedures before appointment, and then extensive training programs for directors once appointed. Natesan concludes, "Good governance not only ensures board stability but also significantly mitigates reputational risks, enhancing trust and confidence among stakeholders."

[1] Fresh start for LifeLine Ekurhuleni as new board takes the helm | African Reporter

The article alleges that the ANC deployment committee, chaired by Deputy President Paul Mashatile, went against the board to recommend John Lamola (SAA’s interim CEO since May 2022). The SAA board and an independent headhunting firm reportedly both named Lamola as the least preferable of the final three shortlisted candidates: he allegedly not only scored lowest of the three in evaluations but also was the least experienced in a senior executive position at an airline.

“If the allegations about this appointment are correct, they raise concerns about undue political influence, which can lead to inefficiencies and poor decision-making,” says Parmi Natesan, CEO of IoDSA. This is particularly worrying when considering that one of SAA’s previous apparent political appointments, former chairperson Dudu Myeni, ended up being declared a delinquent director.

“Best practice in governance, as outlined in King IV, states that a board should have the authority to choose and appoint the CEO to ensure proper oversight and accountability,” says Natesan. “A CEO who is chosen by the board ensures alignment with the company’s strategy, culture, and performance expectations and, importantly, creates the trust needed for this relationship.

However, she explains that when a minister (as a representative of the shareholder i.e. government) appoints a CEO contrary to the board’s recommendation, it undermines the board’s ability to govern effectively. While this practice is in line with public sector legislation, it does create a misalignment of accountability, where the CEO may feel more answerable to the minister than to the board.

“If the board is not fully empowered to choose the CEO, it weakens governance structures and can create tension between the board and management. This may lead to board instability, high turnover, or reluctance from qualified professionals to serve on the board,” says Natesan. “A lack of proper governance in CEO appointments has historically contributed to poor performance and even financial distress in SOEs.”

The process of appointing board members and executives was a central pillar of State Capture, according to news reports, as it contributed to undue control of SOEs and ministries.

In addition to that, the public and other stakeholders lose confidence in the SOE’s leadership when appointments appear to be politically motivated rather than merit-based. For all these reasons, Natesan underlines the need for governance reforms to ensure that SOE boards have authority in CEO appointments, in line with good corporate governance principles. She concludes, “At the very least, if things stay the same legally, the minister should really be taking the board’s preference into strong consideration.”

“King V considers both local and global developments since King IV was launched in 2016, and incorporates critical shifts such as the recent amendments to the Companies Act, evolving practices in remuneration governance, global developments in sustainability reporting, and the rapidly advancing technological landscape,” says Ansie Ramalho, Chair of the King Committee. Corporate governance is a critical tool for strengthening public and private institutions, to the benefit of the entire economy. She says it’s therefore crucial to update the guiding standards for corporate governance to ensure they remain relevant and effective.

As another key objective, King V intends to make it easier for organisations to interpret and apply the outcomes, principles and practices of good governance. Simplifying the Code will render it more user-friendly and accessible to a wider range of stakeholders. This involved, among others, the use of plain language, streamlining content and changes to the presentation of the Code and its supporting and ancillary documents. For example, the 17 principles in King IV have been reduced to 12. Also, the use of graphics and design elements has been cut down to help reading-impaired individuals and to align the style with regulatory drafting conventions. In addition, the King V Code will be presented as a stand-alone document and no longer as part of a report with the Code and its ancillary documents accessible from a single website.

The final objective was to develop a standardised approach to the disclosure of the Code's application to assist organisations with internal monitoring and disclosure of implementation of practices as well as to enhance accountability and comparability across different organisations. “This is helpful to regulators, shareholders and other users of reports on corporate governance,” says Parmi Natesan, CEO of the IoDSA. “However, we are also of the view that the newly established disclosure template provides organisations with the added advantage of facilitating and clarifying their disclosures on their governance practices on an apply and explain basis.”

Apart from these objectives, there are no significant deviations from King IV, adds Ramalho. Organisations that are already applying King IV should find the transition to King V relatively straightforward.

King V continues in its application beyond listed companies, to include state-owned enterprises, local government, non-profits, SMEs, and institutional investors such as pension and retirement funds and life insurers.

An open and transparent King V consultation process is important to ensure diverse input from business leaders, government and the public. Members of the public may comment in their personal capacity or on behalf of organisations, on the understanding that their comments will be published and attributed accordingly. All comments are to be submitted using the online form available on the IoDSA website, and no hard copy or late submissions will be accepted.

‘We have seen excessive board meetings in the public sector in the past, often without it being addressed,’ says Parmi Natesan, IoDSA CEO. Overspending is a risk when non-executive director fees are based on a per-meeting calculation, but it can be contained. ‘Many companies rather pay an annual retainer fee for a reasonable number of meetings and then a smaller per-meeting fee for additional special meetings as needed for good reason,’ she says. 

The chair is crucial to determine whether such additional meetings are indeed necessary. While South Africa’s Tourism Act requires the SAT board to meet a minimum of four times a year, it doesn’t specify a maximum number. The meeting frequency may change from year to year and increase over a short time period, particularly if there is a crisis or reputational matter to solve, according to Natesan. ‘However, 54 meetings in six months – an average of about two meetings a week for a 7 month period – sounds too excessive to justify,’ she says.

‘The question is whether these two weekly meetings were necessary to discharge the board’s oversight duty, or if they were coming up with reasons to have extra meetings to collect fees? That would be unethical and not acting in the best interests of the company, enriching themselves at the expense of the company.’

Yet the fact that SA Tourism’s CFO resigned recently, reportedly due to the interference of the chair and deputy, points to a third possible reason for an increased frequency of meetings: the board being too operational and instead of focussing on oversight, encroaching on management of the organisation. According to Natesan, this may indicate ‘a lack of experience and understanding of the role of non-executive directorship’.

As representative of the sole shareholder, Minister De Lille has the authority and duty to appoint and remove a board that will act in the best interests of the organisation and ultimately benefit the South African public. She dissolved the previous board in April 2023, after SA Tourism had proposed to spend R910-million to sponsor UK football club Tottenham Hotspur. Most recently, the Minister launched a full-scale investigation into the excessive board meetings and appointed a new chair but has allowed the previous chair and deputy to remain ordinary board members. ‘King IV is not explicit on the previous chair staying on the board, but in my opinion, this is not good governance and may impact board dynamics,’ cautions  Natesan. ‘My concern is whether the problem of excessive meetings will be solved simply with a new chair, if all the same board members stay on, despite all being party to these excessive meetings.’

Therefore, her key recommendation is due diligence in appointing the right people to the board versus political appointments. When all board members are ethical and competent, understand their duty and don’t take advantage, matters like these may be avoided in future.

The King Codes, the Companies Act and the common law all set high standards for directors because of the huge influence directors have over the oversight and performance of an organisation, be it a private, public or non-profit entity. As the Zondo Commission’s report and a number of high-profile cases have shown, directors who do not do their jobs with due care and skill, or who are willfully dishonest or grossly negligent, can severely damage a company, causing huge negative impacts on all its stakeholders not to mention the negative impact the mala-administration of state-owned companies has on the South African economy.

South African Airways, Eskom, Steinhoff and Tongaat Hulett are just some of the big names scarred by directorial misconduct.

As King IV puts it, directors have to provide leadership that is both ethical and effective—the strong implication is that they are two sides of the same coin—at a recent IoDSA webinar held to discuss a guidance paper on director delinquency, issued by the Institute of Directors in South Africa (IoDSA) in collaboration with Organisation Undoing Tax Abuse (OUTA) and Bowmans, Richard Foster (an IoDSA Governance Specialist) said that accountability was critical to this kind of leadership.

For this to happen, he said, we need to have good governance codes in place, a solid legal framework, effective regulators and an independent, competent judiciary—all of which we are fortunate to have. The main recourse available is to have directors who do not fulfil their fiduciary duties declared delinquent or at least placed on probation. Probation orders last for a maximum of five years, while those for delinquency last for a minimum of seven years and up to the lifetime of the director depending on the severity —as we saw with the late Dudu Myeni, former chair of SAA.

However, getting a director declared delinquent is a demanding process and can be expensive. As a result, Vanessa Jacklin-Levin a Partner at Bowmans, says many companies take a commercial decision and often come to a settlement with a rogue director to have him or her leave the company versus bringing a director delinquency application. Whilst this may be an effective route for the company to quickly remove such a director, she warns that it still allows that person to continue to hold directorships in other companies and to carry on with misconduct or bad behaviour elsewhere. As such the problem persists.

Advocate Stefanie Fick, the Executive Director of Accountability and Public Governance Division at OUTA (which instituted a delinquent case against the late Dudu Myeni) says that the private and public sectors should step up and take action. “People must know they cannot get away with failing to discharge their fiduciary duty,” she says. This being an imperfect world, though, given the risks and expense of holding a director to account, it seems more likely that NGOs like OUTA will have to lead this particular fight. In that case, the IoDSA’s paper argues, companies must support organisations like OUTA and the Companies and Intellectual Property Commission (CIPC) to undertake that effort should they not be willing to take on this challenge.

An important point is that directors and companies themselves must understand what a director’s responsibilities are, and what their fiduciary duties entail. It’s worth noting that the courts have increasingly seen the King Codes as a yardstick against which directors’ conduct can be measured. Directors of all organisations in South Africa should therefore understand King IV and its recommended practices in depth.

The IoDSA’s drive to professionalise directorship has never seemed more important. Properly qualified and professional directors will at least understand exactly what is expected of them—and the drive to have a licence to operate and to remain relevant will make it easier to remove a director should they lose such licence as a result of their misconduct, making the need to go the legal route less pressing, says IoDSA Executive Director Vikeshni Vandayar.

For South Africa to overcome and break the vicious cycle of corruption and maladministration, it is imperative to hold directors to account and to ensure such individuals found guilty of gross misconduct are not able to serve on any other board. “The overarching principle of a declaration of delinquency is to safeguard companies, investors, and other stakeholders including the South African public, from company maladministration and corruption,” says Vikeshni Vandayar. Taking this stand together with the professionalisation of directorship, she says, promotes effective corporate governance overall and sends a clear message that individuals in positions of trust will be held accountable for their actions and any individual wishing to serve as a director must maintain the highest standards concerning their duties.

“The President indicated that moves are afoot to professionalise the civil service which, if they bear fruit, will go a long way to solving the service delivery crisis we are facing,” she says. “The IoDSA has been calling for the professionalisation of the civil service for a while—as King IV makes clear, appointing the right calibre of leaders is the first prerequisite for a competent organisation.”

King IV’s supplement for municipalities urges councils to ensure they have access to “professional independent guidance on corporate governance and its legal duties” and that it appoints a competent municipal manager(King IV, p85). As King IV makes clear, specialised and in-depth governance expertise is required to ensure that any entity’s governance fulfils its primary aim of ensuring the organisation operates both ethically and effectively.

Principle 7 of King IV states: The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity, and independence for it to discharge its governance role and responsibilities objectively and effectively.

In its “Consolidated general report on local government audit outcomes: MFMA 2021-22”, the Auditor-General clearly shows how ineffective governance lies at the heart of municipal dysfunction. Poor governance leads to defective financial reporting and thus a lack of accountability. The Auditor-General has frequently noted that municipal audit committees lack the skills needed to oversee the council’s finances properly.

Inefficient use of information technology is also cited as a problem. Given technology’s role in promoting efficiency and cost-effectiveness, its governance has become a key agenda item for governing bodies, including councils, as indicated in King IV (Principle 12: The governing body should govern technology and information in a way that supports the organisation setting and achieving its strategic objectives).

“One of the key problems faced by the public sector as a whole, including municipal councils and state-owned enterprises, is the appointment of unqualified individuals. The state has to adopt best practice and appoint individuals who are fit and proper to serve, but who also have the right level of skills, including proper governance knowledge,” Natesan says. “Councils run complex operations and have massive responsibilities—councillors need to be appointed with that in mind.”

The IoDSA has constantly warned that appointments made on political or other improper grounds are the root cause of the challenges hamstringing the state at all levels.

“The IoDSA sees the professionalisation of the civil service as a high priority in order to revitalise service delivery and return municipalities to financial and operational health. The important first step is to ensure that they are ethically and effectively led—and that means appointing the right people to these boards,” Natesan concludes.

According to Parmi Natesan, CEO of the Institute of Directors in South Africa, “Performing due diligence on any appointment in any organisation, and especially senior appointments, is basic good governance. Given the huge responsibility that directors carry, and their importance to the organisation, they of all people need to be thoroughly vetted before appointment,” she says.

Research by the IoDSA shows that board composition probably has a greater impact on the future success of an organisation than any other aspect of governance. It therefore follows that ensuring the board members have the right skills for the organisation’s needs is vital, in line with Principle 7 of King IV: The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.

Equally important is ensuring that the board members have the highest ethical standards.

Recommended Practice 19 specifically advises that “candidates’ backgrounds should be independently investigated, and their qualifications should be independently verified”. Despite this, recent news reports indicate that a number of organisations on whose boards the director served have never vetted her qualifications as this was either not felt necessary or was not a requirement.

Natesan says that failure to perform this item of governance housekeeping makes an organisation vulnerable to reputational damage, while longer-term harm could be caused by the unqualified director’s inability to provide the quality input needed.

The due diligence process should be formal, transparent and rigorous, the IoDSA says. It must begin with ensuring that the potential director meets the criteria for serving on the board as determined by applicable legislation and the organisation’s founding documents. This typically includes identification, qualification, reference and even credit checks.

In addition, the board needs to interrogate the candidate’s knowledge of, and experience in, directorship. It’s no longer enough to be a subject-matter expert—modern-day directorship requires a range of professional directorial skills. It’s also important to assess whether the potential director has the right personal qualities, which would include integrity, honesty, curiosity, courage, teamwork, communication skills and so on. In addition, care should be taken to ensure that any potential director would fit with the board’s culture and dynamic, and has a genuine interest in the organisation and what it does.

Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA) says the lesson is clear: governance failure has significant negative impacts on both institutions and the individuals implicated in it. “The panel’s conclusions, which can be found in paragraphs 651-682, and its recommendations, should be required reading for all board members,” she says.

Some key themes identified by Natesan include:

Leaders must be suitable people—and know how to fulfil their roles. Institutions cannot prosper if their boards (Council, in the case of UCT) and executives do not have the right personal qualities, skills and experience to fulfil their roles satisfactorily.

For this reason, given the greatly increased scope of a board member’s responsibilities, the IoDSA has long advocated that directorship should be recognised as a regulated profession. This would enable directors to gain the necessary skills and to keep them updated, require directors to be bound by a code of conduct, and would mean that directors could be disciplined and have their license to practice removed.

A key directorial responsibility is the legal duty to act in the best interests of the organisation, in good faith and for proper purpose with care, skill and diligence, something that the report indicates some UCT Council members seem not to have practiced in numerous instances. For instance, the report indicates that the former Council “failed to act on the information…, leaving many members of staff vulnerable to further abuse of power” (660).  It further refers to the vice-chancellor and chair advancing “their own interests, instead of UCT’s” (Recommendation VIII).

The board also has a responsibility for appointing a CEO with the right levels not only of technical competence but also moral compass and the personality to lead—another key responsibility that the previous UCT Council seems to have failed to live up to. For example, the report indicates that the selection committee appointed the vice-chancellor, despite “clear evidence of her inability to lead and manage senior executives” (657).

A key recommendation by the panel was that the process for nominating and selecting Council members should be revisited to ensure that fit and proper persons are selected in terms of current law and also King IV. Who gets selected to serve on boards or similar governing bodies is crucial, as the IoDSA has continually pointed out.

Board chairs have a vital role. Concerning the CEO particularly, the board chair has leadership in holding the CEO accountable for his/her performance and conduct. Various paragraphs in the report indicate this not to have been the case.

Codes of conduct are important but must be policed. UCT’s former vice-chancellor was found to have breached the Council’s Code of Conduct, as did the former chair of Council. Furthermore, Recommendation IX of the report indicates “multiple instances of violations of the Code of Conduct by members of Council”. Boards have a responsibility to act decisively in these instances, and hold others accountable for their actions.

Role clarity is crucial. The report findings indicate that many of UCT’s governance problems derived from the fact that board members and executives constantly strayed out of their lanes, which we can assume to have been either deliberate interference or a lack of understanding of their role. For example, the Council “irregularly… [involved] itself in day-to-day management rather than focusing its attention on governance and accountability based on UCT’s strategic plan” (653). 

“These governance failures seem to have had a devastating effect on UCT’s reputation, and in the work environment at the institution. I cannot stress enough the importance of understanding what its specific governance failures were, and then applying King IV’s best-practice recommendations to help avoid them in future,” Natesan concludes. “As we see again, governance excellence is critical to an organisation’s reputation and, indeed, its ability to function properly.”

“The Johannesburg Property Company manages 30 000 properties, many of which have reportedly been hijacked—in fact, the devastating Albert Street fire that claimed 77 lives was apparently one of them. The Company’s board bears ultimate oversight accountability for the inadequate management of its valuable property portfolio properly, and it’s no stretch of the imagination to assume that the possible lack of skills could lie at the heart of the problem,” says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).

“Media reports also suggest that the MMC treats the company as a private fiefdom to which political cadres are appointed, based presumably on their loyalty and political importance, and not necessarily their skills as directors. The sad state of municipal entities across the city, and indeed the country, shows the devastating consequences of flouting robust nomination processes for board and senior executive positions.”

The IoDSA has repeatedly pointed out that public sector entities face particular challenges when it comes to appointing competent boards. The state, as the sole shareholder, has not been seen to follow best practice in this regard. According to King IV, directors should have the correct mix of skills and experience to discharge their legal duties. A robust and transparent nomination process that includes in-depth vetting of candidates should be followed, says Natesan.

“Without such a nomination process, the board members can hardly act competently and independently in order to fulfil their legal duties, which are to the company and not to whoever appointed them,” Natesan says. “I wonder if these directors realise that they can be held personally liable for any untoward decisions they make. Modern-day directors need not only business and sector skills and experience, but also finely honed governance expertise.”

The performance of local government generally, including municipal entities like the Johannesburg Property Company, has a direct bearing on service delivery and thus on the most vulnerable sectors of society. The Auditor-General’s Consolidated General Report on Local Government Audit Outcomes 2021-22, an annual report on audit outcomes for entities governed by the Municipal Finance Management Act, notes that fruitless and wasteful expenditure continues to balloon. It doubled in 2021-22 to R4.74 billion, plus an estimated R5.19 billion in financial loss from non-compliance and fraud. It is clearly imperative that municipalities and municipal entities are properly governed, and the Auditor-General highlights the need for competent people to be appointed to municipal structures, and for governance to be strengthened.

“The Johannesburg Property Company is just one of many municipal entities that are perceived to be – and often are – underperforming, with one of the reasons for that underperformance reasonably assumed to be that board appointments are not necessarily made with the entity’s needs in mind,” she argues. “These entities need proper governance and strong oversight or they are likely to fail to do their jobs, with disastrous consequences for society and our country.”

Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA), says that the Minister’s rejection of the board’s nomination, whatever the technicalities, lays bare the governance tangle that continues to affect the governance balance at SOEs.

“Governance best practice is for the board to appoint the CEO so that he or she is accountable to the board. The challenge is that SOEs have enabling legislation or founding documents which often stipulate that the government (effectively the shareholder) has the power to appoint senior management, as well as the board,” she says. “King IV recognises this, and suggests in the SOE supplement that the board be fully involved in the appointment of the CEO and that both parties agree that the CEO is accountable to the board, not the Minister, as representative of the shareholder.”

If this approach is not followed, she adds, CEOs who do not have the confidence of the board may be appointed, and CEOs may see their reporting line leading directly to the Minister rather than the board. The resulting blurred reporting lines make it difficult for boards and management to work constructively together.

The current state of affairs means that the faith of both the board and the Minister seems questionable. The former could be construed to be not following the Minister’s instructions, or rebellious in that it is asserting its preference for appointing the CEO it wants (in line with governance best practice). Similarly, the latter could be accused of having a hidden agenda, namely that the nomination did not meet with the approval of the political powers.

Natesan says. “The IoDSA has been steadfast in bringing this particular governance issue to the fore, and we once again urge Government and SOEs to follow King IV’s lead. In a perfect world, though, the appointment of the CEO should be the board’s prerogative. The board would then be able to hold the CEO properly to account, and could in turn itself be held to account by the shareholder.”