The title “director” has become synonymous with status, influence and proximity to power. It is eagerly embraced in both the private and public sectors because it signals authority. Yet when misconduct occurs, the same individuals who enjoy the prestige of the title are often treated as if they bear a lesser burden of consequence.

Recent reported legal action by the Organisation Undoing Tax Abuse (OUTA) highlights this inconsistency. OUTA is reportedly challenging what it views as a gap in the Public Finance Management Act, 1999 (PFMA), in terms of which many public entities and members of their boards are not subject to the delinquency regime that applies to company directors under the Companies Act, 2008. The case raises a fundamental governance question: if people are exercising director-like power, why are they not consistently held to director-level accountability?

Two concepts are central to this issue. The first is the way in which the term “director” is used – and sometimes diluted. The second is that our King Code on Corporate Governance was deliberately written in universal language to apply to all organisations and all governing bodies, not only to companies and their directors. Together, these concepts point to a simple conclusion: duties, expectations and accountability mechanisms for those who govern should be on a similar footing, regardless of the legal form of the entity.

Director in substance, not only in name

Across the public sector, there are boards, councils, authorities and other structures that exercise governance over substantial budgets and critical public mandates. Their members approve strategies, sign off financial statements, oversee executives and take decisions with far-reaching financial, social and economic consequences.

In substance, these are director roles.

Yet when questions of accountability arise, legal distinctions are often used to argue that these individuals are somehow different from company directors. The title may be embraced, but the full weight of director duties and liability is often resisted. This is artificial from a governance perspective. If an individual sits on a structure that performs the functions typical of a board, it is difficult to justify treating that role as subject to a lower standard of accountability.

King’s universal language – universal duties, universal consequences

The King Code on Corporate Governance for South Africa is drafted in intentionally universal language. It refers to an “organisation” rather than a “company”, a “governing body” rather than a “board of directors”, and “members of the governing body” rather than “directors” in the narrow company-law sense. The message is clear: sound corporate governance applies to all organisations, irrespective of whether they are registered as companies.

In addition, the duty of care, skill and diligence; the duty to act in the best interests of the organisation; as well as expectations to act ethically and with integrity are not confined to the Companies Act. They are embedded in common law, in sector-specific statutes (including the PFMA) and in codes such as King V. If similar duties are imposed on those who govern, it is difficult to justify markedly different consequences for misconduct simply because of the statute under which an entity is constituted.

In the case of company directors, section 162 of the Companies Act provides for a court to declare a director delinquent in defined circumstances of serious misconduct. This remedy is public, transparent and enduring. 

In the PFMA, by contrast, section 83 deals specifically with financial misconduct and the recourse is mainly internal – dismissal, suspension or “other sanction”. These provisions do not create a systemic bar to reappointment elsewhere. This narrow focus on financial misconduct, coupled with largely internal sanctions, contributes to a lack of public trust and creates a real risk that compromised individuals are recycled through government departments and entities.

Conclusion – prestige cannot be separated from accountability

The director title, and its equivalents in the public sector, will continue to carry power and prestige. That in itself is not problematic. The concern arises when prestige is decoupled from duty and consequence.
Those who exercise governance authority over public resources and public institutions should not be held to a lower standard of accountability than their counterparts in the private sector. King’s universal language makes it clear that good governance principles apply to all organisations and their governing bodies. It is therefore inconsistent to maintain a system in which some governing-body members face robust, court-based delinquency consequences while others are subject only to lighter, internal sanctions.
In essence, duties, expectations and liability mechanisms for those who govern should be on a similar footing, regardless of the technical label attached to their role or the statute under which their entity is constituted.

The message is simple: those who seek the authority and status of director, or its equivalent, must accept that with it comes the full weight of accountability and potential liability.

The release of the King V Report on October 31, 2025, marks the next evolution in South Africa’s corporate governance journey. Replacing King IV in its entirety after almost a decade, the new Code - effective for financial years starting on or after January 1, 2026 - is designed to equip organisations to navigate an increasingly complex world defined by the climate crisis, geopolitical conflicts and emerging technologies like artificial intelligence.

The King V review, undertaken by the King Committee, was driven by three overarching goals: alignment with evolving regulations, simplification of structure and content and standardisation of disclosure to enhance transparency. The update comes as boards globally face pressure to navigate global challenges and as South African companies, having weathered recent governance failures across both the public and private sectors, face expectations for tougher oversight.

King V maintains the outcomes-based approach that has made the King IV Report an international benchmark. Its strength lies in its commitment to flexibility and proportionality, which actively discourage "tick-box” compliance. “The Code's recommended practices are not rules; rather they are designed to be adapted to realise value within an organisation’s unique context,” says Ansie Ramalho, chair of the King Committee. “Governing bodies must exercise their judgement and scale practices based on considerations, such as the size and complexity of the business model and its economic, social and environmental impact. The significance of the outcomes-based approach is that the quality of governance should be judged on results and not primarily on the number of practices implemented.” 

The new Code has been both streamlined and toughened, consolidating multiple King IV provisions, reducing the number of principles from 17 to 13. This reduction is a conscious effort to simplify and sharpen the focus of the Code. Principle 17 from King IV, which focused on institutional investors like pension funds, has been excluded from King V with the committee noting that its limited use created confusion in practice. Institutional investors are now encouraged to apply both King V and the updated Code for Responsible Investing in SA (CRISA 2) principles.

The introduction of King V comes at a time when the effectiveness of South Africa's principle-based governance model has faced increasing scrutiny. While the King codes are widely regarded as guidance on good governance for all organisations, JSE-listed companies must apply and explain their application of the King Code in terms of the listing requirements. Application of the King Code, for a vast number of other entities - including private companies, non-profits, and state-owned entities (SOEs) - is thus a market and stakeholder expectation rather than a legal requirement.

While the codes provide a useful benchmark  for the courts to evaluate whether directors acted in the best interest of the company and with care, skill and diligence -thus giving the codes a degree of legal prominence - the main obstacle has always been disclosure and monitoring. The most significant innovation in King V is specifically designed to overcome this persistent lack of enforcement power.
The committee concluded that a major challenge with previous iterations of the King Code was the lack of a prescribed reporting structure. This often resulted in governance disclosures that are vague, filled with generalities and dispersed throughout organisations’ reports. As a result, it became challenging for users of reports to find and understand the true substance of King IV disclosures. The Framework now standardises the format and content to promote transparency, consistency and comparability across organisations. 
Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA) which hosts the work of the King Committee, says the Framework will help stakeholders make a well-informed judgment of how King V has been applied and, critically, make it simpler for interested parties to hold companies to account for poor governance.

“It strengthens the ‘apply and explain’ requirement by mandating specific disclosure on the practices adopted, any practices not adopted (specific exception reporting), with the rationale for the decision and a concluding statement on the realisation of the governance outcomes,” she says. Since the Framework is the tool for giving practical effect to the King V Code through disclosure, any organisation claiming adoption of King V must employ it, fundamentally changing the landscape of corporate governance reporting.”
This enhanced disclosure, which must be approved by the governing body, published on the organisation's website, and reviewed annually, has been endorsed by key bodies, including the JSE, the CIPC, the FSCA National Treasury, the AGSA as well as IRBA, highlighting its role in improving monitoring and enforcement of King V. The Framework is also intended to assist investors in their decision-making and in exercising their voting rights, effectively providing the tools necessary for shareholders to better hold company leaders to account.

King V streamlines its approach to remuneration by retaining the central accountability measures established by King IV. King IV was instrumental in advancing the principle that the governing body must ensure the organisation’s remuneration is determined fairly, responsibly, and transparently. It was a direct response to public and investor concerns over excessive executive compensation by recommending two separate, non-binding advisory shareholder votes on the remuneration policy and its implementation report.
To simplify and prevent overlap, King V has removed some of the detailed practices concerning the shareholder votes and engagement requirements. This is because specific requirements have now been incorporated into the most recent amendments to the Companies Act. This strategic change allows the Code to concentrate on higher-level principles and governance outcomes, such as tying performance measures to social and environmental results, rather than repeating statutory requirements. It, furthermore, maintains its emphasis on addressing in the remuneration policy the gap between executive and ordinary employee wages and promoting fairness and responsibility in this regard. 

In addition, King V elevates transparency on environmental and stakeholder impacts by reinforcing that sustainability reporting must now operate on a "double materiality" basis.  It means organisations must disclose issues that significantly affect both its finances and prospects (financial materiality) and information about matters that impact its ability to create sustainable value for stakeholders over time (impact materiality). “Strengthening accountability for how organisations affect their stakeholders is consistent with the African worldview expressed through the Ubuntu-Botho philosophy. This explicit connection between King V and local social norms is a key differentiator from its international counterparts,” says Ramalho. 

An important addition to the Code is the recommended practices that address “emerging, innovative and disruptive technologies” under the Data, Information and Technology principle. As far as artificial intelligence specifically (AI) is concerned, accountability is required for decisions, actions and outcomes arising from deployment of AI systems as well as adherence to values such as ethics, human centricity, explainability among others. In this way the Code deals with the overarching responsibilities that are likely to hold true for AI regardless of its pace and direction of development.

The IoDSA has also released guidance papers to assist with the interpretation and implementation of King V in various sectors, which include: Municipalities, SOEs, SMEs, NPOs, Retirement Funds, Medical Schemes and Public Higher Education Institutions.

“Ultimately, the successful impact of King V depends on the combined commitment of all governance stakeholders - regulators, shareholders and civil society - to actively use the new Disclosure Framework and hold organisations to these new, more demanding standards,” says Natesan. 

In October, the Institute of Directors in SA launched the fifth iteration of the King Codes of Good Governance. King V is a voluntary, principles-based guidance on corporate governance, not formal law. So what is its significance for corporate SA? 

Since 1994, the King Reports have mattered a great deal by encouraging organisations to aspire to higher ethical standards than mere compliance to legal requirements. They became internationally renowned for their emphasis on ethical and effective leadership and integration of sustainability long before this turned into a mainstream demand. South Africa was the first country in the world to have a governance code that dealt with sustainable development. The King principles and practices have been so influential that failing to follow them can be seen as evidence of negligence or misconduct, and have been used towards that purpose by the courts. 

King V continues the evolution of the King journey. As a revised, simplified and streamlined update, it replaces King IV and makes the Code more accessible across sectors and organisational types: from private companies, retirement funds, medical schemes to state-owned entities and municipalities, public higher education institutions, civil society organisations, and SMEs. King V’s strength lies in its flexibility and proportionality that enables tailored governance solutions, rather than prescriptive one-size-fits-all rules. 

Nowadays, it’s as important for board members to be sustainability and tech literate as it has traditionally been to be financially literate. Here King V matters greatly too, because it provides the governance guidance for boards to navigate emerging risks, opportunities and stakeholder expectations, while maintaining strategic coherence and adherence to ethical standards. Much has happened in the nine years since King IV was released, requiring the King Committee to assess local and global challenges such as geopolitical conflict, artificial intelligence, and fair pay governance. Also top of mind was the climate crisis with its growing impact on companies through extreme weather risk, supply chain disruptions and rising insurance and compliance costs. 

The further significance of King V is that it takes cognisance of the new sustainability reporting standards, notably by the International Sustainability Standards Board (ISSB) and the European Sustainability Reporting Standards (ESRS). It even goes beyond the ISSB standards, which follow a single materiality approach that requires companies to only report on factors affecting their financial performance and future cash flows. When King IV was drafted in 2016, the term “double materiality” wasn’t in play yet, but the Committee made it clear that organisations needed to consider not only the effect that the stakeholders and external factors have on them, but also the impact that organisations have on their natural environment, society, and stakeholders. King V now explicitly mentions and supports double materiality. 

It’s been the King Committee’s ongoing objective to make the Code more accessible and easier to interpret and apply. In King V, the wording and presentation are therefore simplified, and the principles outlining the desired governance objectives are consolidated. Where King III still had 75 principles and 666 practices, King IV was down to 17 and 215 respectively, with King V streamlining these to 13 and 150. Another user-friendly aspect is the deconstruction of the King V Report into four documents (Foundational Concepts, Code, Glossary and Disclosure Framework) that can be accessed separately.  

The Disclosure Framework represents the most impactful change from King IV to V. Any organisation wanting to claim application of King now has to use the Framework and publish governance disclosures online in accordance with its specifications. Like in King IV, organisations still have to “apply” the principles and “explain” the practices, but now also require a concluding statement detailing the board’s opinion on whether it has realised the value of governance outcomes for the organisation as stated in King V. 

The Disclosure Framework will boost transparency and consistency. Standardising the disclosure requirements will be helpful for regulators, shareholders and other stakeholders, as it promotes accessibility and comparability while assisting organisations with the tracking of their own implementation of King V. The Committee also expects that the Framework will solicit conversations internally at organisations around which practices are being applied. 

All this is of significance, now and in future, as the Code reflects a living governance system shaped by those who interpret and apply it. King V strives to be a change agent for good corporate governance in South Africa, but can only benefit those who are prepared to implement it. And this has just become significantly easier.

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

Recent amendments to the South African Companies Act have brought renewed focus to the issue of director remuneration disclosure. The changes now make it clear that companies that are obliged to prepare audited annual financial statements must disclose the individual remuneration of each director and prescribed officer, all of whom must be named. This is a shift from previous interpretations where some companies anonymised such disclosures to protect personal privacy, referring instead to roles such as “Director 1” and “Director 2”.

While the objective of transparency is clear and aligns with international governance standards, the specific requirement to name each individual director alongside their remuneration has raised some concerns—particularly in the South African context.

During the consultation process on the Companies Amendment Bill, some stakeholder submissions raised alarms about the potential unintended consequences of this disclosure requirement. It was argued that in a country facing severe violent crime, including a growing trend in kidnappings for ransom, disclosing large earnings attached to identifiable individuals could pose a significant security risk.

The Department of Trade, Industry and Competition (DTIC), in responding to these concerns, acknowledged the tension but emphasised that the right to privacy is not absolute. They argued that this right can be lawfully limited in the service of greater transparency and accountability—particularly for individuals occupying positions of public trust, such as company directors. The stance taken was that holding such a position carries with it public accountability responsibilities, including the expectation of openness about remuneration.

From a legal standpoint, the Protection of Personal Information Act (POPIA) does not prohibit the processing of personal data such as remuneration, where such processing is required by law or serves a legitimate interest. The Companies Amendment Act provides a clear legal basis for the required disclosures, and the drafters of the legislation appear to have considered the implications in terms of POPIA compliance. As such, it would seem that the requirement to disclose remuneration by name is legally permissible within South Africa’s data protection framework.

Nevertheless, companies must contend with the real-world consequences of this level of disclosure. Concerns about personal safety and the targeting of high-net-worth individuals are not theoretical in the South African environment. High-profile kidnappings and ransom demands have increased in recent years, with law enforcement and private security firms confirming that individuals perceived to be wealthy are often targeted. In this context, the publication of remuneration linked to named individuals may elevate the personal risk profiles of directors and prescribed officers.

Opponents of the name-specific disclosure requirement argued that there is no additional governance benefit gained by naming individuals versus anonymised disclosures. While transparency about remuneration levels can be achieved without necessarily tying them to specific names, the law now mandates otherwise.

Another risk flagged by stakeholders is the potential impact on competition for executive and board talent. Publicly disclosing named remuneration figures could make high-performing directors and executives easier targets for poaching by competitors, both locally and internationally. Competitors would gain valuable insights into an individual's current remuneration, enabling them to tailor offers more precisely and aggressively. In a market where experienced, ethical leadership is already in short

supply, such mobility could have broader implications for organisational stability and succession planning. While transparency serves important governance objectives, it may inadvertently place companies at a disadvantage when trying to retain their key leadership talent.

Taking these issues into consideration, boards should consider steps to mitigate the potential risks. These could include reviewing personal security arrangements for affected individuals, engaging with directors and officers on safety concerns, and ensuring that internal policies around data handling and public disclosure are aligned with both the letter and spirit of the law. In addition, boards should be proactive in addressing the potential talent risks created by greater remuneration transparency. This could involve reviewing retention strategies, enhancing succession planning processes, and ensuring that remuneration structures remain competitive and defensible to deter unwarranted poaching of key individuals. In doing so, companies can better safeguard not only the personal security but also the organisational resilience that effective leadership provides.

The broader governance imperative remains - fair and responsible remuneration that is transparent and defendable. Enhanced disclosure can help restore trust, align remuneration with performance, and empower shareholders to exercise informed oversight. At the same time, the practical realities of South Africa’s socio-economic and security landscape cannot be ignored.

In navigating this complex environment, companies will need to balance their legal obligations with sensitivity to the human risks involved. While transparency is rightly non-negotiable in a modern governance framework, implementing it responsibly—without overlooking the potential for unintended consequences—remains a critical consideration.

Advisory and shadow boards are increasingly being touted as innovative tools to improve diversity, bring fresh perspectives to decision-making, and even develop underrepresented talent for future governance roles. While they may seem appealing at face value, these informal structures are, in my opinion, misaligned with South Africa’s governance frameworks. 

An advisory board is typically composed of external experts or professionals who provide specialised guidance to the formal board or executive team. However, advisory boards operate purely in a consultative capacity and are not part of the formal decision-making structure. 

A shadow board, by contrast, is usually made up of internal employees, often from younger or underrepresented groups, designed to mirror the formal board. While shadow boards aim to provide fresh perspectives and a pipeline for future directors, they too have no decision-making authority or accountability. 

The term “board” has specific connotations in South African law and governance. A board is widely understood to mean the formally recognised group of individuals who bear legal director duties under the Companies Act or common law, are accountable for making business judgment calls on behalf of the company; and operate as the ultimate governing body within the company’s formal governance framework.  All of which advisory or shadow boards are not. 

The Governance Gap in Advisory and Shadow Boards 

1. Misalignment with the Companies Act 

The Companies Act, 71 of 2008, places explicit legal responsibilities on directors. These include acting in the best interests of the company (Section 76(3)(b)), exercising a duty of care, skill, and diligence (Section 76(3)(c)), as well as managing conflicts of interest (Section 75). 

Advisory and shadow board members do not carry these statutory obligations because they are not formally recognised as directors.  

2. Risk to Confidentiality 

Boards frequently deal with sensitive and confidential information critical to the organisation’s strategy and competitiveness. While advisory and shadow board members can sign confidentiality agreements, these are significantly weaker than the legal duty to keep company information confidential, as imposed on directors under the Companies Act.  Directors are bound by legal consequences for breaches of confidentiality (Section 76(2)(b)(ii)), whereas non-directors face less stringent enforcement. 

3. Dilution of Accountability 

King IV emphasises the importance of accountability and clearly defined roles in governance. The introduction of informal advisory or shadow boards risks diluting this accountability, as while these structures may provide input, they do not bear responsibility for decisions. The formal board remains fully liable under both the Companies Act and King IV.  There is also the risk of confusing decision-making structures in that parallel or overlapping advisory groups can blur the lines of authority and create governance inefficiencies. 

King IV Principle 1 reinforces the need for ethical and effective leadership, requiring that boards act with integrity and in alignment with clearly defined mandates. Informal structures without accountability or legal responsibilities undermine this principle by introducing ambiguity and potential conflicts in governance processes. 

4. Unrealistic Expectations of “Board Experience” 

A common justification for shadow boards is that they provide participants with “board experience.” While these structures may offer developmental exposure to strategic thinking and decision-making, they do not expose members to the full responsibilities and risks of directorship. Real board experience requires fulfilling legal and fiduciary duties, navigating conflicts of interest, regulatory compliance, and stakeholder engagement; making business judgment calls on behalf of the company; and being held accountable, including the potential for delinquency orders under Section 162 of the Companies Act. 

Advisory or shadow board members may gain insight into governance and contribute useful perspectives, but their participation in these structures is supportive at most; and does not qualify as formal board experience for professional director designations such as Chartered Director (SA). These roles are developmental stepping stones and should be seen as complementary rather than equivalent to meaningful governance exposure. 

Practical Considerations for Boards 

Rather than relying on these structures, boards should focus on strengthening formal governance frameworks and creating meaningful pathways for underrepresented groups. Key considerations include: 

• Reframing informal groupings - if organisations wish to gather input from younger employees or external specialists, they should avoid calling these structures a "board." Use terms like shadow panel, advisory forum, or consultative group, which accurately describe their advisory function without conflating them with the legal duties of a formal board.
  
  
• Strengthening formal governance structures by creating diverse board committees that operate within the legal frameworks of the Companies Act and King IV.
  
  
• Developing talent through structured programmes like governance training, mentorship, and professional development aligned with recognised director designations like Certified Director or Chartered Director (SA).
  
  
• Expanding the boardroom talent pool by looking beyond the usual candidates and sources, while transparently advertising board vacancies and adopting inclusive recruitment processes to source diverse candidates.
  

South Africa’s local and provincial governments are central to delivering essential services and fostering socio-economic development. However, a series of recent media reports have revealed significant shortcomings. Mismanagement of public funds, failure to deliver basic services, and a lack of effective leadership indicate a deeper governance crisis. While King IV covers governance best practice, a failure to apply its principles has presumably contributed to these challenges.  

Corruption at Rustenburg Local Municipality reportedly surrounds the leasing of land and unauthorised connections to municipal services, costing millions of rands.1 These actions have not only undermined the financial stability of the municipality but have also left the community vulnerable.

Similarly, a questionable payment of R2 million by Joe Gqabi Municipality, meant for VIP toilets, reportedly disappeared after a contractor provided no services.2 The reported involvement of a municipal official in the company that received these funds points to severe gaps in governance controls and accountability.

Governance shortcomings at the provincial level have been just as concerning, with recent reports revealing that the Gauteng Legislature has struggled to recover irregularly pocketed funds by MPLs and staff3.  Furthermore, in Mpumalanga, delays in providing learning materials to under-resourced schools have reportedly left students unprepared for final exams.4  

Across the country, municipalities in the North West, Free State, and Eastern Cape reportedly owe waterboards over R11 billion, and essential municipal infrastructure grants have apparently been returned to the National Treasury due to underperformance.5  

Then, the eThekwini metro municipality has faced a prolonged water crisis, with contradictory figures being cited for the cost of repairs. At different points, the metro claimed it required R110 billion, R130 billion, and most recently, R44 billion to address infrastructure backlogs.6 Naturally, this raises questions about the competence and financial acumen of those in charge.

The Role of Boards and Audit Committees

A critical aspect of good governance is the role played by Boards and Audit Committees in maintaining accountability and oversight. King IV emphasises that these structures play a key governance role.  

Audit Committees are specifically mandated to oversee financial reporting. The reported financial mismanagement and irregularities in municipalities indicate that these structures have not fulfilled their oversight duties adequately.  

The Auditor-General’s recent consolidated report on local government audit outcomes again highlighted significant shortcomings across municipalities.7 The findings indicate that “local government is losing billions of rand each year because of poor decisions, neglect or inefficiencies”. Fruitless and wasteful expenditure increased to R7,41 billion, with municipalities disclosing R27,59 billion worth of irregular expenditure.  The report lists Audit Committees as key role players in the accountability ecosystem for “providing an independent view of the effectiveness of municipal controls and processes”.  In addition, the report notes that the Council also plays a significant role in “investigating and dealing with unauthorised, irregular, and fruitless and wasteful expenditure; fraud and corruption; and any transgressions and non-performance”.

Professionalisation

A significant governance concern contributing to these challenges is the practice of cadre deployment. Reports indicate that politically connected individuals are often appointed to leadership positions in the public sector, prioritising loyalty over competence and ethics. As Feriel Haffajee recently noted in an article8, "cadre deployment... is a key factor crashing Johannesburg’s water supply," raising serious concerns about the capacity of individuals placed in critical positions. She further questioned the skills and experience of the "bloated board" overseeing Joburg Water, highlighting how politically motivated appointments have led to operational inefficiencies.

While cadre deployment is often defended as a means to ensure political alignment, it has reportedly undermined professionalism and weakened institutional capacity in both local and provincial governments. This issue has been extensively scrutinised, with the State Capture Commission finding that cadre deployment is both unconstitutional and illegal9, as it compromises merit-based appointments and erodes accountability.

King IV advocates for leadership appointments based on merit, integrity, and competence. Appointing leaders with the necessary skills and commitment to public service is critical for ensuring accountability and driving effective governance.  

This aligns with the continuous advocacy efforts of the Institute of Directors in South Africa for the professionalisation of directors through enforced membership of, and certification by, the professional body. Similarly, the Auditor-General’s report highlights the need for professionalising and capacitating local government, stating that “skills and capacity gaps can be addressed through a concerted effort to support and implement local government professionalisation initiatives.”  

Implementing King IV for Better Governance

Despite the challenges, King IV offers a roadmap for overcoming these governance concerns. The Code, when applied effectively, can help local and provincial governments improve control,  accountability, and ultimately service delivery.  

At its core, King IV calls for leadership grounded in integrity, fairness, and transparency.  

Furthermore, internal controls are crucial for financial oversight. By adopting King IV’s practices on performance, reporting and assurance, municipalities and provincial governments can ensure that public funds are spent efficiently.

Very importantly, boards and audit committees should take a more proactive role in holding management accountable. By enforcing financial controls and regularly reviewing governance practices, these structures can prevent future mismanagement.

The governance challenges in South Africa’s local and provincial governments are significant, but they are not insurmountable. By fully embracing the principles of King IV, municipalities and provincial governments can improve their performance, enhance service delivery, and restore public trust. Improved governance will lead to better resource management, increased socio-economic development, and more equitable access to essential services.

Ultimately, South Africa’s future depends on the ability of its government entities to be governed effectively. 

• Clarity of roles and responsibilities: It is essential to clearly define the roles and responsibilities of NEDs and executive directors. The board should operate at a strategic level, focusing on setting the company’s direction, overseeing its performance, and ensuring compliance with legal and regulatory requirements. The executive team, on the other hand, should be responsible for implementing the company’s strategy and managing the organisation’s operations.
  
  
• Effective board meetings: One of the reasons why boards become too operational is poorly structured board meetings. Meetings should be designed to focus on strategic issues rather than operational details. As noted by Boardpro, board meetings should allocate sufficient time for discussing long-term goals, risks, and opportunities, rather than getting bogged down in the day-to-day operational challenges that should be handled by the executive team.
  
  
• Regular training and development: Continuous professional development is crucial for NEDs to stay informed about their role and the broader governance environment. Professional training ensures NEDs understand the boundaries of their role and are equipped to challenge the executive team constructively without overstepping.
  
  
• Board assessments: Regular board assessments can help identify instances where NEDs may be overreaching. These assessments should evaluate whether the board is maintaining its focus on strategic issues and whether NEDs are interfering with management responsibilities. Feedback from these assessments can be used to refine the board’s approach and ensure NEDs remain within their proper oversight role.
  
  
• Encouraging open communication: Finally, fostering an environment of open communication between the board and the executive team is vital. When NEDs and executives have a clear understanding of each other’s roles and maintain a dialogue built on mutual respect, the risk of overreach is minimised. King IV emphasises the importance of a culture that encourages transparency and accountability, which can help in maintaining the delicate balance between oversight and management.

In conclusion, the role of a NED is pivotal in ensuring good governance, but it requires a careful balance between being sufficiently involved and not overstepping into operational management. By adhering to clear guidelines and focusing on strategic oversight, NEDs can avoid the trap of operational overreach and contribute effectively to the success of the organisation.

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis

The amendment is a direct result of the Zondo Commission of Enquiry into State Capture’s finding that directors of captured state-owned entities (SOEs) had not been properly held accountable. It called for an amendment of the Companies Act to extend the period in which an application for an order declaring a person delinquent can be brought “as it can take a number of years for the facts of delinquency to be uncovered”. The Companies Amendment Act amends the Companies Act of 2008 to extend the 24-month time bar to launch proceedings to 60 months – and gives the court the power to extend this period further where good cause is shown.

“Directors, along with other prescribed officers in companies, can be held accountable for a considerable period after they have committed the alleged offences,” notes Prof Natesan. “This is something that the IoDSA has long championed. We commend the extension of the timeframe but want to emphasise that this is not the whole answer.”

Belts and braces needed

The reality is that the cost and length of time it takes to bring an application of director delinquency to court deters companies from making use of this remedy. With no fast or easy means to address delinquency, directors who are guilty of gross misconduct are often simply removed from a board. However, without censure or statutory action, they continue to serve on other boards. So the misconduct, corruption and maladministration continue – and that is very costly for everyone.

In her presentation to the Parliamentary Portfolio Committee, she proffers a comprehensive solution: the establishment of a statutory professional body to which all directors would have to belong in order to have a license to practice.

Such a professional body would govern the office of directorship, guiding the profession and setting and maintaining standards for ethical and professional practice.

“As things now stand, the IoDSA is a voluntary professional body for directors and so its mandate to take disciplinary action is limited to its members,” says Professor Natesan. While every effort is made to advocate publically for good governance and directorship,  this is not enough to hold directors accountable.

By contrast, a statutory professional body would require all directors to become members in order to practice. The new body would ensure standards are upheld, that knowledge and skills are vetted and kept up to date and that directors abide by a code of conduct, failing which their license to practice could be removed.  Ultimately this would result in a quicker and less costly manner to hold directors accountable.

The IoDSA has established 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. It has also developed two director designations—Chartered Director and Certified Director—both recognised by the South African Qualifications Authority, to enable directors to gain, prove and maintain the necessary competencies.

“The Zondo Commission’s findings show just how badly directorial misconduct affects a company, and how important it is to be able to hold rogue directors to account in terms of a rigorous, professional standard,” concludes Professor Natesan. 

“I believe it is time for South Africa – company stakeholders, owners, boards and professionals – to harness the momentum established by the Zondo Commission and the new Companies Amendment Act and take a stand to professionalise directorship.”

INFO BOX

What, exactly, is delinquency?

As the IoDSA’s guidance paper on director delinquency notes, delinquency arises when a director breaches his or her fiduciary duties towards the company being served. If material acts of misconduct can be proved, as listed in Section 162(5) of the Companies Act, the director can be declared delinquent by the High Court and precluded from continuing to act as a director for seven years or more. This statutory enforcement, which can be lifelong, is not intended to be a remedy for a trivial misdemeanour but rather for gross abuses of the fundamental trust inherent in the position of a director – i.e., unlawful conduct committed wilfully or recklessly. Probation orders, which can reach five years, can also be made by courts against directors for material breaches of the standard of conduct required of a director, either with intent or through gross negligence.

What is expected of a director?

Legal duties require directors to exercise their powers and perform their functions in good faith, for a proper purpose and in the best interest of the company and with the utmost degree of care, skill and diligence that may be reasonably expected of a person in the position of that director and from a person with the general knowledge and specific skills of that director. Section 76 of the Companies Act partially codifies these common law duties of directors and sets out the prescribed minimum standard of conduct for all directors and prescribed officers. It includes, amongst others, the prohibition of directors from using their position to gain personal advantages or to harm the company.

Links

• IoDSA Director Competency Framework
• IoDSA’s Guidance Paper on Director Delinquency

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis

Getting more women involved in business will help the continent realise its potential and workplace equality will inevitably lead to change across society.

Businesses across the globe have progressively recognised the importance of promoting gender equality within the workplace, understanding that an increased representation of women correlates with a multitude of beneficial outcomes. This principle extends beyond just the corporate domain, suggesting that enhancing female participation in all aspects of society could lead to more efficacious and sustainable operations. The interplay between gender equality and organisational success is founded on the notion that economic empowerment, leadership roles, and financial successes for women can fundamentally reshape societal structures.

The transformative potential of gender equality is particularly pertinent in the business sector, where economic influence often extends into broader societal impacts. Empowering women to excel in business-through earning, leading, and innovating-instigates a shift in societal dynamics, creating environments where both businesses and communities can flourish through sustainable practices. Thus, the link between gender equality and sustainability is not only intuitive but essential for future prosperity.

In the context of corporate governance, South Africa's King Reports serve as a benchmark for sustainable organisational practices. The latest edition, King IV, emphasises the importance of diverse and balanced board composition, linking ethical leadership with organisational success. By championing gender diversity, King IV recognises the crucial role women play in guiding companies towards sustainable growth and societal benefits.

King IV thus sees board composition as crucial to providing the right mix of people to guide the organisation successfully in an increasingly complex environment. Genuine diversity is crucial to realising this goal, and gender is seen as a crucial factor in achieving diversity. Recommended Practice 11 thus suggests that the governing body "set targets for race and gender representation in its membership? There is a growing body of research that links organisational performance with diversity. Research from the Boston Consulting Group long since provided the link between companies with a more diverse leadership team and above-average revenue from innovation. This research also established a link between diversity and prospects for future growth^.[1]

More recently, out of many other examples, McKinsey & Co's report, *Diversity matters even more: The case for holistic impact^[2] indicates that top-quartile companies have more diverse (in terms of gender and ethnicity) executive teams. In fact, the greater the representivity, the higher the likelihood for higher performance: companies with more than 30% of female executives are more likely to outperform companies with lower percentages. The same principle holds good for ethnic diversity.

The case for diversity is strong
The case for diversity, which pre-eminently includes gender represen- tivity given the fact that women make up roughly half of humanity, is solid. Here though, it is worth noting that diversity cannot be a tick-box exercise: it's not the fact of being female, per se, that makes a woman valuable in the workspace, but the different viewpoints and experiences she brings. The same point can be made of other components of diversity such as race and age: always the key criterion must be what the governing body needs to do its job more effectively.

Aside from governance frameworks like King IV, the beneficial effects of female participation in business are recognised in the regulations of the Johannesburg Stock Exchange, which requires a policy and targets for gender diversity on boards.

By adding a different dimension to the way business decisions are made, women can make companies more successful and sustainable over the long term. Research shows that women make decisions differently from men and may even make decisions better. For example, research shows that when competing interests are at stake, women are better at making fair decisions.^[3]

The benefits of female participation we have seen in business surely hold good for politics and society more generally. At base, politics is all about balancing competing claims as fairly as possible. For that reason, one can safely assume, that the Southern African Development Community (SADC) has established a protocol urging member states to ensure "equal and effective representation of women in decision-making positions in the political, public and private sectors.^[4]

In theory, at least, we can hope that greater female participation in Africa will enable the continent to make better decisions regarding the continent's urgent needs. While several African countries are growing strongly, conflict is still rife across the region. The benefits of the former will not fully be realised unless the latter is curbed.

There is one particularly difficult set of decisions Africa has to make that will determine its future. These relate to the transition to green energy, pitting environmental sustainability against economic and thus social sustainability. Africa is seriously deficient in the reliable, plentiful energy needed to enable the continent to realise its considerable economic and human potential. It also has abundant reserves of the fossil fuels needed to supply that energy and yet many Africans accept the need to support global efforts to decarbonise energy. How to balance the conflicting imperatives of energy security and energy decarbonisation will take great wisdom-and better representation of women at the highest levels could help negotiate these tricky currents.

In conclusion, though, one has to note that Africa's progress towards gender parity in business and society remains patchy. In 2018, women made up over 50% of the population but generated only 33% of GDP, and it has a low Gender Parity Score, as indicated in a 2019 McKinsey report.^[5] If it improved its performance in gender parity at a best-in-region rate, the report estimated it could have added $316 billion to annual GDP by 2024.

The figures matter less than the principle. Africa must not continue missing out on the potential that its women have to offer in both the economy and society and politics more broadly.

References
^[1]Rocío Lorenzo, Nicole Voigt, Miki Tsusaka, Matt Krentz, and Katie Abouzahr, "How diverse leadership teams boost innovation (23 January 2018), available at https://www.bcg.com/publications/2018/how-diverse-leadership-teams-boost-innovation

^[2]McKinsey & Company, "Diversity matters even more: The case for holistic impact* (5 December 2023), available at https:// www.mckinsey.com/featuredinsights/diversity-and-inclusion/ diversity-matters-even-more-the-case-for-holistic-impact

^[3]"Women make better decisions than men, study suggests", Science Daily (26 March 2013), available at https://www.sciencedaily.com/releases/2013/03/130326101616.htm

^[4]SADC website, see https://www.sadc.int/pillars/women-politics-decision-making

^[5] McKinsey Global Institute, "The power of parity: Advancing women's equality in Africa" (24 November 2019), available at https://www.mckinsey.com/featured-insights/gender-equality/ the-power-of-parity-advancing-womens-equality-in-africa

Introduction
As President Cyril Ramaphosa, in accordance with constitutional provisions, declared 29 May 2024 as the date for the 2024 General National and Provincial elections, it becomes imperative to recognise the profound significance of every South African's vote.

In the corporate world, shareholders play a pivotal role in shaping the destiny of a company. Through their investment, they have an interest in the company, which they need to protect by assuming an active role. Their power to appoint the board of directors reflects a fundamental principle: the right to choose ethical and effective leaders who will act in the best interests of the company. In the same vein, in the context of a national election, South African voters can loosely be equated to the ‘shareholders’ of their nation, with the power to vote in a ‘board of directors’ (parliament) which, ultimately, results in the appointment of a CEO (president) and his/her executive team (ministers). This analogy underscores the importance of every citizen's vote in shaping the destiny of our country.

The Board of Directors - Parliament's Crucial Role
Parliament, serving as the board of directors of SA Inc., holds a pivotal position in the governance of the nation. Much like a corporate board, it should craft policies, pass legislation, and oversee the performance of the CEO and executive team.

The buck stops with parliament when it comes to the performance of the country. Members of parliament, as stewards of the nation's interests, must deliver on their commitments. By holding parliament accountable for the country's performance, voters reinforce the idea that parliamentarians must actively work towards the betterment of the nation and that their actions directly impact the well-being of the citizens.

The CEO - The President's Leadership Mandate
The president, analogous to the CEO of SA Inc., assumes the leadership role responsible for executing the policies and decisions set by the board (parliament). The president should also play a pivotal role in setting the tone for ethical and effective leadership throughout government.

In addition, the president is entrusted with the responsibility of holding ministers accountable for their performance. Similar to a CEO managing an executive team, the president should evaluate the effectiveness of each minister, ensuring they align with the overall vision and objectives of the nation. If a minister falls short in delivering results or deviates from ethical standards, the president should take decisive action, including the removal of that minister if necessary. This accountability mechanism is essential for maintaining standards of performance.

The Executive Team - Ministerial Roles and Responsibilities
Ministers, resembling the executive team in a company, oversee specific portfolios critical to the nation's well-being. Whether it's healthcare, education, or finance, ministers are tasked with formulating and implementing policies that directly impact citizens' lives. This executive team must be composed of individuals with expertise, commitment, and a genuine dedication to serving the public interest.

In the corporate world, executives are answerable for how money is spent within their departments, ensuring efficiency and prudent financial management. Similarly, ministers must be held accountable for the allocation and utilisation of public funds within their respective domains. This fiscal accountability is essential to ensure that taxpayer money is invested wisely, yielding tangible and equitable outcomes for the citizens.

Just as boards scrutinize a company's financial performance, parliament should assess ministers based on their ability to deliver results within budgetary constraints. Transparent reporting and accountability mechanisms in government are vital to ensuring that the executive team operates responsibly, aligning their actions with the broader goals of the nation.

Accountability - A Cornerstone of Effective Governance
In both the corporate and governmental realms, accountability is paramount. The board (parliament), the CEO (president), and the executive team (ministers) must be held accountable for their actions and performance. Shareholders, or in this case, citizens, possess the power to demand transparency, ethical conduct, and tangible results. When accountability mechanisms are robust, it ensures that leaders are responsive to the needs of the people and act in the best interests of the nation.

The Importance of Voter Engagement
Statistics from previous elections reveal a concerning trend – a significant number of eligible voters abstain from participating in the democratic process for various reasons including dissatisfaction with political options, protest of disapproval, lack of trust in the political system and apathy or indifference. Unfortunately, this lack of engagement undermines the very essence of democracy, as the power to appoint leaders lies with the citizens. By not exercising their right to vote, individuals neglect their responsibility as ‘shareholders’ of the nation, diminishing their impact on the ‘board's’ composition and the selection of the ‘CEO’ and ‘executive team’.

Conclusion
In the corporate world, responsible shareholders understand the impact of their votes on the company's trajectory. Similarly, every South African citizen holds the key to the nation's future in their hands during elections. By recognising their role as shareholders, citizens can ensure the appointment of ethical and effective leaders, contributing to the growth and prosperity of "SA Inc."

Don't waste the power of your vote – be an active shareholder in the governance of your country and drive the positive change you wish to see.

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis

Chairing skill is one important driver, but no matter how skilful or persuasive the chair is, the meeting’s success is founded on the agenda itself. It should be considered as the score of a symphony to provide a framework that highlights each instrument and brings them all together to create something exceptional.

The board agenda is typically driven by the company secretary or equivalent, working closely with the chair and a member of the executive. However, there is consensus that the agenda is “owned” by the board as a whole, so it is recommended that all the board members have the opportunity to collaborate in the process.

Once the agenda is complete, it should be sent out well in advance, together with other meeting documents, so that board members know exactly what the meeting is about. When the meeting commences, the agenda should be formally adopted.

When it comes to drafting the agenda, there are several good pieces of advice to apply. The first is to consider the agenda not as a rote document that follows a fixed format – apologies, confirmation of minutes, matters arising and so on – but rather to approach it more strategically. Hopefully, the collaboration noted above would have given clear direction about what the key issues are, and these are the ones that should be addressed first. Routine reports and less important items should be lower down the agenda.

Each agenda item should spell out what it intends to achieve, and specifically whether a decision is required.

The company secretary must also stipulate the estimated time that should be spent on each item. As already noted, routine items should be low down on the agenda and also be allocated as little time as possible – the real business of the meeting is to discuss the current big issues. Creating an effective board agenda also necessitates an understanding of the broader industry and market dynamics that influence the organisation. Incorporating an analysis or discussion section where board members can deliberate on these aspects could add significant value.

Some would argue that routine discussion points and reports can be grouped into one agenda item that can be approved in one motion.

Where responsibility lies
However, there is a danger that the categorisation of routine items may be used to avoid difficult discussions. Financial reports fall under the routine heading but do need careful consideration. One cannot stress enough the need for board members to read all the documents before the meeting.
An important principle in creating a good board agenda is to ensure no operational matters are listed, unless they have strategic or reputational implications.

Aside from formally adopting the agenda at the beginning of the meeting, in terms of King IV each board member should be required to state if any of the agenda items present a conflict of interest.

A quick word about board packs is worthwhile, even though it’s a topic on its own. Once the perfect agenda has been developed, the information presented to the board has to support it. Getting the balance correct is difficult, but board members must remember that they have the ultimate responsibility for ensuring they have the right level and quality of information, especially given that they alone are responsible for their decisions.

Using board portals from which the board packs can be downloaded will help to streamline an essentially cumbersome process.

One final point: at the end of each board meeting, it’s a good idea for the chair to allow a short period of discussion and reflection about what worked well, and what needs improvement, thus setting in motion a process of continuous improvement. And environment of openness and critical deliberation will assist in fostering a culture of excellence and foresight in board governance.

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis

Professors Parmi Natesan and Prieur du Plessis are respectively CEO and facilitator of the IoDSA; email: info@boardgovernance.co.za

Prof Parmi Natesan		Prof Prieur du Plessis

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis

Any lingering doubts about the importance of having the right people on the board have surely been laid to rest by the reports of the Zondo Commission.In response, expect greater scrutiny of the credentials of non-executive directors (NEDs) and a more definite move towards professionalisation, something the Institute of Directors in South Africa has been advocating for quite a while.

In that context, people with aspirations to be an NED need to take a strategic approach ̶ those with the correct competencies should find themselves at the top of the list. Based on our joint experience in being NEDs and in training them, here are the main things for which search committees are looking:

Personal qualities

The Chartered Governance Institute UK & Ireland sums up the qualities an ideal NED must possess: “Effective non-executive directors question intelligently, debate constructively, challenge rigorously and decide dispassionately.” These interpersonal skills need to be supplemented by a considerable degree of courage; courage to challenge the cosy consensus that can often develop on a board and also the pressure of vocal external stakeholders.

NEDs are particularly valued for their ability to take a strategic, long-term view of any issue ̶ a vital balance to the executive directors who are involved in the day-to-day minutiae of running the company.

Above all, one might argue, an NED must possess a strong moral compass in order to negotiate complex issues, manage conflicts of interest and maintain a focus on the organisation’s best interests.

Business knowledge and skills

These skills were traditionally gained from a career in business, but as directorship becomes professionalised they will have to be actively acquired. They include a high degree of financial understanding and acumen – certainly the ability to analyse financial statements is non-negotiable. Deep knowledge of the relevant industry sector is a big plus in helping an NED to provide the big-picture thinking an organisation requires. It goes without saying that an NED needs to understand thoroughly how a business runs.

Leadership is an important skill. We list it here rather than under personal qualities because knowing how to lead a business is rooted in experience rather than personality per se. Former CEOs or senior executives are in pole position provided they understand that their role is now to make the CEO a successful leader.

Also, NEDs need to understand how performance management works and how to oversee a framework of management controls with an appreciation of risk.

Governance understanding

Directorship is ultimately a governance role, and NEDs must have a deep understanding of what governance is, and how it works. Obviously they must have a current understanding of governance codes and legal frameworks, as well as meeting procedure. NEDs must never confuse governance with execution – the latter is very much the province of the executive.

Time

The director’s role has been growing in complexity as more regulations have come into force. NEDs need to have the time to spend on doing a good job – a general estimate is 1 to 3 days a month. NEDs also need to be flexible enough to give more time in the event of a crisis. Be aware that new directors will have to give more time while they learn the ropes.

Willingness to investigate

NEDs will always know less detail about the company than executives, who spend all their time there. NEDs must assume responsibility for looking beyond the board pack, developing other sources of information to assist in making rational business decisions.

Once a prospective NED has understood what the role requires, the next step is to undertake an objective assessment of how well he or she fits the mould. Care must be taken to distinguish between a successful career as an executive and what the NED must do.

If it’s all systems go, you would be well advised to build a visible “NED personal brand”. This could entail heightening your presence on social media and other channels, such as active involvement in the professional body for directors. Embarking on the journey to achieve one of the IoDSA’s director certifications is an excellent investment too.

Finally, when you are eventually approached to join a board, do not omit to undertake a thorough due diligence of the company. Having gone to all the trouble of making yourself NED worthy, it would be a pity to associate yourself with a suboptimal organisation!

NEDs have a huge contribution to make – prepare yourself properly for a worthwhile career.

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis

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. 

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

The long list of corporate misdemeanours seems to keep on growing, and one can be forgiven for thinking that drastic action is the only way to get corporate governance back on track. In that context, there are growing calls for shareholders to have a greater say via mandatory voting on certain issues at the annual general meeting (AGM).

The draft Companies Amendment Bill, published for comment last year, proposed some additional powers for shareholders. These included binding votes on the company’s remuneration policy and remuneration implementation report, as well as a shareholder vote on the social and ethics committee report.

So far, so good probably—but there is a danger that this approach could be taken too far. The issue is that it runs the risk of compromising the corporate governance framework itself by getting in the way of the board’s ability to fulfil its duties. In the end, excessive shareholder interference via targeted voting at AGMs could actually end up working against the company’s best interests.

After all, as the IoDSA has repeatedly pointed out, it is the meddling by the state as shareholder in matters that should be the responsibility of the board that lies behind the disastrous performance of many of our state-owned enterprises.

Revisiting the governance structure

Let me explain.

First, let’s not forget that shareholders are not the only group that has a vested interest in the company’s success. The company is a juristic person in its own right and has obligations to, and is dependent on, other stakeholders (such as employees, local communities and so on) to continue being successful into the future. These stakeholders’ viewpoints therefore also need to be taken into account in decision-making.

More importantly, one needs to understand how the legal structure actually works. The shareholders, as owners of shares in the company, have the legal right and obligation to appoint a board of directors to oversee the company. Those directors, in turn, have a legal obligation to act in the company’s best interests and can be held personally liable by the courts if they do not do so. Their liability is, potentially, unlimited.

By contrast, shareholders have no legal duty towards the company and have only limited liability. One might therefore argue that care should be taken in giving shareholders the right to enforce or overturn board decisions—decisions for which they will not be held accountable and about which they would not necessarily be fully briefed.

Avoiding role confusion

At base, what I am arguing is that all parties need to understand what their role is and stick to it, or risk fundamentally undermining governance. So while it’s important that shareholders have a direct say in certain important issues such as the legal structure of the company and its purpose, the real emphasis should not be on second-guessing the board on specific issues but rather on ensuring that the right people are on it and that they are held properly accountable.

In my opinion, one of the most powerful and important shareholder rights is the ability to appoint—and remove—the directors.

Based on my observations of AGMs, it seems that shareholders don’t always pay enough attention to who is being appointed/ re-appointed to the board. Few questions as to their skills, experience, independence, personal competencies, track record and even how much time they have to devote to the job are ever asked. It would be advisable for shareholders to bring this neglected resolution to the forefront, and really interrogate who they appoint.

Shareholders need to be confident that they are appointing directors in whom they have full trust. They then need to allow these directors to exercise their discretion in the fulfilment of their duties while holding those directors accountable. They should also consider when the removal of a director is appropriate as this is another powerful and important tool that a shareholder has to protect the company’s interests.

Active shareholders are a blessing and should be cultivated, but the emphasis should be on encouraging them to play their proper governance role rather than carving out new ones. Governance frameworks do work, they just need to be used correctly.

By Parmi Natesan, CEO, Institute of Directors in South Africa

The Zondo Commission’s first report highlights the key role that courageous individuals play in raising the alarm about corruption in general, and state capture in particular. People like Cynthia Stimpel at South African Airways and Athol Williams at Bain Consulting, it says, are “one of the most effective weapons against corruption.”

At the same time, though, the report makes the important point that the whistle-blower must be able to “trust that the disclosure will be treated in strict confidence and that the recipient can offer adequate protection against harm”.

The importance of whistle-blowers is also recognised in King IV. In particular, King IV recommends that in its management of ethics the board not only puts mechanisms for reporting ethical breaches in place, but deals with such disclosures “appropriately”.

As the report makes clear, this recommendation was simply not implemented various state-owned enterprises with devastating impact on their long-term sustainability, but also on the whistle-blowers themselves.

Clearly, boards who take seriously their fiduciary duty to safeguard the long-term interests of their organisations must take heed of these findings and put measures in place to encourage whistle-blowing and also ensure that whistle-blowers themselves are protected from negative consequences.

How to do it

Cynthia Stimpel believes that creating a safe space in which people feel able to raise difficult questions without being victimised is the vital first step. Of course, creating a corporate culture is never easy or quick—it’s a slow, incremental process, she emphasises. “There are a lot of difficult conversations we need to have in South Africa, and they are just not happening,” she says, adding that personal courage is a prerequisite here.

A comprehensive policy is an important building brick, Ms Stimpel says, something that The Ethics Institute’s Liezl Groenewald backs. Ms Groenewald notes that the Protected Disclosures Amendment Act makes it mandatory to have a policy.

A policy is not enough on its own. Ms Groenewald says that it must be complemented by a range of channels that whistle-blowers can use. All too often, companies implement a hotline and consider the work done. However, research conducted by the Institute shows that a substantial 42% of South African workers prefer to report ethical violations to their line manager, with 13% opting for HR, 11% for risk management and 11% for another manager. Only 2% use the hotline.

Once a complaint is reported, it is vital that action is taken—only then will employees believe that the culture exists. Action, yes, but it must be the right action: the complaint must be investigated by the right individuals, confidentiality must be maintained and then consequences must follow.

A key principle is that all complaints must be collated in a central node so that they can be monitored, and proper reports supplied to the board.

The loop then needs to be closed by advising the complainant that an investigation has taken place and that action has been taken—the details don’t need to be given, Ms Groenewald adds.

Because of their leadership role, Ms Stimpel feels that the CEO and executive team are pivotal. As always, boards have to play an oversight role—they must ensure that they receive the reports and interrogate them deeply.

Given that directors are often part of the problem, she believes they should be members of the IoDSA so they can be held accountable.

Training is an important piece of the puzzle. Directors can benefit from the programmes created by the IoDSA, but everybody in the organisation needs to know why whistle-blowing is so important as a way to protect the organisation (and thus their jobs), how to identify unethical behaviour and finally how to report it.

Finally, protection. Clearly, providing an environment in which these kinds of concerns can be safely raised is part of it, as is scrupulous confidentiality during the reporting/ investigation/ action process. When and if the whistle-blower’s identity becomes known, the company can assist with better home security or a transfer to another office.

Whistle-blowing, as the Zondo report says, have a vital role to play in fighting corruption. We must make it easier—and safer—for them in the future.

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis