boardroom OFFICIAL MAGAZINE OF CHARTERED SECRETARIES SOUTHERN AFRICA ISSUE 1 | 2018 R30.00 (INCL VAT)

22 25 37 Lifeguard on Duty? Improving Tender Governance The Robo-Director Editor’s Letter

of 1999. Another steward of good public-sector governance is Gauteng Finance MEC Barbara All Hands on Deck Creecy, whose department aims to have 100% of the province’s procurement go through an open s specialist investment governance, diving into what went tender process by the 2018/19 company Futuregrowth’s wrong at State-owned power utility finan­cial year, improving trans­ director, Andrew Canter, Eskom in an inter­view with former parency and narrowing the scope points out on page 18, Eskom divisional executive A for cronyism and corruption. Read govern­ment and State-owned Mohamed Adam. On pages 11 boardroom’s interview with Creecy entities have a special duty to care 17, Adam surveys the wreckage to on pages 25 to 27. for the assets of the nation. left behind by past Eskom boards. There is hope in South Africa Therefore, I think public-sector We also highlight the hope that that we can put corruption behind governance is a fitting theme for South Africa’s recently inaugurated us, but hope floats for just so long. this re-launch edition of CSSA’s President Cyril Ramaphosa, will During the next few months, boardroom magazine. take the helm and captain the public-sector governance must There is a terrible contradiction country towards improved ethical be urgently improved. This is if government champions broad- governance with the help of his a pre-requisite for a return to based black economic empower­ first mate, Public Enterprises economic growth and to stimu­- ment and job creation, on the one Minister, Pravin Gordhan. CSSA late broad-based development. hand, but public-sector com­panies president Shamida Smit dis­ and government depart­ments cusses this sense of optimism suffer form poor gover­nance and on pages 6 to 9, as does a corruption, on the other. Broad- boardroom contributor and based develop­ment requires the seasoned financial journalist,Ann delivering of critical basic services, Crotty on pages 22 to 24. Crotty particularly to the poorest in our emphases the need for better society. enforcement of the law under the In this issue of boardroom, Companies Act of 2008 and the Tracy Hancock we focus on public-sector Public Finance Management Act Editor

DIRECTORS CONTRIBUTIONS: President: Shamida Smit Senior Vice President: Sikkie Kajee The Editor welcomes contributions from members and students, to be Vice President: Robert Likhang Past President: Karen Southgate received in February, May, August or October for inclusion in the following Chief Executive: Stephen Sadie month’s magazine – Please contact Tracy Hancock at 011 622 3744 Natasha Bouwman, Brian Dialwa, Herman Kocks, Zernobia Lachporia, or Email [email protected]. Sandra Linford, Johann Neethling, Raymond Pillay, Karen Robinson, Carina Wessels and Christopher Wilson boardroom is produced by Creamer Media Contract Publishing for The Southern African Institute of Chartered Secretaries and Administrators NPC. EDITORIAL COMMITTEE: Copyright reserved©. The right of reproduction in any form of the whole or any part of any Stephen Sadie, Sabrina Paxton, Janine Joubert and Nikita Theodosiou article or other matter published in boardroom is vested in The Southern African Institute of Chartered Secretaries and Administrators NPC. All opinion in this magazine is published on ADVERTISING & SALES: the basis that it does not constitute the official opinion of the Institute unless expressly so Tel: 011 551 4000, Email: [email protected] stated. Further, all those involved in the preparation and distribution of this magazine are not providing legal, accounting or other professional advice and, hence, do not accept any HEAD OFFICE responsibility for the accuracy of any of the opinions or information therein. The Institute Riviera Road Office Park (Block C), 6-10 Riviera Road, Killarney, does not accept any liability to advertisers for the publication of advertisements which may Johannesburg, 2193. PO Box 3146, Houghton 2041. Tel: 011 551 4000. be held to be contrary to law. Email: [email protected], [email protected], Join us on Facebook [email protected] Reading the magazine counts 2 hours towards www.chartsec.co.za non-verifiable CPD.

2 boardroom | Issue 1 | 2018 Contents

A New Beginning Governance Circus Throwing Shade By Stephen Sadie 4 By Tracy Hancock 11 By Tracy Hancock 18

Lifeguard on Duty? Federal Fraud Bring in the Substitute By Ann Crotty 22 By Tracy Hancock 31 By Christina Pretorius 34

The Robo-Director A Fresh Face By Ronelle Kleyn 37 By Tracy Hancock 43 Dates to Diarise 47

CEO’s Message Improving Tender Managing Governance A New Beginning 25 Governance 39 in the Cloud 4 Public sector governance Tracy Hancock speaks Diligent releases solution under the spotlight to Gauteng Finance MEC to strengthen governance By Stephen Sadie Barbara Creecy … By Tracy Hancock Advancing Altering Mindsets Boardroom Skills Accountability Company secretary role 28 Detecting Deception 6 Southern African SOEs should critical to ethical South 41 Are you adept at the basics be as accountable to general Africa, CSSA working of detecting lies? public as listed companies to grow awareness By Tracy Hancock By Tracy Hancock are to shareholders By Tracy Hancock Members & Students A Fresh Face Cover Story International Insight Governance Circus 43 The company secretary Federal Fraud profession chose 11 Can new board fix the Australia looking to introduce fundamentals at Eskom? 31 Christine Fourie a federal anticorruption body By Tracy Hancock By Tracy Hancock By Tracy Hancock Study Tips for News to Note Legally Speaking 45 Exam Success Throwing Shade Bring in the Substitute By Dr Jacqui Baumgardt 18 Futuregrowth report calls 34 Alternate directors: new tricks for significant improvement for an old dog Dates to Diarise in SOE governance practices By Christina Pretorius Seminars 2018 By Tracy Hancock The Tech Track 47 Webinars 2018 Lifeguard on Duty? The Robo-Director Important dates for 2018 22 South Africa in position 37 Artificial intelligence could to turn the tide of public-, influence amendments to private-sector governance corporate law in future By Ann Crotty By Ronelle Kleyn

boardroom | Issue 1 | 2018 3 CEO’S MESSAGE

A New Beginning BY STEPHEN SADIE

Public-sector elcome to our Transnet, the South African brand new look Broadcasting Corporation, governance and feel of the the Passenger Rail Agency under the W boardroom of South Africa, Airports magazine. It is a new Company South Africa and spotlight beginning for boardroom as Denel. Parliament has awoken we move into a digital format. from its slumber and poor The theme of this first issue governance in the public of the new look boardroom sector is being tackled daily. is public-sector governance. We were delighted with the It is also a new beginning for swift appointment of the new public-sector governance. Eskom board which looks There is a new mood in the promising. We look forward country as we to a major clean-up of other begin to unravel SOE boards. We look forward to ourselves from the We wish our new Public ❝ doom and gloom Enterprises Minister Pravin a major clean-up of of the Zuma era. Gordhan all strength in this other boards As a country, we mammoth undertaking. ❞ were dragged Even though the SOEs have down over the hogged the headlines, poor past few years public-sector governance by poor governance and the is not limited to SOEs corresponding corruption but includes national and at numerous State-owned provincial departments and enterprises (SOEs) such as municipalities. One only has Eskom, South African Airways, to read the Auditor-General’s

4 boardroom | Issue 1 | 2018 CEO’s Message

(AG’s) reports to parliament put their lives on the line by to realise the extent of poor exposing the corruption. We governance across these have no doubt that there will three levels. We fully support be a massive pushback from the AG’s attempt to change those who benefited from the legislation giving his office the wheeling and dealing more teeth in taking action that went on, as they cling to against serial offenders. their privileges. However, it For years, we as CSSA, is incumbent on all of us to have continuously highlighted continue to insist and work on the governance problems an ongoing clean-up. in the public sector. This Although this issue focuses has been a golden thread on public-sector governance,

in our premier corporate we should be under no illusion Media Photo by Creamer governance conferences, that all is well in the private CSSA CEO STEPHEN SADIE in our seminars, in our sector. Steinhoff, KPMG, SAP, technical newsletters and in McKinsey and Resilient are all our boardroom magazine. well-known examples of poor In 2016, we introduced a corporate governance in the module on public-sector private sector. governance as we decided CSSA will continue to strive that we should put our to improve on governance shoulder to the wheel and in both the public and do something constructive to private sectors. We offer an build up a cohort of trained internationally recognised, governance professionals honours-level qualification in who could make a difference corporate governance. We to the public sector. In fact, have attracted numerous we were the first division other professionals, such of our international body, as lawyers, accountants, ICSA, to put together such a risk managers, compliance module. We hope to build a officers and others, who strong cohort of governance wish to improve on their professionals in the public understanding and practice sector that never again will we of corporate as a country have to witness governance. We what we have witnessed over look forward to the past few years. drawing into our ❝We hope to build a strong No doubt, much more will be ranks all those cohort of governance professionals revealed in the coming weeks who see the in the public sector in Parliamentary enquiries, problem of poor ❞ and in the commission of governance inquiry on State capture. We and wish to add have much to be grateful for their shoulder to the wheel in in the sterling role played working for a South Africa we by the media in uncovering can all be proud of. what happened and by the I hope you enjoy reading this brave whistle‑blowers who issue of boardroom.

boardroom | Issue 1 | 2018 5 President’s Corner

Altering Mindsets BY TRACY HANCOCK

Company he role of company if that example is not constantly secretaries may not be present at management level secretary role regarded as one of the to be seen and aspired to daily, critical to ethical T most glamorous of jobs, those ingrained characteristics but they play a pivotal role in and learnings need to come steering company governance from somewhere else, South Africa, and ethics not just in South namely CSSA, whose role is CSSA working to Africa, but throughout the to bring about awareness of world. good corporate governance grow awareness CSSA president Shamida practices. Failing this, the Smit has dedicated her adage of “a fish rots from the presidency to changing head” becomes a blatant people’s mindsets about the reality that may eventually position, pointing out that “our become too gigantic to sense of ethics in governance overcome. is something that we like to Noting that there has brag about, and now more not been much emphasis than ever, South Africans are placed on growing awareness in desperate need of a solid around the role of company ethical basis if we are to rise secre­taries since the publish- above the barrage of mistakes ­ing of the Companies Act of we as a nation seem to be 2008, which prescribes that historically and still constantly all public and State-owned encumbered with”. companies are required to Ethical leadership should have a company secretary, flow from the top down and, she stresses that the aim

6 boardroom | Issue 1 | 2018 President’s Corner should ultimately be to ensure past few years, which makes that a company secretary me very proud of the strides becomes a prerequisite for we have made within the every registered company institute to reach out to a in South Africa. larger audience. We have Smit aims to grow awareness had a declining membership Governance seems amongst South Africans to mainly caused by an “ageing” ❝ ensure that there is a broader membership base, says Smit, to be a bad word appreciation of how important whose presidency began in throughout the world, this area of the industry June last year. associated with actually is. Chartered accountants by “Governance seems to be statute have to belong to red tape, administrative a bad word throughout the the South African Institute of issues and loads world, associated with red Chartered Accountants and of paperwork tape, administrative issues and lawyers have to belong to the ❞ loads of paperwork. Law Society of South Africa. – Shamida Smit “However, the basis of “I feel that company secretaries good corporate governance and governance professionals is for us all (government, need a home, and CSSA is the private sector and every that home.” entrepreneur . . . every CSSA, founded in 1909, individual South African) to help encompasses a cross section each other to achieve this and of different professions involved do so from a place of strong in the ethical and compliant moral fibre. Once people open operation of a company, themselves to understanding covering the finance, ethical, the ‘why?’ of regulation, risk and compliance arenas. the negativity surrounding “We need to come together governance will start to fall and provide each other with away,” suggests Smit, who a sounding board for our is the company secretary decisions and to ascertain a for French-headquartered standardised level of ethical construction materials and or moral thinking within the services supplier Saint-Gobain, public domain.” Smit deems based in Gauteng, South CSSA useful in the setting of Africa. such benchmarks for company The aim this year has been secretaries. “By consolidating to increase CSSA’s member­ these various separate but, ship base and thereby grow inherently conjoined, facets awareness of the portfolio of industry, CSSA has filled of a fully fledged chartered a niche where one was secretary, says Smit, who has sincerely lacking.” been a CSSA member for She points out that CSSA’s 11 years. recent youth-focused and “I have certainly seen diversified marketing cam­ growth and a change in the paigns have played a huge demographic of the CSSA role in bolstering its member­ membership base over the ship base.

boardroom | Issue 1 | 2018 7 President’s Corner

Smit’s Story Smit is passionate about what CSSA can do to uplift South Africa’s youth and stresses the leading role the organisation has played in her own life. Phoenix, Durban-born Smit ran away from home at the age of 15 to escape an arranged marriage for which she was removed from school in standard 9 (grade 11). “I looked around to find out what I could do to complete my matric, and it was not simple. I had to work to put a roof over my head and find a college that would admit a black person at that time, which was Damelin. It was exceedingly difficult to obtain a matric under those circumstances. While still working, I came across the SHAMIDA SMIT CIS Institute – what CSSA was The basis of good corporate governance is to help formerly known as – which each other, and to do so ethically with a high level offered, and still does offer, the of moral conscience thrown into the mix Institute of Business Studies (IBS) diploma,” says Smit, who entered the working world as a subsequently, attempted and secretary. “It is a long, hard tea lady, at age 16. have just completed an LLB road and took me ten years Upon completion of the IBS degree through the University of studying part-time, while diploma (a matric equivalent of South Africa. Next stop – simultaneously completing my level diploma), she then MBA – here we come. BCom accounting degree. You qualified to do her CSSA, “CSSA has really been my have to fight for your dreams the international diploma saving grace in terms of my and that is what I have done all to become a company career and, in fact, my entire my life. Anything worthwhile, secretary, and then through evolution within the vestiges of is worth fighting for – if it was work experience received the corporate world. My hands easy, everyone would be at the her FCIS. “I just couldn’t stop would have been tied if I was top of the food chain and there studying. The opportunities not able to do my IBS diploma. would also be world peace.” became available through CSSA gave me the opportunity A lot of youth do not have the evolution of our country’s and my ‘tea lady’ job gave me access to universities these modern history, so I applied the means.” days, says Smit, citing a lack to do a BCom (accounting) Consequently, Smit urges of funds or qualifying matric degree through the University students to never give up results, and when neither of of Johannesburg and, on becoming a chartered those avenues are available,

8 boardroom | Issue 1 | 2018 President’s Corner they need to consider It is getting more and A leader inspires his or her alternative opportunities to ❝ followers and is not swayed reach those same goals. more difficult to maintain by self-interest. You need to Smit highlights that “our a positive attitude when the remember where you came diverse country has so many ethical values of our people from, be secure in the fact that issues, such as children- you ‘fought a good, clean fight’ headed homes and children seem to be fading at an and have a clear conscience in having to leave school at an alarming rate knowing that you did not step early age to support their ❞ on people who didn’t deserve – Shamida Smit family or extended families. to get there.” The necessity of having to Emphasising that South earn a living or supporting Ever Hopeful of Change Africa has one of the best a family does not leave the However, she admits that cor­po­rate governance frame­ majority open to a variety of there is hope in light of Cyril works in the world in the options. Therefore, it’s not a Ramaphosa’s inauguration King IV Report™ on Corporate question of not wanting to as President in February, Governance, Smit does not study or not wanting to aspire highlighting that she is highly under­stand why the country’s to a higher goal, it’s a question optimistic that this new leaders are not taking it to of just not being in a position development in the country’s heart as South Africa’s gover­ to do so. Circumstances often history will signal a catharsis in nance base. “If our leaders prevail over the needs or wants the Parliamentary regime. start really believing in and of an aspiring individual.” Smit believes Ramaphosa will living the ethical and moral However, Smit is demoralised be able to do the job required basis clearly enshrined in by South Africa’s public and of him in a genuine, transparent King IV™, the entire country tertiary education system, and uplifting manner through could change. The Guptas, noting that public universities his years of experience within Steinhoff and all of these seem to spend more time the corporate environment debacles could have been protesting in the streets rather and as a result of his business prevented.” than working in the classroom. background. If then King IV™ was taken With a 20-year-old daughter Smit added that former more seriously and will no at a private university, she President Jacob Zuma longer be just a ‘nice to have’ says, as much as she wants unfortunately did not have for the majority of entities doing to support South Africa and the experience of running a business in the private sector, stay positive about its future, properly governed company Smit forecasts a radical change “I have been forced into placing and, perhaps to a degree, in corporate governance in my kids in private schools taught South Africa a lot about South Africa. because of what is going on the consequences of right and The Companies Act includes at our public schools and wrong as a result. that every public company universities. “Sincerely, I believe that the must have a social and ethics “I have a lot of faith in our character of any company committee as well as an audit country and its people, but it and, by implication, a country, and risk committee, but is getting more and more comes from the top down. You King IV™ talks to much more difficult to maintain a positive have to fight to be up there and than com­mittees. The code attitude when the ethical once you get to that point, one outlines the reason why com­ values of our people seem to cannot become complacent panies should exist, which is to be fading at an alarming rate,” or arrogant. People follow uplift all stake­holders, shifting says Smit, who is also mother leaders, not managers or mere away from purely the goal of to a 16-year-old son. superiors in a line of authority. making money, says Smit.

boardroom | Issue 1 | 2018 9 Options are awesome! Get the internationally recognised corporate governance qualification that gives you more scope.

LAMB FISH VEGETARIAN VEGAN BANTING PALEO RAW FOOD

Join us on WHOLE FOODS MACROBIOTIC

Various career paths can be pursued such as:

„ Company secretary „ Compliance officer „ Non-executive director

„ Governance professional „ Legal counsel „ Finance manager

„ Risk manager

Telephone: +27 11 551 4000 Email: [email protected] Website: www.chartsec.co.za Options are awesome! Get the internationally recognised COVER corporate governance qualification that STORY gives you more scope. BY TRACY HANCOCK Photo by William Fitzgibbon on Unsplash

Governance LAMB Can new board fix FISH the fundamentals VEGETARIAN at Eskom? VEGAN BANTING he process to put an leadership that is corrupt performer in government’s PALEO organisation like State- and/or not trusted.” fold of State-owned entities RAW FOOD owned power utility There are those who (SOEs) following the corruption T Eskom on a sustainable believe, if South Africa had of its practices, announcing Join us on WHOLE FOODS path should start with the a trusted Minister of Public a new board led by Eskom appointment of ethical and Enterprises, then maybe some chairperson Jabu Mabuza MACROBIOTIC effective leadership by of the questionable board in January. appointing a proper board appointments to Eskom He also relieved Energy Various career paths can be pursued such as: and ensuring that its mem­ would not have happened, Minister Mmamoloko bers are credible, competent, he notes. Kubayi-Ngubane and „ Company secretary „ Compliance officer „ Non-executive director trustworthy and ethical, says Through his intervention, Public Enterprises Minister former Eskom divisional South Africa’s new ringmaster, Lynne Brown of their duties „ Governance professional „ Legal counsel „ Finance manager executive Mohamed Adam. President Cyril Ramaphosa, when he introduced ten “It is not sustainable to has set the stage for Eskom new Ministers in February, „ Risk manager run the organisation with to rebuild itself as a star appoint­ing Jeff Radebe and

Telephone: +27 11 551 4000 Email: [email protected] Website: www.chartsec.co.za boardroom | Issue 1 | 2018 11 Cover Story

BALANCING ACT Even if there were legitimate concerns about the outcome of the tender pro­cesses in terms of delivering on key imperatives such as transformation, the role of the board is to give direction and determine the desired outcomes it wanted from management. This should not entail getting involved in the details of tender processes

Pravin Gordhan in their roles rating of ‘CCC+’ by ratings anything to hold executives, respectively. agency S&P Global Ratings, boards or those implicated – South Africans now hold owing to liquidity concerns like Singh – to account. their breath to see if this new and insufficient government Outa energy portfolio cast can deliver a show- support. manager Ronald Chauke stopping performance and “It is essential that the Hawks says Singh was instrumental transform Eskom into an and the National Prosecuting in the siphoning of funds out important contributor to the Authority take action without of Eskom coffers for the ulti­ country’s economy by safely fear or favour against senior mate benefit of the notorious and ethically crossing the public officials, likeAnoj Gupta family business operational tightrope in what Singh, who are implicated in empire. During the ongoing would be a welcome departure corruption,” says Outa COO Parliamentary inquiry into from the questionable Ben Theron. Singh resigned Eskom, then MP Gordhan told decisions their predecessors as Eskom CFO in January Singh that he had been part took in fulfilling their duties. pending a disciplinary hearing. of bringing Eskom, the biggest South African nonprofit Outa stresses that the utility in Africa, to its knees. civil action organisation the downgrade of Eskom by Organisation Undoing Tax S&P Global Ratings to a Where It Went Wrong Abuse (Outa) stressed in a “substantial risk” as an “Historically, we have had media release in February investment destination some very good directors that the failure to hold the with warnings of possible at Eskom who were well corrupt to account is result­ default, illustrates the results respected leaders in business ing in the collapse of crucial of massive, systematic and other areas in South institutions like Eskom, which mismanagement of Eskom Africa”, Adam notes. It was has received a lower credit and the State’s failure to do also during former Public

12 boardroom | Issue 1 | 2018 Cover Story

Enterprises Minister Alec Erwin’s time, from 2004 to 2008, that three international directors were appointed. Adam says these interna­ tional directors offered a depth of knowledge of the same industry in another country and were often able to adopt a more objective view without being influenced by the dictates of national politics. This created con­ structive tension and differing Media Photo by Creamer views at times, but ultimately MOHAMED ADAM There is a lot of work to be done to ensure that a framework can be put in place that is clear resulted in more robust board and respects boundaries, but adds value along the entire chain. If everyone is clear about their engagement and better roles, the entity will become more efficient decisions, he states. Over time, the composition is, therefore, not surprising Eskom were silenced. Either of the board changed and, that the President has recently they were under the impression from 2013 onwards, the focus stated that the boards of that there was nowhere to by some directors was on SOEs should have no role report their concerns, not to tenders and procurement in procurement, says Adam. the CEO, the chairperson or rather than on a sustainable Although, he adds that this Minister. Alternatively, when strategy for the company. specific approach does have concerns were raised, there Directors who objected to this its own problems as the board was no action taken. approach were soon replaced. needs to be involved to some “As a result, good people Adam stresses that even extent in exercising oversight. were not able to speak up if there were legitimate This way of working intensi­ and voice their objections concerns about the outcome fied and it seemed “people often and loudly enough. of the tender processes were getting involved in things Dissenting views were in terms of delivering on they shouldn’t and that there systematically sidelined,” key imperatives, such as were no repercussions” for says Adam. transformation, the role of question­able decisions, with He adds that the extent to the board is to give direction Eskom basically being ruled which this was deliberate, or and determine the desired by fear. the result of naïve directors outcomes it wanted from Not everyone can be said to and managers, has yet management. This should be involved in corrupt activities to be determined at the not entail getting involved and it seems that the few Parliamentary inquiry in the details of tender corrupt managed to dominate into Eskom. processes. The distinct role the organisation, says Adam. of management and the “I don’t know who is involved How to Rebuild to Achieve board was not respected or and how far it goes up, but a a Sustainable Company understood and intervention hopelessness seemed to set Adam, who is also a member was often justified under in because it appears that of the King Committee, tells the guise of transformation people who were concerned boardroom that the rebuilding and broad-based black about the erosion of good of Eskom needs to start with economic empowerment. It governance practices at the appointment of credible

boardroom | Issue 1 | 2018 13 Cover Story

NEW ESKOM BOARD:

Jabu Mabuza – Chairperson It is essential that the Sifiso Dabengwa ❝ Sindi Mabaso-Koyana Hawks and the National Mark Lamberti Prosecuting Authority take Professor Tshepo Mongalo action without fear or Professor Malegapuru Makgoba Busisiwe Mavuso favour against senior Nelisiwe Magubane public officials Dr Rod Crompton ❞ George Sebulela – Ben Theron Pulane Molokwane Dr Banothile Makhubela Jacky Molisane leadership – effective and some good steps taken with and management to run the ethical leaders from a political the introduction of the new organisation. level – to the board. Eskom board. “If you look at “There is a lot of work to be The respective roles of the the State capture report by done to ensure that we put a board, management, political the Public Protector and other framework in place that is clear heads and Parliament need to corruption issues, there are and respects boundaries but be clarified and, in this regard, no red flags with regard to adds value along the entire the institutional framework members of the new board.” chain. If everyone is clear for SOEs also needs to be He states that, if the new about their roles, the entity will reviewed. A review of the board ensures transparency, become more efficient,” Adam internal governance processes promotes healthy scepticism explains. and policies should also and ensures that the channels He highlights that Eskom be assessed to determine of whistle-blowing are open, has in place a good process if there were shortcomings Eskom “will have a much in terms of the Public Finance in this regard. In particular, better chance”. Management Act (PFMA) the tender processes called the Significance and should be revised. There Institutional Framework Materiality Framework, which needs to be a heightened In terms of strengthening the guides the need for Ministerial focus on transparency institutional frameworks, more approval. The Act requires and effective stakeholder work needs to be done to Ministerial approval or to engagement. Simultaneously, clarify the respective roles of notify the Minister in certain the operational, technical the Ministers, the board and instances, but it is not clear. and financial challenges management, and this would Therefore, Eskom agreed that are being faced need extend to regulatory bodies with the Department of to be addressed. Dealing and Parliament. Public Enterprises to provide expeditiously with these For example, Parliament guidance when permission governance imperatives will has an oversight role, so was needed because there establish a strong foundation how does it ensure that it were many grey areas. upon which sustainability of provides oversight without “What is government’s the organisation can be built. contradicting the Ministers and role in approving decisions Adam says there have been making it difficult for the board of the board and what is

14 boardroom | Issue 1 | 2018 Cover Story it approving? My issue wherever approval is sought, tenders of a certain amount has always been whether the Ministers and Cabinet should be opened in public, government is being an auditor understand the approval/ without compromising to check that the board has intervention needed in that confidential information, applied their minds properly particular area. and be subject to automatic or does government have a “There are very good review by an independent different role? Is government frameworks in place, but the panel (of advocates, for meant to be looking at this and way that some bureaucrats example) before the tender how it integrates with what have implemented these, is awarded. Of course price the other State entities are have made it a check on a is not the only determining doing? Is the project perhaps business case,” Adam notes. factor when awarding a duplication or is another SOE tenders, but as long as doing something that could Procurement there is pressure applied by assist the project, making the The new board needs to public scrutiny and the use board’s decision senseless? Is be mindful of the fact that, of an independent panel, the it in line with the strategy of the when key governance and process should lead to an entity or the country? What is procurement processes are outcome that is fair, equitable, the broader economic impact undermined, it is not always transparent, competitive and and should it be taken into blatant and clear at the cost effective.” account?” outset. It can be disguised as That is the intervention that concerns for transformation Encourage Dissenting Voices adds value, says Adam, telling or the exercise of diligence In Adam’s experience at boardroom that there are that, ultimately, turn out to be Eskom, when dealing with officials at department level delaying tactics, and requests procurement, for example, who are bright and competent, for multiple audits or the if a contract was over about but junior to the people who involvement of independent R750-million, it would go have made the decision, experts may be no more than from the business area, second-guessing it as an opinion shopping to support a and procurement making added “audit” of the business predetermined outcome. a recommendation to an case, hurdle rates and other I do not think a significant executive procurement investment requirements. “How improvement will result in committee and then finally to does that add value? I accept changing the delegation of the board tender committee for that the temptation to continue authority – as this does not final approval. Depending on with such an approach will appear to be the cause of the nature of the investment, be great, given the manner in procurement problems as the tender could go all the way which Eskom and other SOEs it was either not adhered to up to board level for a decision. have operated recently.” or those with the necessary “There were probably The ideal model is to authority just made poor 30 people involved in the appoint a credible board, decisions. decision-making chain align on strategy, define the “In improving the procure­ and how all these checks objectives to be achieved ment process, I would and balances could be and then empower the board suggest looking at introduc­ circumvented is a mystery. to lead the organisation ing certain measures where, Even smaller tenders required within that framework. for a period of two or three several people to be involved This does not mean no years, the utility does ‘business in the decision. It would have Ministerial oversight, but unusual’ to achieve maxi­mum been totally impractical to have rather that it will be focused transparency, at least until more controls in place than we where it is needed and that trust is rebuilt. For example, had already,” Adam says.

boardroom | Issue 1 | 2018 15 Cover Story

Although, he stresses that There are very to earn money, so the question this does not mean that ❝ is how do you bring this everyone in the chain was good frameworks in money into the organisation? corrupt. The question, though, place, but the way that How are you going to put the has to be how did those that organisation back on the path were corrupt manage to get some bureaucrats have to sustainability? around everyone else that was implemented these, This requires an integrated not. “It was the tone that was have made it a check approach that goes about set that left good people really on a business case addressing the shortcomings feeling hopeless to stop what ❞ in a systematic and phased was happening before them.” – Mohamed Adam manner, having due regard The board should, therefore, for the need for heightened create an environment to transparency, accountability encourage the dissenting and effective stakeholder voice. People need to know in certain instances should be engagement. that it is safe to have a encouraged and enacted into If South Africa’s SOEs just different view and there are legislation, as this will go a long follow the King IV Report™, no repercussions for being way in ensuring that public Adam believes that they will constructive and contradict funds are not used to defend achieve good governance as a particular decision, says reprehensible behaviour. the focus is on the desired Adams, noting that, in the To further enhance good outcomes – “ethical culture, past, “if you dissented, you governance practices, the good performance, effective were suspended – out of Eskom board needs to appoint control and legitimacy” rather the system”. people beyond reproach in than a tick-box approach that certain key roles, notably, merely creates a veneer of Accountability and the company secretary or good governance. Transparency a governance professional. Privatisation is not necessarily Another aspect to be con­ a solution as has been sug­ sidered is lifestyle audits, as Conclusion gested by some, as all this well as the need for a process The proposed changes to may achieve is to move this where people who have the institutional framework bad governance to the private been involved in questionable and Eskom’s governance sector. Whatever ownership practices are held accountable, policies and practices will model is preferred; the gover­ and people see there are establish the foundation for nance framework needs to consequences to pay, with sustainability. It is a necessary be fixed. criminal charges laid where but not a sufficient condition “Once the fundamentals are possible. As members of the as the operational and financial in place, then we can look at organisation see this change in challenges still need to be how to refine the governance Eskom’s tone, Adam believes addressed. model,” he says, noting that this will help improve the Energy expert Chris Yelland the Department of Public utility’s culture for the better, has in an article ‘50 actions Enterprises has for a long time as this will start to promote that could fix Eskom and been investigating the best the right type of attitude within industry mess’, published on option of a shareholder the organisation and build February 9, emphasised how ownership model “but such credibility and trust. to get the organisation on a refinement is phase two in my The approach by the sustainable path. Tariffs are mind. Once you have credible courts to hold public officials too high and not economically institutions, you can look at personally liable for legal costs sustainable, but Eskom needs optimising them.”

16 boardroom | Issue 1 | 2018 Cover Story

WHAT KING IV™ SAYS ON STATE-OWNED ENTITIES

Chapter 1: Leadership, ethics and corporate citizenship Principle 3.5: The governing body should ensure that the OUTCOME: ETHICAL CULTURE performance evaluations of the governing body, its structures, its chair and members, the CEO and the company secretary Principle 1.1: The governing body should set the tone and or corporate governance professional result in continued lead ethically and effectively. improved performance and effectiveness. Principle 1.2: The governing body should ensure that the State-owned entity’s (SOE’s) ethics is managed effectively. Chapter 4: Governance functional areas Principle 1.3: The governing body should ensure that the OUTCOME: ADEQUATE AND EFFECTIVE CONTROL SOE is a responsible corporate citizen. Principle 4.1: The governing body should govern risk and opportunity in a way that supports the SOE to set and achieve Chapter 2: Performance and reporting strategic objectives. OUTCOME: PERFORMANCE AND VALUE CREATION Principle 4.2: The governing body should govern technology Principle 2.1: The governing body should lead the value and information in a way that supports the SOE to set and creation process by appreciating that strategy, risk and achieve strategic objectives. opportunity, performance and sustainable development are inseparable elements. Principle 4.3: The governing body should govern compliance with laws and ensure consideration of adherence to Principle 2.2: The governing body should ensure that reports nonbinding rules, codes and standards. and other disclosures enable stakeholders to make an informed assessment of the performance of the SOE and Principle 4.4: The governing body should ensure that the its ability to create value in a sustainable manner. SOE remunerates fairly, responsibly and transparently so as to promote the creation of value in a sustainable manner. Chapter 3: Governing structures and delegation Principle 4.5: The governing body should ensure that OUTCOME: ADEQUATE AND EFFECTIVE CONTROL assurance results in an adequate and effective control Principle 3.1: The governing body should serve as the focal environment and integrity of reports for better decision- point and custodian of corporate governance in the SOE. making. Principle 3.2: The governing body should ensure that in its Chapter 5: Stakeholder relationships composition it comprises a balance of the skills, experience, OUTCOME: TRUST, GOOD REPUTATION AND LEGITIMACY diversity, independence and knowledge needed to discharge its role and responsibilities. Principle 5.1: As part of its decision-making in the best interests of the organisation, the governing body should Principle 3.3: The governing body should consider creating ensure that a stakeholder-inclusive approach is adopted, additional governing structures to assist with the balancing which takes into account and balances their legitimate and of power and the effective discharge of responsibilities, but without abdicating accountability. reasonable needs, interests and expectations. Principle 3.4: The governing body should ensure that the Principle 5.2: The governing body should ensure that the appointment of, and delegation to, competent executive SOE responsibly exercises its rights, obligations, legitimate management contributes to an effective arrangement by and reasonable needs, interests and expectations as holder which authority and responsibilities are exercised. of beneficial interest in the securities of a company.

boardroom | Issue 1 | 2018 17 NEWS TO NOTE Throwing Futuregrowth report calls for significant improvement in SOE governance practices Shade BY TRACY HANCOCK

ALL FOR ONE AND ONE FOR ALL Futuregrowth believes that the task of reforming State-owned companies and corporate governance in general, is something that should be done by the concerted action of a wider group of engaged parties and not by one or even a few players Photo by Reuters

18 boardroom | Issue 1 | 2018 News of Note

ecent events at South – which results in increases in it really works in practice – Africa’s State-owned the country’s cost-of-capital, and ascertain how it can be enterprises (SOEs) [reducing] economic growth reshaped and improved. R and some large private and opportunity for all,” says The company believes companies have shown that Canter in the foreword of that these learnings can the risk of governance failure Futuregrowth’s report – ‘SOE be embedded in various – and, therefore, the need Governance Unmasked: A regulations and, notably, for governance checks and learning journey’ – released market-listing requirements. balances – apply equally to in February. This report “Governance reporting at both public and private com­ follows the company’s direct present is remarkably vague panies, says asset manage­ engagement with some of and should be vastly improved ment company Futuregrowth South Africa’s largest SOEs so that investors can play chief investment officer over 18 months. their suitable role in oversight Andrew Canter. Over this time, Futuregrowth and the allocation of capital Among SOEs whose has worked with six SOEs, to sustainable, well-managed management have been namely specialist agricultural entities. called into question of late bank the Land Bank, the “SOEs have a unique man­ are State-owned defence Development Bank of date, as they are responsible industrial group Denel, with Southern Africa, the Industrial for the deployment of large trade union Solidarity pointing Development Corporation, sums of money and are at to “serious allegations of the South African National the forefront of ensuring financial mismanagement Roads Agency, Eskom and sustainable development for and misrepresentations”, and Transnet, to conduct a detailed South Africa and its people. State-owned rail, port and governance due diligence. As lenders to these entities, pipeline company Transnet, “Our scrutiny of these six our view is that they are with law firm Werksmans SOEs arose from them being borrowing public money and, Attorneys stating in February regular issuers of debt on therefore, should be open to that it was surprised at the public capital markets.” the scrutiny of public capital board’s attempt to absolve markets, and to the standards anyone of wrongdoing of transparency and disclosure following the conclusion of Governance that investors demand,” states its report into alleged fraud ❝ the Futuregrowth report. related to the procurement of reporting at present is In August last year, recently 1 064 locomotives. Meanwhile, remarkably vague appointed Public Enterprises in December, State airline ❞ Minister Pravin Gordhan, South African Airways (SAA) – Futuregrowth then Finance Minister, said CFO Phumeza Nhantsi told that up to R100-billion – Parliament’s finance committee about half of South Africa’s that its losses were set to In Futuregrowth’s view, fiscal deficit – may have widen to R4-billion in 2017/18 the financial, operational and been misappropriated from a previous estimate of overall governance environ­ by government and SOE R2.8-billion, further pressuring ment of SOEs has deteriorated misconduct. “Adding insult government coffers. materially since 2013. to injury, none of that stolen “The notable governance During its 18-month engage­ money has been invested for failures by some SOEs and ment, the Futuregrowth service delivery or for future corporations is a clear sign analytical team undertook a prosperity. As a result, South that South Africa is currently greenfield effort to understand Africa’s global credit quality a risky investment destination ‘what governance is’ – how has deteriorated, confidence

boardroom | Issue 1 | 2018 19 News of Note has been shat­tered, there has been a paucity of capital investment and the cost of borrowing to fund houses, education, infrastructure­ and businesses has risen for all South Africans,” states Canter, adding that the “cost of governance failures is real, tangible and terrible”. The report urgently calls for significant improvements in SOE governance practices – not only in respect of dis­ closures made, but also to the standards of accountability, transparency, compliance with the law, and oversight by the executive authority. Gordhan said in early March that his immediate focus as Public Enterprises Minister would be on revitalising SOEs and reversing the tide of State PRAVIN GORDHAN The new Public Enterprises Minister’s capture that has gripped key immediate focus is to revitalise State- sectors of the economy. owned entities and reverse the tide He told members of the of State capture that has gripped key sectors of South Africa’s economy Federation of Unions of South

Africa, at a conference in Media Photo by Creamer Pretoria on March 6, that the appointment of new boards at Ministries – need to be urgently highlights is the lack of several public entities, includ­ resolved and a common a standardised director ing operational changes, was understanding of acceptable appointment process, expected in the next three practices, transparency with the suggestion being weeks. and behaviour needs to be that all SOEs should apply Futuregrowth stresses adopted and practised across probity tests and conflict of that the inconsistencies in all entities. interest checks that ensure standards between various One of the key areas of board appointees are suitably executive authorities – as reform that Futuregrowth’s qualified, ethically-minded and represented by different governance due diligence independent. “Importantly, this vetting process should be applied consistently by all SOEs and the results should be made ❝The cost of governance failures public.” is real, tangible and terrible Although Futuregrowth ❞ did not explicitly focus on – Andrew Canter remuneration in its governance

20 boardroom | Issue 1 | 2018 News of Note due diligence, it will also monitor the development of A SUMMARY OF THE BROAD CATEGORIES FOR standardised policies dealing GOVERNANCE IMPROVEMENTS IDENTIFIED BY with board performance and FUTUREGROWTH remuneration with regard to SOE reform. The “who” matters: An organisation can have all the trappings of governance such as a board, committees and policies, but, if it has “This should include a corrupt or ill-intentioned shareholders or leaders, the policies and better alignment of remune­ practices are all at risk. In the first instance, improving governance means ration to performance out­ improving the selection and appointment process of individuals on comes and the possibility boards, board subcommittees and executive management. In the case of bonus claw-backs when of State-owned entities, it also implies improving the selection process of governance standards are shareholder representatives. Thus, one has to look at the nomination and appointment processes. breached or performance does Board of directors and board committees: All corporate governance not meet the agreed criteria.” begins with the board of directors, so its composition and operations Futuregrowth states that must be appropriate. The board and committees should be structured to its work has led it into direct disable conspirators by dint of membership, experience, independence dialogue and negotiation with and questioning. some of South Africa’s largest Governance policies: Any organisation should have governance policies SOEs and their shareholding covering the major business areas, such as procurement and lending, Ministers. as well as key risk areas, such as remuneration, dealing with politically exposed persons and conflicts of interest. “While we have made some headway, it is evident Internal watchdogs: Even the best governance arrangements will degrade without active oversight. There are always witnesses to poor that the task of reforming governance, such as executives, auditors, employees and suppliers, who SOE and corporate gover­ almost universally fail to speak up. nance is not something that Transparency and reporting: Investors, bankers, ratings agents, should be done by one (or regulators and the public are “always the last to know” when governance even a few) players, but by the goes wrong and are often surprised: “How could this concerted action of a wider have happened?” is the common refrain. group of engaged parties.” Source: SOE Governance Unmasked: A learning journey Canter states that employees of government or of SOEs are The need for systems of can institute change when agents appointed by citizens checks and balances to necessary. to care for the assets of address the agency problem “Likewise, investors are the nation. is not new in human affairs, one of the pillars of over- However, where business he adds. For example, ­sight for the nation, but managers are charged with when governments are they often forget that duty looking after others’ interests, instituted to act on behalf and, thus, seem to operate there is potential for conflict of citizens, they are guided in a flawed sub-system between what is good for by constitutions, controlled that impairs them from the agent versus what might by laws and regulations, exercising­ their oversight be best for their constituent over­seen by a range of insti­ role. We need to understand investors. tutional watchdog agencies on those impediments,” says “This is the well-known alert for malfeasance, policed Canter, adding that the ‘agency problem’ which by a free and unfettered press systemic implications of poor must be managed with rules, that can make misconduct gover­nance are not merely reporting, contracts, oversight public, and are, ultimately, aca­demic or emotional, but and culpability to maintain accountable to an alert have real-world, on-the- ethics, efficiency and trust.” and reactive populace who ground consequences.

boardroom | Issue 1 | 2018 21 S on Duty? on Lifeguard Note of News 22 discomfort. of That course beyond some momentary to come from either process system is that not much seems with South Africa’s oversight who like to play hard and fast Botha shareholder activist Theo meeting from determined policy, at the annual general wastefuland remuneration frequently about a fruitless of questioning, barrage a yourself? Or, to submit to tocommittee explain beforehauled portfolio a expenditure and then be your fruitless and wasteful with adetailed account of Auditor-General shock you BY ANN CROTTY ANN BY The good newsThe for those

? prefer? To have the would youwhich a Parliamentarian, o, imagine you were

abiding individuals. abiding increasingly frustrate the law- to the lawbreakers but do laws make no difference they will work. additional The new laws in the vain hope that lawmakers from pumping out this has not discouraged they are pointless. Sadly, means which consequences, laws are largely without has ensured the country’s National Prosecuting Authority politically compromisedand in South Africa. our But inept bedifferent would certainly behaviour, influence things actually determine or even regulations. within the confines of lawsand reason, prefer to operate of us who, for whatever bad news for the vast majority also happens to bethe really If the volume of laws did private-sector governance private-sector turn the of tide public-, South in position Africa to

Public Finance Management Public Management Finance onerousbrief remarkably but withdeal –the deceptively is one only the SOCs have to theBut real bone-chilling law tant law is the Companies Act. (SOCs), the most single impor ing State-owned companies Intelligence Centre Act. Act the and Financial Act, the Tax Act, the Banks Environmental Management Safety Act, the National Act, the Mine Health and Conditions of Employment National Credit Act, the Basic ProtectionConsumer Act, the the Competition Act, the are Relations the Labour Act, “entre the most determined of todesigned chill all but long list of laws that seem For all companies, includ Included on the very rnuil spirits” ­preneurial boardroom | Issue 1 |

­ 2018 ­

Photo by Ryan Loughlin on Unsplash News of Note

Act (PFMA). This is where Airports Company South Africa own resources, not only to the Auditor-General gets (Acsa) represents a chilling break the laws but to defend the authority to maul the example of just how ineffectual themselves when fingered. reputations of badly behaving a PFMA-initiated process They are similar to the civil servants. can be. It took a group of politically favoured individuals The scope of the PFMA is concerned employees at Acsa in the public sector who seem indeed awesome. It is a bit of a to push a long-standing case immune from consequences. shock to find out that nobody against its CEO to court. And On top of all of the laws and has actually been prosecuted still there is no explanation regulations is the King IV™ for contravening it. Essentially, why the board has not acted code, which now applies this big powerful and vicious- on allegations of corruption. to government as well as looking guard dog has no It is a miniature version of private sector entities. Again, teeth. For a while nobody the destruction playing out nobody has got into much realised that and so leaders at State-owned power utility trouble for ignoring the code’s in the public sector were Eskom. recommendations but it is a reasonably law-abiding. The really bad news about handy stick that can be used As the realisation seeped the PFMA, which almost all of by Botha or the media to rattle in, fueled by the toxic corrupt the many law-abiding public executives. However, it is relationship between the sector employees will attest worth remembering that every Gupta family and former to, is that the Act does not company fingered for dodgy President Jacob Zuma, the stop the baddies from doing behaviour in recent years, most public sector quickly came to bad but it does stop the notably the Gupta’s Oakbay be regarded as a massive get- good guys from doing good. Resources & Energy, has rich-quick scheme. It has to Having to get three quotes ticked off most of the King IV™ be said that there were signs before responding to an boxes. of this well before Zuma slid urgent situation can corrode And then facing many of the into the most powerful seat commitment. most powerful of the private in the country, it just did not The Auditor-General is sector is the JSE’s listings seem quite so brazen. During currently looking for tougher requirements, which apply to the grim Zuma years, ignoring powers that might give teeth all listed companies. These or breaking laws became to the Act. He would be well- requirements rely largely on something of a national sport. advised to also undertake a the embarrassment factor to On the odd occasion that comprehensive review of the encourage adherence. someone – other than a truly regulations that are preventing Until December 5, 2017, a brave whistle-blower – was the development of a rigorous certain smugness hung over fingered, an interminably long public sector. As it stands, the the South African corporate process would kick into play. PFMA is ignored by the wrong- sector. Some corporate The individual, who might have doers and despised by those outliers had been caught been caught with a smoking who want to do the right thing. up in the State-capture gun in hand, would be put on The potentially most chilling scandal but, even when suspension with full pay; an legislation facing the private they comprised major global enquiry would be launched sector is the Companies groups, such as McKinsey possibly involving an expensive Act but, like the PFMA, it and KPMG, these could be legal firm as well as a firm has largely been ignored dismissed as exceptions to of auditors; the parastatal by determined individuals, the private sector’s more board would be asked for an particularly those in positions ethical mainstream. The CEO explanation and then nothing of power. These individuals Initiative was an inevitable much would happen. The can use the companies consequence of the private

boardroom | Issue 1 | 2018 23 News of Note sector’s belief in its virtue, ❝Every company sector – good; public sector particularly in its virtue relative fingered for dodgy – suspect. It looks as though to a captured State. It was every business entity, whether driven by an urgent need to behaviour in recent years, a lumbering parastatal giant do everything necessary to has ticked off most of the like Eskom or a fleet-of-foot grow the economy to address King IV™ boxes market-disciplined private- inequality, unemployment ❞ sector operator, such as and poverty. In pledging to Steinhoff, is vulnerable to support the initiative, around former CEO Markus Jooste. manipulation by well-placed 70 CEOs of the country’s major That is certainly what the individuals. corporations made it clear highly qualified directors (some The reality is that you cannot they accepted that “honesty, now ex) of the Steinhoff board legislate good behaviour and transparency, fairness, justice are hoping. In the meantime, if, as in South Africa, you and respect for the rule of law private-sector smugness has try to, it merely adds to the defines us as a nation”. started to wane. enormous burden endured by Then came the Steinhoff Particularly as with weeks of honest citizens as ineffectual tsunami on December 5. “The the Steinhoff shock came the laws are piled onto ineffectual supervisory board of Steinhoff troubling allegations against laws. The debate about wishes to advise shareholders real estate investment trust whether oversight of the private that new information has come Resilient relating to share price sector is more onerous than to light today which relates and results’ manipulation. It that facing the public sector to accounting irregularities was particularly chilling and is entirely academic in an requiring further investigation. damning of the corporate environment blighted by an The supervisory board in establishment that these were inept prosecuting authority. consultation with the statutory the same allegations that had But things may be look­ing auditors of the company been raised in the High Court up. Regulatory and enforce­ has approached advisory all the way back in 2015. ment authorities across the firm PwC to perform an Powerful bankers, brokers and board have been exposed independent investigation,” law firms ensured that case by the incessant reports of the Steinhoff board told a went nowhere. In the first few crime and corruption; reports shocked invest­ment com­ months of 2018, the Resilient that have been forced into the munity. In the three months group lost up to 50% of its public spotlight by civil society since that announcement, share value in a market move and the media. Encouraged by there has been little evidence that could not be staunched the arrival of a new President, of transparency, honesty or by its sycophantic well-paid Cyril Ramaphosa, they are respect for the rule of law in bankers, brokers or lawyers. at last beginning to flex their the way global retailer Steinhoff In between were the less muscles. was governed. persuasive, but nevertheless And for now, they seem well It is, of course, still early unsettling, allegations against supported by what Public days at Steinhoff – although South African retail bank Enterprises Minister Pravin shareholders are becoming Capitec. Similar charges are Gordhan describes as South increasingly anxious about a regularly made against all the Africa’s unique brand of PwC deadline that seems to major banks, but again thanks Parliamentary­ activism. disappear beyond the horizon to the well-paid lawyers, they Perhaps, as Gordhan said – and it may be that the do not often stick. recently, the country’s future company’s woes are down to All-in-all things do not seem is in good hands. If so, gover­ the complex machinations of as clear cut anymore. It is nance across the board is set one troubled individual, namely no longer a case of private to improve.

24 boardroom | Issue 1 | 2018 News of Note Improving Tender Governance Tracy Hancock speaks to Gauteng Finance MEC Barbara Creecy on enshrining open tender process in provincial law Photo by Creamer Media Photo by Creamer

he Gauteng Department procuring goods and services The Gauteng DoF is targeting of Finance (DoF) is from 12 041 firms owned by 100% of its procurement to tabling legislation historically disadvantaged indi­ go through the open tender T this year to preserve vi­duals. This includes 7 488 process by the 2018/19 its open tender process companies owned by women, financial year. “We are still on in law, Gauteng Finance 5 539 companies owned by track to extend the process to MEC Barbara Creecy tells youth and 245 companies all tenders by 2018/19.” boardroom magazine. owned by people with Owing to this target, Creecy She expects this legislation, disabilities. says, “obviously, we are now which has been drafted, to By the end of the current dealing with a lot of small come into effect by August/ financial year, 2017/18, the projects”, noting that the open September this year, following Gauteng government expects tender process started with the conclusion of the to have completed 58 of big projects above R50-million. necessary approval processes. its 85 new tenders using this Many of these contracts run for At present, the implementation process. Currently, 27 of the three years. of this process is the decision 58 new tenders are still being of the executive council but processed and Creecy says Challenges not a legal requirement. these should be completed “The first challenge relates Therefore, this move will by June the latest. to our own internal trials at ensure that, going forward, this provincial treasury. We have to process will always be used conduct oversight of the whole for the handling of government The Gauteng procurement process for tenders in Gauteng. ❝ every contract and, therefore, Since the project started DoF is targeting 100% appoint probity auditors for in the 2014/15 financial year, of its procurement to go each of these contracts,” says 75 projects valued at R15.4- through the open tender Creecy. billion have passed through The biggest challenge the open tender system and process by the 2018/19 faced by provincial treasury, R57-billion has been spent on financial year❞ she notes, has been the

boardroom | Issue 1 | 2018 25 News of Note management of independent probity auditors to ensure that they deliver a high-quality job on time. Further, once a problem is highlighted, departments need to rectify problems on time. As this is a large project management process, during this financial year, the Gauteng treasury insourced Media Photo by Creamer BARBARA CREECY management capacity to assist The open tender process has not only improved transparency of the Gauteng government’s it in managing the timeous procurement but has also reduced the number of appointments being challenged in court movement of multiple tenders through the open tender clear, tenders may have to be of appointments being process, because “we found cancelled and readvertised. challenged in court. we did not have enough”. Some of the 27 projects “When I became MEC of Creecy emphasises that the which will be completed in finance in 2014, quite a few major skills of treasury lie in the 2018/19 financial year of our major tenders were looking at procurement and were initially delayed because in court. We still feel it is whether it falls within the of weak specifications first important to have an appeals supply chain regulations. time round. tribunal introduced into the To assist sister departments The Gauteng Department open tender system. Other with compliance with the of Infrastructure Development provinces have this in place stringent supply chain has spent much time on and we want to include it in regulations, provincial developing technical capacity our legislation.” Creecy says treasury has embarked on a so that it can improve its it would be better for such massive supply chain training internal specifications, issues to be brought before programme. To date, 1 068 states Creecy. “That is really an appeals tribunal rather than officials have completed this important because this is parties having to take on the training. where the value for money expense of going to court. The other challenge faced, questions come in.” “We didn’t intend this Creecy points out, is the to be a process of public development of appropriate Improving Transparency education, but it is.” Creecy specifications in technical Creecy advances that the open encourages service providers tenders. “If you are putting tender process has improved and new entrants which want tenders out for the build transparency through an open to do work with government environment and roads, a lot of tender portal on the Gauteng to sit in on adjudication to technical expertise is required. government’s website, “where understand how and why One of the areas where we publish information on government makes decisions. there has been consistent tenders, what stage they are “I think, over time, this will problems is weaknesses in the in, which companies bid, improve the quality of the specifications of projects,” she public adjudication dates, tenders we receive and allow explains. Subsequently, when which companies have been new enterprises to enter the it comes time to evaluate and awarded tenders and the costs complex world of tendering appoint contactors, problems involved. I think that has not because they have first-hand start to emerge. When tech­ only improved transparency knowledge of how the tender nical specifications are not but also reduced the number process works.”

26 boardroom | Issue 1 | 2018 News of Note

Not Without Faults Creecy points out, the pro­cess 12 provincial departments Since the introduction of itself identified these problems. to obtain clean audits in the the open tender process, Some of the contracts 2017/18 financial year. provincial treasury has had to recently awarded through the “As provincial treasury, we institute forensic investigations open tender process include support departments in the into two processes. a contract for the Gauteng process of achieving clean The first tender process Department of Education audits. involves a security contract to transport learners to and “We work with them and for the Gauteng Department from school every day; a look at the management letters of Health, where fraudulent contract with the Department they have received from the documentation was of Transport for marking and auditor general. On the basis uncovered. A disciplinary remarking, provincial street- of this collaboration, we set hearing is under way. The lights and installing and targets for achieving clean second tender process maintaining security lights audits.” deals with an advertisement on provincial roads; and a Creecy says the open tender for buses by the Gauteng contract with the Department process has been presented to Department of Sports. In this of Infrastructure Development her fellow MEC’s from other case, the probity auditors were for the construction of the provinces, with colleagues reported to National Treasury Abraham Hlope Primary from the KwaZulu-Natal and for inappropriate conduct. School. Limpopo treasuries having These are two instances Creecy expects two- visited Gauteng to study the where the process failed, but, thirds, or 80%, of Gauteng’s open tender process.

If you want to stretch your knowledge, this is like becoming a yogi.

Stay ahead of the curve with Continued Professional See our website for the latest Development from CSSA – the only body in South Africa seminar and workshop schedule that offers a qualifi cation in corporate governance. www.chartsec.co.za

boardroom | Issue 1 | 2018 27 News of Note Photo by Benny Jackson on Unsplash

Advancing

AccountabilityBY TRACY HANCOCK Southern African SOEs should be as accountable to general public as listed companies are to shareholders

here is a growing Many of the Southern Africa a major challenge to their consensus that, if region’s economies have effective functioning. For this Southern Africa’s State- placed SOEs at the centre reason, many governments T owned enterprises of their national development have placed the corporate (SOEs) are to support national strategies, Sultan points out, governance of SOEs at the development, they need to with reliance on SOEs to centre of their reform plans. be properly governed, says remedy market failures and These plans involve, for Organisation for Economic remove direct obstacles to example, upgrading board Cooperation and Development development a growing trend. nomination practices and (OECD) policy analyst Sara However, she states that developing better performance Sultan. distinct challenges remain systems to establish more “SOEs form one of the for improving SOE efficiency, professional ownership largest sectors of the economy including underperformance practices at State level. in many Southern African of SOEs, which results in The most important SOEs countries and are important poor returns on invested in several Southern African contri­butors to national government capital and, economies have experienced develop­ment, providing in many cases, ongoing major corporate governance citizens with access to government subsidies. failures, owing to weak essential services, such as Moreover, SOEs tend to accountability,­ excessive water, electricity, health, be fraught with inconsistent politicisation and unclear sanitation, telecommuni- ownership practices and objectives, Sultan tells ­cations and transportation.” corruption, which remains boardroom.

28 boardroom | Issue 1 | 2018 News of Note

“Tackling these challenges handbook for governments responsible for overseeing would require setting realistic as owners and SOEs called inter­national standards on targets for profitability, better Ethics and Business Integrity corporate governance. accountability with respect in Southern Africa. These standards include the to corporate objectives and The SOE Network for G20/OECD Principles for smart regulation to improve Southern Africa brings Corporate Governance and the competition. together entities which manage OECD Guidelines on Corporate “State ownership of enter­ portfolios of SOEs or which Governance of SOEs. South prises needs to be exercised oversee the government Africa, as a G20 country on a whole-of-government policy on SOEs from Angola, and member of the Financial basis, rather than at the whim Botswana, the Democratic Stability Board, an international of individual Ministers. There Republic of Congo, Kenya, body that monitors and makes is also a need for upgrading Lesotho, Malawi, Mauritius, recommendations about the transparency and disclosure Mozambique, Namibia, global financial system, is practices both at corporate Seychelles, South Africa, regularly invited to participate and State level,” she stresses. Swaziland, Tanzania, Zambia in meetings at the OECD on In terms of tackling the cor­ and Zimbabwe. these topics. ruption challenge, govern­ments The network also brings The SOE Network for need to have the political will, together representatives Southern Africa last met in capacity, and resources to from stakeholder institutions, 2015, when it launched the apply the law, Sultan states, regional and international handbook on Ethics and noting that SOEs need to organisations and development Business Integrity in Southern address the unique exposure banks, and corporate gover­ Africa. “The OECD is in active to corruption by implementing nance practitioners, such discussions with a key regional appropriate internal controls, as the Africa Peer Review partner to discuss how to ethics and compliance Mechanism, the Development transfer the secretariat of the measures. Bank of Southern Africa, network to a regionally-based The OECD works with the New Partnership for institution that can continue the Southern African region African Development, the to carry forward its work on corporate governance Southern African Development programme and see through of SOEs through the SOE the implementation of the Network for Southern Africa, guidelines and handbook,” which provides a forum aimed State ownership of highlights Sultan. at improving the corporate ❝ However, she adds that governance of SOEs and enter­prises needs to be the OECD regularly invites facilitates regional dialogue exercised on a whole-of- its key partners to take part and cooperation among the government basis in the broader OECD dis­ economies of Southern Africa. ❞ cussion on SOEs through Launched in 2007 to – Sara Sultan its Working Party on State- support regional and national Ownership and Privatisation reformers, the network has Practices. developed two regional Community Secretariat and the This working party is the standards in the area of African Corporate Governance network’s main counterpart corporate governance, Sultan Network. at the OECD and facilitates explains. This includes the Beyond the network, the international policy dialogue Guidelines on the Governance OECD engages with its and information exchange of State-Owned Enterprises partner economies notably on improving corporate for Southern Africa and a through the OECD bodies governance of SOEs and

boardroom | Issue 1 | 2018 29 News of Note implementing privatisation and agreeing on regional policies. This year the OECD is reform priorities. “Obviously, working on several interesting voluntary best practices rarely topics related to developing trigger significant reform, but in guidance on anticorruption our experience, they can serve and integrity in SOEs, as well as a starting point as well as as exploring best practices in provide arguments to reform- privatisation. minded officials in national SARA SULTAN governments.” Regional SOE Guideline The most important SOEs in several Of the guidelines, Sultan Southern African economies have Benefits experienced major corporate highlights Guideline II.1 which The SOE Network for governance failures states that government officials Southern Africa is the OECD and politicians should be body responsible for over­- “Ultimately, regional guide­ mindful of the fact that they sight of the Guidelines on lines can serve as a stepping exercise ownership rights in Corporate Governance of stone towards adopting the SOEs on behalf of and in the SOEs, which were published international standards on ultimate interest of the general in November 2014. corporate governance such as public. The guideline postulates The guidelines represent a the standards that the OECD that this would justify higher shared regional consensus hosts. The road ahead towards standards of accountability and on SOE reform priorities, says greater regional recognition transparency than those that Sultan, noting that regional might involve an official may apply to similar private SOE guidelines can help endorsement of the guide­ enterprises. governments assess and lines by the SADC governing Sultan says this guideline improve the way they exercise council,” suggests Sultan. is a good reminder that the ownership function and She advances that the government officials and can be used as a tool from regional guidelines and the politicians are not the owners which to draw and adapt broader dialogue facilitated of SOEs, and that government national ownership and by the network have had an in its role of overseeing SOEs governance practices. impact in raising awareness should be accountable to the These guidelines are and building consensus public. “This is also a defining intended to capture the on the challenges and the link between the OECD’s regional aspirations and benefits associated with own SOE guidelines and priori­ties of SOE governance SOE governance, as well the G20/OECD Principles of reformers across the Southern as benchmarking progress Corporate Governance, the African region. and measuring change latter which apply to stock- “The benefit of a regional in participant countries. market listed com­panies,” she approach is that – as opposed Further, the guidelines have concludes, adding that SOEs to the OECD’s more generic influenced policymaking and should be as account­able to recommendations – it is strengthened capacity by the general public as a listed reinforced by a shared providing a forum in which company should be to its history and commonality policymakers, practitioners and shareholders. in terms of the countries’ experts can share know­ledge *The opinions expressed and develop­ment paths. Adopting and experiences. They also arguments employed herein are a regional approach to cor­po­ support viable and effec­tive solely those of the author and do not rate governance can also reforms by analysing necessarily reflect the official views help achieve regional inte­ policy options, developing of the OECD or of the governments gration goals. relevant recommendations of its member countries.

30 boardroom | Issue 1 | 2018 INTERNATIONAL INSIGHT

Federal Fraud BY TRACY HANCOCK Australia looking to introduce a federal anticorruption body

hile there have analysis and insights. Wilson ACA. The Greens state that the not been any and Willis point to interest inadequacy of anticorruption major corruption in an anticorruption body at measures at federal level W scandals at federal level seem­ingly gaining have been made clear by federal level in Australia, momentum in Australia. recent revelations of misuse of there have been a number Bini says the stance of political entitlements. “It’s time of expense scandals that Australia’s federal opposition, to get money out of parliament, have subsequently influenced the Australian Labor Party, has and to establish a national the proposed establishment changed from ambivalence corruption watchdog to clean of a federal, or national, about a federal anticorruption up politics,” says the party. anticorruption body, Australia- agency (ACA) to support for Meanwhile, the federal based self-employed gover­ the inclusion of a policy with government, run by the nance adviser Dr Marco Bini some detail, highlighting that Liberal Party-led coalition, tells boardroom. the opposition’s policy allows has softened its position from In 2017, the conservative it to promote the creation of a outright opposition to a federal estimate of the cost of fraud federal ACA everytime there is ACA, to a stance of possible to Australians was over an expense scandal. reconsideration, explains Bini. $1-billion a year, Russell Other bodies on the Wilson and Willis state that Wilson and Anthony Willis of sidelines, such as the fraud, dishonestly obtaining a legal services firm Maddocks Accountability Round Table, benefit, or causing a loss, by highlighted in a February a col­lec­tion of academics deception or other means, article published on Lexology’s and senior counsel, and the against the Commonwealth website, a source of free- Australian Greens, have also is a criminal offence under to-access legal updates, been pushing for a federal Chapter 7 of the Criminal Code.

boardroom | Issue 1 | 2018 31 International Insight

Under the Public Gover­ any of these bodies depends say, since effectiveness or nance, Performance and entirely on the model chosen. otherwise, is objectively diffi­ Accountability regime which “A model with a very broad cult to measure or even to operates at federal level, the remit (such as that employed demonstrate. However, these accountable authority of a by New South Wales) will likely mechanisms must reduce the Commonwealth entity must be more effective than one risk of fraud and studies show take all reasonable measures with a narrow remit. Other that the risk of getting caught to prevent, detect and deal measures I would support are is a factor that perpetrators of with fraud relating to the entity. the standard public-sector fraud consider,” Bini states. These measures include the inte­grity measures, including obligations to conduct fraud strong regulation of lobbyists; Various Approaches risk assessments regularly and robust electoral donation Employed whenever necessary, such laws; tougher public-service In his article on generic and as following a major agency commissions; remuneration specific approaches to the restructure; the development tribunals for senior public liability and duties of directors and implementation of a servants, members of on government boards fraud control plan to deal Parliament and statutory and authorities, he notes a with identified risks sub­se­ appointees; and stronger broad legislative approach quent to conduct of a risk powers for the Auditor- (New South Wales and assess­ment; the need for General.” Commonwealth approach) and appropriate mechanisms for There are a range of a narrow approach (Victorian prevent­ing fraud, detecting measures in place to curb approach) to impose duties on fraud (including a confidential fraud in Australia at a public- directors on statutory bodies reporting mechanism), investi­ sector level and they tend to or other non-company entities gating or otherwise dealing be similar across Australian established by the Australian with fraud; and record­ing and jurisdictions. government. reporting incidents of fraud or These measures include a Bini admits that a con­ suspected­ fraud. mandatory annual financial solidated approach would audit by the public-sector probably be beneficial for a The Model is Key auditor for government range of reasons, but “it’s Bini explains that Australia has entities; legal controls found not going to happen”, mainly the Australian Commission in local financial management because of the Constitutional for Law Enforcement Integrity, legislation; whistle-blower arrangements. under the Law Enforcement legislation; ACA activities; the “The public entity landscape Integrity Commissioner Act application of international in each jurisdiction is quite 2006, “but that falls far short accounting and auditing varied and governments would jurisdictionally of being a standards to government want to retain the flexibility fully fledged anticorruption entities; internal controls to design entities, and their agency”. He believes that there mandated by regulation in duties, in any way they see are a few factors influencing government entities, such fit without necessarily being the introduction of a federal as procurement rules, risk subject to an externally ACA but, in particular, points management and segregation imposed standard, which to every other state having of duties; internal audits; and would usually come from something similar to an ACA. the public reporting of financial the Commonwealth. This is Bini is not aware of which results and Auditor-General because the Constitution gives model the federal opposition is and ACA reports. precedence to Commonwealth proposing for the federal ACA, “In terms of their effec­ law in areas of concurrent but says the effectiveness of tiveness, it’s very hard to jurisdiction.”

32 boardroom | Issue 1 | 2018 International Insight

In Bini’s view, the approach entities proliferated over a Minimal intervention of the Public Administration long period of time on a case- reduces the risk of shadow Act 2004 (PAA) is the best by-case basis and never had director liability but it is very way forward, but he says the any underlying overarching much a question for a court Victorian government has still approach.” which would look at all the deviated from it where it sees Different bodies were circumstances. fit. “The PAA tries to set up created for dif­ferent reasons Whether it is better to have governance basics which I at dif­ferent times and were fault lie at Ministerial or director think is important and valuable never examined at a holi­ level, is a difficult question, but still allows government stic level. When the wave says Bini, noting that it really to change things in individual of privatisations/corporati­ lies at the heart of what circumstances as it sees fit.” sations occurred in the 1990s, the entity is responsible for With regard to leaving room Australian governments and how independent it is to commit fraud, he says there realised that they needed supposed to be. is always this possibility, noting to retain some control over “The fault should be that the duties of the director certain types of govern­ commensurate with the and the entity in the PAA are ment entities which were responsibility. If the Minister not designed to specifically transitioning to a type of has very little power, the counter fraud. government-owned company. entity is supposed to operate However, a number of “Thus, they passed generic independently and, if the board sections in Part 5 of the PAA, legislation with modified is supposedly commercial, which deals with these duties, governance arrangements for then it should be responsible will assist in deterring fraud, these types of entities, but not for management of the in particular, the duty to act the broader suites that exist.” entity and its decisions. A honestly, inform the Minister Victoria is the only jurisdiction key question here, however, of risks, the prohibition on that has sought to bring some is whether there is public improper use of position to minimum governance order money involved. The more gain advantage and, of course, to the broader scope of these public money, the more likely which obliges the entity to government agencies in future the accountability will be have adequate fraud controls by developing the holistic PAA sheeted home to the Minister, in place. approach, Bini says. irrespective of the actual “All these provisions are civil Under the Victorian model, arrangements.” only and don’t attract any Ministers face liability for the Bini discloses that the PAA, criminal penalty. The provisions actions of government boards which uses some ideas from act as support for front-line as “shadow directors” of public New Zealand’s Crown Entities fraud prevention,” adds Bini. entities. Act, was designed by himself Victoria’s PAA approach The consequences of this and a colleague, and should is still unique, he says, with include a possible breach of be seriously considered to give all the other jurisdictions duty which is not a criminal a basic governance floor for only applying limited generic offence but could result in their public entities. governance arrangements to removal from the board and *Marco Bini sits on the Public Sector so-called corporatised entities, possibly executive exposure to Governance Committee of the referred to as State-owned some form of liability (through Governance Institute of Australia and corporations or government the Minister) for damage to a has over 20 years’ experience in the business enterprises. third party caused by fraud. public service legal/policy space and around ten years in governance/ “The reasons for this are “Then there is the possible integrity, but emphasises that his somewhat complex but at public scandal,” opinions in this article should not a very general level, public Bini states. be taken as legal advice.

boardroom | Issue 1 | 2018 33 LEGALLY SPEAKING

Bring in the Alternate directors: new Substitute tricks for an old dog BY CHRISTINA PRETORIUS, DIRECTOR NORTON ROSE FULBRIGHT SOUTH AFRICA INC

he Companies Act 2008 new-fangled ideas. Of course, They are not proxies of the defines an alternate in the modern commercial director that they may replace director as “a person environment, board meetings and are expected to exercise T elected or appointed are frequently held by their discretion independently. to serve, as the occasion electronic communication and They are appointed in the requires, as a member of the requirement to switch off same manner as any other the board of a company your mobile device during a director (either by shareholder in substitution for a particular long-haul flight seems the only vote or by direct appointment, elected or appointed director acceptable excuse for not depending on the company’s of that company”. The defini­ being available (although that memorandum of incorporation) tion is not complicated or is also starting to change). So and all the same liabilities difficult to understand, and where then does an alternate may accrue to them if they do it is really self-evident what director fit into the “always on, not comply with their duties. role alternate directors are always available” commercial The only distinction between intended to fulfil. If a director reality of the present? an alternate director and any does not attend a meeting, In this context, it is important other director is that the main their alternate could act in to note that an alternate director has the first right their stead. director, although only able to act. In other words, an The office of an alternate to act if their main director alternate director is in no way director has been a regular is absent, is independently linked to the main director, feature of the South African appointed as a director of the other than that they cannot commercial landscape for company. This means that exercise a function that the many years and was created they have the same fiduciary main director is willing and in a time when board meetings duties as any other director able to exercise. were physically attended, and and are obliged to act in the While the concept of an telecommunications were best interests of the company. alternate director was clearly

34 boardroom | Issue 1 | 2018 Legally Speaking intended to alleviate practical and logistical problems in relation to board meetings, there may be other reasons ❝Where does an alternate director why a director may not be fit into the ‘always on, always available’ willing or able to take part in commercial reality of the present? specific deliberations. Where ❞ a director has a personal financial interest in a particular matter, for example, the Even in instances where a large number of directors on Companies Act of 2008 director is not precluded by the board and, even in some specifically precludes that law from acting, they may feel instances, all the directors director from taking part in that the matter is too close would be precluded from deliberations or voting in for them to independently exercising a vote. In this relation to that matter. This consider. An example would instance, a board would be personal financial interest be a contract to be entered unable to take a decision. would not automatically extend into between the company and This is where the alternate to the director’s alternate. the director’s second cousin directors become relevant. Therefore, an alternate director or close friend. Although Having a few persons who do would be perfectly able to act this would not fall within not usually serve on subsidiary in the place of a conflicted the definition of “personal boards registered as alternate director. Of course, the financial interest” set out in directors could facilitate alternate director could not Section 75 the Companies Act, efficient decision-making. act if they were themselves good corporate governance These persons would not conflicted. From a practical and a director’s own ethical have to remain up-to-date with point of view, both directors standards may require them the day-to-day running of the should not be participating in to recuse themselves. In these company, but could step in if the same meeting. instances, and particularly the director usually responsible However, there is no prohibi­ where a company’s board is is in a conflict position. For tion on an alternate director relatively equally split between this reason, it is also important attending a meeting where the shareholding interests, the not to have the same person main director is also present. attendance of an alternate may act as the alternate for the Therefore, both directors may be useful. same director in multiple attend and the alternate would It is also not uncommon for group companies. The alter­ take over voting rights when a limited number of people nate director would equally the main director recuses within a group of companies be conflicted in the case of a themselves. This would be to serve on various subsidiary cross-directorship. appropriate where a number of boards. However, owing to This kind of use of the matters are to be con­sidered the wording of the definition of office of an alternate director at a meeting and the main “personal financial interests” in is becoming more frequent director is conflicted in only Section 75 of the Companies and is being used as a matter one instance. In a situation Act, these persons may of course in several of the where there is only one matter find themselves technically larger groups of companies. to be considered, or where the conflicted as a result of their Far from becoming an ana­ main director is conflicted on a cross directorships. As a result, chronistic remnant of an older number of matters, it may be and should these companies time, alternate directors remain practically easier for them not find themselves wishing to relevant in the modern com­ to attend at all. contract with each other, a mercial context.

boardroom | Issue 1 | 2018 35 boardroom advertising rates – 2018

Advert Sizes

Size Dimensions 1 Advert 2+ Adverts

Double Page Spread 420 mm (w) × 297 mm (h) R11 250 R10 500

Full Page 210 mm (w) × 297 mm (h) R7 300 R6 500

Half Page 180 mm (w) × 127.5 mm (h) R3 800 R2 900

Quarter Page 180 mm (w) × 64 mm (h) R2 600 R2 100

All rates exclude VAT and production charges.

Deadlines

Size Quarter 1 Quarter 2 Quarter 3 Quarter 4

Publication deadline 26/03/2018 25/06/2018 25/09/2018 26/11/2018

Booking deadline 12/03/2018 11/06/2018 10/09/2018 12/11/2018

Material deadline 16/03/2018 15/06/2018 14/09/2018 16/11/2018 Photo by rawpixel.com on Unsplash

For more information email [email protected] or call +27 11 551 4000 boardroom advertising rates – 2018 THE TECH TRACK Advert Sizes Size Dimensions 1 Advert 2+ Adverts The Robo-Director Double Page Spread 420 mm (w) × 297 mm (h) R11 250 R10 500 Artificial intelligence could influence Automation causes anxiety. Full Page 210 mm (w) × 297 mm (h) R7 300 R6 500 Artificial intelligence amendments to corporate law in future (AI) causes even more Half Page 180 mm (w) × 127.5 mm (h) R3 800 R2 900 discomfort. If you have not BY RONELLE KLEYN heard, we are officially in the Quarter Page 180 mm (w) × 64 mm (h) R2 600 R2 100 fourth industrial revolution and AI is already applied all All rates exclude VAT and production charges. around us. AI will continually become more prevalent in Deadlines our daily and business lives – apparently to our benefit.

Size Quarter 1 Quarter 2 Quarter 3 Quarter 4 o understand the

Publication deadline 26/03/2018 25/06/2018 25/09/2018 26/11/2018 fourth industrial revolution, there is Booking deadline 12/03/2018 11/06/2018 10/09/2018 12/11/2018 T merit in reflecting on the first three industrial Material deadline 16/03/2018 15/06/2018 14/09/2018 16/11/2018 revolutions. During the first industrial revolution, water and steam power were used to mechanise produc­ tion. The second industrial revolution, used electric power to create mass production and the third used electronics and infor­ mation technology to automate production. The fourth industrial revolu­tion is a digital revo­- lution that is characterised by a synthesis of tech­nologies that is blurring the lines between the physical, digital and biological spheres. According to World

Photo by Franck Veschi on Unsplash Photo by Franck Veschi Economic Forum (WEF)

For more information email [email protected] or call +27 11 551 4000 boardroom | Issue 1 | 2018 37 The Tech Track founder and executive firm Norton Rose Fulbright chairperson Klaus Schwab: are of the opinion that AI is “The fourth industrial revolu­ rapidly developing and may tion . . . will change not only in the future get a seat at what we do but also who we the boardroom table. Their are. It will affect our identity view is that the ability of and all the issues associated AI to fulfil data collection with it: our sense of privacy, and processing tasks our notions of ownership, at exponential speeds, our consumption patterns, compared with its human the time we devote to work counterparts, means that and leisure, and how we businesses cannot function RONELLE KLEYN develop our careers, cultivate properly without the use of AI. Fluidrock Governance director and CSSA Technical Committee member our skills, meet people and James Matcher of nurture relationships.” advisory firm EY is of the states that a juristic person view that directors would is excluded from serving as AI in the Boardroom definitely be able to benefit a director on the board of a The fourth revolution with from the support of AI in company. its fusion of technologies, terms of analytics and speed, This interpretation assumes will dramatically affect com­ but that robo-directors that a robo-director would be panies, thus, directors on would not become a reality classified as a juristic person, boards need to consider in South Africa in the short but should it not be the case, the associated opportunities term. He added that matters there would technically not and risk. to be considered include the be preclusion for such an A startling idea is the con­ ethics thereof and that there appointment. cept of the AI director or the is much discomfort about The fact remains that so-called robo-director. It is the point at which machines directors owe a fiduciary duty not a new concept, as would be deemed to have to the company. Some writers Japanese venture capital firm become sentient. are of the view that the duty Deep Knowledge appointed of good faith and acting in the a robot named Validating best interest of the company Investment Tool for Advancing excludes the robo-director Life Sciences (VITAL) as a ❝AI is rapidly developing from being appointed. director to the board in 2014, and may in the However, in speaking to with the specific function of future get a seat at the coders and futurists, they assisting in analysing financial are convinced that one could and scientific data to better boardroom table hardcode “good faith” and inform investment decisions ❞ “best interest” into AI. made by partners and the Definitely food for thought board of directors. Companies Act – no one sees robo-directors In a survey of 800 delegates The reason VITAL could be replacing warm bodies on at the 2015 WEF’s Global appointed as a director on boards in totality, but there is Agenda Council in Dalian, the Deep Knowledge board is consensus in the proposed China, it was believed that that Hong Kong allows juristic value that could be added, AI directors would be a reality persons to be directors. The and it is this type of thinking around 2025. same is not the case in South that could influence the Adriaan Louw and Africa, as Section 66 of the amendment­­ to corporate Patrick Bacher of law Companies Act, 71 of 2008, law in the future.

38 boardroom | Issue 1 | 2018 The Tech Track

and demonstrate how we can partner with them as their needs evolve over Managing time,” Stafford says. In February, Diligent introduced Governance Governance Cloud, which it states is the only holistic, integrated and secure enterprise governance in the Cloud management solution that enables good governance Diligent releases solution to through the use of the right strengthen governance technologies well beyond the boardroom. BY TRACY HANCOCK As organisations grow more complex, and regulation and compliance needs become more stringent, Diligent explains, Governance Cloud empowers board directors and executives to mitigate risk more effectively and to meet demands in the boardroom DUE DILIGENCE and beyond. Governance Cloud, states Diligent, is the only integrated and secure enterprise governance The Governance Cloud management solution that enables organisations to achieve best-in-class governance ecosystem includes tools that digitise board book ith governance lighting that governance is management, secure policies and the practice of raising the messaging, minute-taking, activities top-of- right information to the right curation of industry content W mind for most leaders, board members and and entity management. companies today, provider of stakeholders, so that they can “Bringing together Diligent’s secure corporate governance ask the right questions and offerings, Governance and collaboration tools for steer organisations in the Cloud allows for fully secure, boards and senior executives right direction. centralised access to materials Diligent Corporation found Diligent spent the last across various boards and that most governance, risk two years working with its leadership teams, as well as and compliance offerings in more than 12 000 global establishing a trusted platform the market are overly focused customers to develop the for digital communication and on risk and compliance, not various components­ of collaboration.” governance. Governance Cloud and “This gap leaves leaders created a new category of Diligent in South Africa and board members in a governance solutions. Diligent has been serving vulnerable position that can “The best way for us clients in South Africa since lead to reputational damage to share our vision for 2010 from its Europe, Middle and negative business enterprise governance East and Africa headquarters impacts,” warns Diligent management was to give in London. The company hired CEO Brian Stafford, high­ boards the tools they needed Diligent South Africa senior

boardroom | Issue 1 | 2018 39 The Tech Track customer success manager the status quo,” says the customer support model, Jenny van Zyl in 2015 and company. Last year, there plus advisory boards, we are Diligent South Africa country were 38 new releases within also able to have constant manager Greg Prinsloo Diligent’s product, which were one-on-one interactions with in 2016; both are based in developed in response to its customers to understand their Johannesburg to manage more than 400 000 users’ evolving needs in the way that Diligent’s South African feedback and needs. our competitors don’t. business and to serve its To further strengthen “These releases strengthen clients throughout Africa. Governance Cloud, Diligent the Governance Cloud, Van Zyl tells boardroom that, Minutes, an integrated demonstrating how we are of the company’s products minute-taking and action developing products across – Diligent Boards, Diligent management solution built different governance roles and Messenger and Diligent directly into Diligent Boards, responsibilities to provide a Evaluations – Diligent Boards was introduced in February. comprehensive solution, as is its flagship product, and is “As board administrators know, opposed to just focusing on well-used and well-loved by its minute-taking is mandatory board meeting management, South African clients. in board meetings, but the like other board portals, or just “However, we expect to process is usually manual, playing to the director.” see a growing shift as other insecure or both.” Diligent employs more than tools within the Governance With Diligent Minutes, 70 professionals worldwide Cloud ecosystem gain traction meeting dates, attendees and who understand governance and client needs continue to meeting topics can be added and technology to quickly put evolve.” to the minutes document its solutions to work. There Diligent has a process in automatically. Action items can is a dedicated team from the place that includes (but is not be included and then assigned beginning to help integrate limited to) working closely and monitored during or after products and add-ons into with its local teams across the meeting. Once completed, an organisation’s workflow the globe to stay up to speed minutes can be pulled right to get users comfortable on local law. In addition, it into the administrator’s next with features and functions partners with its client base Diligent Boards’ meeting book “through one-on-one support across 90 countries to identify for discussion and approval. and hands-on experience. their needs. Longer term and throughout “Our commitment to service Diligent highlights that it is the year, Diligent plans lasts long after our solutions go recognised as achieving 100% to introduce continuous live. Our tutorials orientate you compliance, meeting the enhancements to its products to new features and assistance rigorous standards required to make general counsels’, with questions or challenges to conduct business with corporate secretaries’ around the clock.” organisations in both the and board members’ jobs With over 15 years’ public and private sectors and daily workflow easier. experience supporting the in South Africa. These advances include work of directors, executives, augmentations to Diligent’s administrators and information Product Development core Boards platform, the technology/security teams, The company has doubled its Messenger module and future Diligent points out that it has investment in research and integrations between products. become the industry’s trusted development over the past “Diligent Minutes was name for secure, streamlined, three years. developed out of direct around-the-clock board “Diligent works hard to drive feedback from customers. portals, applications and innovation and challenge Through our excellent software.

40 boardroom | Issue 1 | 2018 BOARDROOM SKILLS

Detecting Deception BY TRACY HANCOCK Are you adept at the basics of detecting lies? umans detect lies with the public sector attending”, that more than 80% of people only 54% accuracy on says Fazekas. embellish their CV, according average but training “For HR professionals to hrexpert.com, while 68% H can improve a person’s especially, the training is a of South African respondents lie detection ability by 25% big eye-opener, as they learn in a 2016 survey, conducted to 50%, according to the US new ‘forensic interviewing’ by multinational professional Secret Service. skills that enable them to services network PwC, Certified fraud examiner evaluate a potential candidate witnessed the submission Mario Fazekas, a director at for deceptive answers and of false qualifications. international digital forensics, even review a curriculum vitae He also points out that information security and fraud (CV) for deception before recruiters expect 35% of prevention and detection they decide to interview the CVs to be false, according specialist of Exactech, pre­ person,” says Fazekas. to recruitmentpros.org. sented a workshop on detect­ Before a lie can be Fazekas says the five steps ing deception at CSSA’s office pinpointed, “we must be able in lie detection are “basic” and on January 29, 2018. to recognise the truth”, adds involve identifying a baseline, Exactech offers public Fazekas, who has 20 years’ asking open-ended and closed courses mainly for individuals experience in fraud prevention questions, seeing red flags, in recruitment, human and detection. “We all have intuiting what is seen and resources (HR) and forensic to deal with lies everyday, but heard, and confirmation. auditing roles, as these are especially auditors and HR A baseline is how someone the professions that interview professionals. Once learnt, acts when they are under the most and need to discern these skills stay with us and normal, non-threatening verbal and written lies. “Hence, we find ourselves using them conditions. It is how someone we have employees from most even with friends and family,” looks when they are telling private-sector indus­tries and he notes. Fazekas highlights the truth.

boardroom | Issue 1 | 2018 41 Boardroom Skills

The research of professor party) may respond with five emeritus of Psychology at the IN FACT: general behaviours: denial, University of California, Los It is a myth that liars cannot look anger, bargaining, depression Angeles, Albert Mehrabian, people in the eyes. On average, and acceptance,” explains establishes that 55% of honest people will make eye Fazekas. contact during conversations people’s messages are com­ about 60% of the time. Step three, he notes, looks municated through physical Liars actually look people in at studying red flag clusters, behaviour and appearance, the eye more because they want such as baseline changes in 38% from the sound of their to see if people do or do not body language or a person’s believe their lie. voice, while only 7% of what voice, advising that gestures people actually say has any and micro-expressions may impact. with the subject by maintaining not match the verbal message. A non-verbal baseline refers eye contact, mirroring their “Nodding while saying no to a person’s posture: are body language and the pace or shaking your head while their legs crossed, are they of his/her speech, laughing verbalising agreement are fidgeting or blinking a lot. at their jokes and sitting in a contradictory. People’s body “When people lie, they have non-threatening, open-armed and face ‘leak’ when they are a lot to concentrate on and position. lying,” Fazekas states. often forget about controlling He further advises eliciting Step four covers intuiting what their body is saying,” an observable response and gaps: whether statements, says Fazekas. using the right words. For logic, behaviours and emotions For example, he highlights example, instead of saying make sense. that the brain requires the “Why did you get home so The final step involves body to do something that late?” say “What made you get confirming information/ will stimulate nerve endings to home so late?” Asking ‘why’ suspicions through asking release calming endorphins tends to put people on the more questions in a different in the brain, so that the brain defensive. Therefore, questions style, preventing biases from is soothed. “The behaviours need to be formulated getting in the way, doing exhibited in response to this in a way that creates the research to identify facts, ask­ are called pacifiers and include assumption that there must ing a colleague and accept­ing rubbing arms, playing with hair be a legitimate reason for the that you may be wrong. and ankle twitching.” subject’s behaviour and that Fazekas has been delivering A verbal baseline refers to the interviewer is ready to seminars and workshops whether a subject’s voice is understand that reason. to the CSSA members for high/low, do they laugh easily, “When interviewing, we try the past few years and, in cough or clear their throat or to get subjects to relax and 2011, contributed to a book naturally use a lot of “ums”. cooperate and they won’t if – Dealing with White-Collar A baseline for a person’s you come across as accusing. Crime – published by the emotional state also needs to “To be effective as an KwaZulu-Natal Business be established for when they interviewer, we must recognise Against Crime Task Group. are passionate or excited, that our subjects may be In January 2008, Fazekas nervous or tense. experiencing significant stress established the fraud preven­ The second step involves and will usually undergo stress tion and detection focus at asking open-ended and closed changes as we proceed Exactech, aligning it with the questions to establish what with the interview and our company’s cyberforensics you know and what you need attempts to recover and gain ser­vice solution to bring a to know. Fazekas says it is information. Under stress, your more holistic approach to important to develop a rapport subjects (especially the guilty fraud risk management.

42 boardroom | Issue 1 | 2018 nitially hesitant to start her studies through MEMBERS CSSA, owing to the large I finance component, wood-based panel supplier & STUDENTS Sonae Arauco South Africa company secretary Christine Fourie (37) is one of the latest additions to CSSA’s member base. “Although I worked at an accounting firm, I did not study accounting, not even at school level, and it was quite daunting. However, the broad spectrum of subjects that make up the CSSA syllabus has truly prepared me for the company secretary role within the cor­ porate world. Not only is it a well-recognised and respected qualification, it also made it possible for me to interact with the various departments within the company that I work for.” Citing that the company secretary profession chose her, Fourie, who has a BA in law and an honours degree in criminology from the University of Pretoria, started work as a personal assistant at an accounting firm in 2002 to start repaying her study loan. “After a couple of years at the firm, the clients started communicating their need for secretarial services. I received in-house training and my role at the company changed to that of company secretarial A Fresh administrator.” The company Fourie has been performing secretary profession company secretarial work ever since. She considers chose Christine Fourie good corporate governance Face an essential foundation for BY TRACY HANCOCK each type of business, and as company secretary, Fourie

boardroom | Issue 1 | 2018 43 Members & Students thrives on ensuring that her company abides by the recom­ Bake the world mended practices in King IV™. ❝ It was through the guidance a better place and support of Fourie’s role ❞ model, a senior partner at a law firm where she worked early on in her career, that she Kiser on Unsplash Photo by Taylor was encouraged to finally enroll for her studies at CSSA. “He is the epitome of professionalism and dignity. I strive to handle difficult scenarios in the way that he did.” Fourie started her studies through CSSA in January 2012 and chose to complete the FUN FACTS: entire CSSA syllabus to lay the proper groundwork for Home town: Born in Pretoria, currently resides in Sandton, Johannesburg the finance/accounting Primary and high schools: Laerskool Voorpos (Primary school), High subjects. School S.P.C.R. Swart Fourie completed the CSSA Marital status: Single syllabus in 2015, whereafter First job: Making pizzas at the local pizza takeaway shop when I was she successfully completed 16. But my first real (permanent) job was as a teaching assistant at the University of Pretoria the four board exams in 2016. “The CSSA syllabus included Pets: Two domestic cats – Sienna and Professor Wigglesworth various law subjects, finance Hobbies/favourite pastimes: Sewing, baking, reading, hiking and going to the theatre subjects and other interesting Favourite TV series: MasterChef Australia and valuable subjects, such as communication and Favourite author: Clive Cussler information technology. I found it challenging to study in the CSSA also has a placements to corporate governance evenings after a long day at recruitment team which matters, as well as input the office; however, it truly connects companies and during meeting discussions. paid off in the end. If it was company secretaries. This It is reassuring to know that easy, everyone would do it.” is our professional body.” the company secretary’s role Fourie, an associate member Fourie describes a good is valued and appreciated by as of end-2017, joined CSSA company secretary as some­ the board.” when she graduated at the one who has emotional A company secretary end of 2016. She sees the intelli­gence, is trustworthy, Fourie holds in high esteem organisation as the leading dependable and extremely is finan­cial services group professional body for company hard-working. Liberty com­pany secretary secretaries in Southern Africa. Previously, company secre­ Jill Parratt. “It is well known and well taries were required for minute- “She is profes­sional and respected. CSSA provides an taking purposes only; to be obviously ‘knows her stuff’. invaluable networking platform, seen and not heard. But she has remained down as well as ongoing training to “However, I am required to to earth and without airs. I love all its members and students. provide guidance with regard her spirit and assertiveness.”

44 boardroom | Issue 1 | 2018 Members & Students

Tips for Exam Success DR JACQUI BAUMGARDT

One of the most difficult things for many portal, particularly regarding students is developing effective study skills, says how to approach examination CSSA Accreditation and Assessment Manager questions and plan answers, Dr Jacqui Baumgardt, who, in this article, gives scenario-based questions, and formats for agendas, minutes, advice on how to study for maximum success reports, briefing papers and memoranda. Best practice Study Resources She further advises students guides, such as the CSSA Best Prescribed Texts to ensure that they have a Practice Guide to Minuting A list of the prescribed texts copy of the Companies Act, Meetings, are also available can be found on the CSSA 2008, and the Companies on the portal for reference. website. Each module will have Regulations, 2011, at hand to either a CSSA text produced refer to at all times. Read Around the Subject specifically for that module, or Everyday, the media are replete there will be a nominated text- Past Exam Papers and with articles on governance book or a list of readings that Suggested Answers issues. Students should take gives coverage of the entire These are vital study and an active interest in reading module content. revision aids which can also be reports in newspapers or Case studies form an found on the student portal. online on topical issues such important part of a student’s Students should refer to them as financial mismanagement, learning material for the course. often during their studies so share trading, failures in “You should ensure that you that they are familiar with the corporate governance and have read relevant examples style of questions they will face environmental issues. Critical of case studies (for example, in the exam. “However, don’t reading of such reports for you can find these in the study spot. Questions are never 30 minutes a day will keep you texts for each module) as these repeated, although the same up-to-date with current affairs, will be an important part of concepts will be examined,” and the information you glean developing your knowledge Baumgardt warns. can be used to support your of the subject, and will be an answers in the examination. invaluable aid in answering Guidance Notes Business Day and Financial exam questions,” notes There are helpful guidance Mail are good publications in Baumgardt. notes provided on the student this regard.

boardroom | Issue 1 | 2018 45 Members & Students

Time Management Ways of Studying The Board programme is ❝Time is your CSSA has an Accredited definitely not a programme greatest resource Tuition Provider scheme, that most people can pass ❞ which assure students simply by, for example, reading that the tuition providers a core text in their spare time avoid leaving it until the day within the scheme have met for a few minutes a day. It they register for the exam. CSSA standards. These requires a proper study plan As an indication, a 20-week providers offer a range of starting well before the final study programme could face-to-face, distance exams. “Time is your greatest take place over the following learning or online tuition. resource, so you do need to periods to tie in with the CSSA Check the CSSA website adopt good strategies to use examination dates. for a full list of accredited your time allotted for study Study from the start of tuition providers, their con­- wisely. Making sure that you January to mid-May, then tact details and the pro­ have enough time to study revise and sit the examination. grammes they offer. for the module should be the Study from the start of For many students, the first part of your study plans,” August to mid-October, then bulk of their learning is likely adds Baumgardt, noting that revise and sit the examination. to be independent. In every CSSA recommends that Many students will take two area of professional and students commit to around Board modules per session, higher education­ today, the 150 hours of study for each others may take one. “This ability to become an effective Board module as a minimum has to be a personal decision indepen­dent learner is recog­ requirement. which only you can decide,” nised as a crucial skill for states Baumgardt. success. Timeframes for Study Students should also think For more information about studying for a corporate governance about when they need to start qualification, go to the CSSA website: www.chartsec.co.za or contact their study programme and [email protected]

46 boardroom | Issue 1 | 2018 DATES TO DIARISE

Seminars 2018 Johannesburg Date Topic area Topic Speaker Time CPD hours Current developments in UK Corporate April 25 Governance Chris Hodge 14.00–16.00 2 Governance The diary of a seasoned Company May 30 Secretaryship Jill Parratt 08.30–10.30 2 Secretary: Practical lessons learnt Ethical considerations of stakeholder June 6 Ethics Cynthia Schoeman 08.00–10.30 2.5 inclusion Cape Town Date Topic area Topic Speaker Time CPD hours Ethical considerations of stakeholder July 4 Ethics Cynthia Schoeman 08.00–10.30 2.5 inclusion

Webinars 2018 Date Topic Speaker Time CPD hours

March 27 Tax consequences of offshore transactions Carmen Westermeyer 09.00–11.00 2

March 28 Practical implementation of corporate governance Caryn Maitland 09.00–11.00 2

Coming April 17 Trust: in pursuit of the ultimate ethics ingredient soon! Cynthia Schoeman 09.00–11.00 2

Caryn Maitland and April 24 Property, plant and equipment vs capital allowances Coming 13.00–16.00 3 soon! Carmen Westermeyer

Caryn Maitland and May 10 Revenue Coming 09.00–12.00 3 soon! Carmen Westermeyer

The corporate culture continuum: June 11 Coming Cynthia Schoeman 09.00–11.00 2 from ethical to toxic soon!

Caryn Maitland and June 20 Trusts Coming 09.00–13.00 4 soon! Carmen Westermeyer

Important dates for 2018 March 31 – Annual registration and examination July 13 to July 27 – Script review enrolment closes July 13 to July 27 – Individual feedback report August 31 – Exemptions close September 1 to September 21 – Postponements April 1 to April 20 – Postponements August 22 and 23 – Premier Corporate Governance Conference May 28 to June 1 – May examinations November 14 – Integrated Reporting Awards May 28 to June 8 – Illness and bereavement postponements July 13 – May exam release

boardroom | Issue 1 | 2018 47 Chartered Secretaries Placements

Are you struggling to fi nd the right company secretary or governance professional for your organisation? We can assist. Chartered Secretaries Placements has a specialist recruitment team to assist you in placing company secretaries and related governance professionals.

For corporates Our team knows how important a company secretary or governance professional is to a business. We understand what is needed to match skilled candidates to small and large organisations, as we have run small and large company secretarial departments. In addition, we know what technical questions to put to prospective candidates, which will ensure that these aspects are thoroughly explored prior to submitting short-listed names to organisations.

For prospective candidates Because of our intimate knowledge of the corporate governance and company secretarial profession over a combined 42 years, our team is able to appropriately match the relevant skill to the right opportunity to further your career objectives.

Contact details Chartered Secretaries Placements Tel: 011 326 0975 www.chartsec.co.za Email: [email protected] See the Career Centre page