Lessons for boards and directors from the Zondo Commission

Board of Directors

KOOS BENADIE

Director | Attorney

The recent testimonies at the Commission of Inquiry into Allegations of State Capture (Zondo Commission) would certainly serve to emphasise the need for Directors to be capacitated with the requisite skills for good governance. In commenting on the testimonies of Dudu Myeni (former Chair of the SAA Board) and Yakhe Kwinana (former Chair of SAA Technical) Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA) said, “Directorship is a profession like any other and those taking up board seats must have the correct skills combined with independence in order to fulfil their duties.”

The testimonies have exposed the governance elements that were casualties on the high-road to director delinquency, including:

  • Directors’ duties
  • Standard of conduct
  • Responsibility, accountability and liability
  • Conflicts of interest
  • Preparation and record-keeping
  • Penalties and consequences

These casualties would continue if government and companies fail to perform due diligence on board appointments to ensure the right combination of skills, knowledge and experience, as well as the ability to exercise independent judgement.

The primary duty of directors is to, in good faith, always act in the best interests of the company by acting with care, diligence and skill. Failing which, directors expose themselves to enormous risk and can be held personally liable for poor decisions. Worse still, as was the case of Ms. Dudu Myeni, they risk being declared a delinquent director. Judge Tolmay highlighted Ms. Myeni’s breach of fiduciary duty, dishonesty and gross negligence.

Natesan contends that, as a non-negotiable, “one simply cannot serve as a director if one doesn’t understand what the basic fiduciary duty is, and what skills are required. Board members also need other technical competencies that they should acquire.” Based on recent evaluations by the IoDSA, many board members have not read and understood applicable governance legislation or regulations – or even the King IV guidelines. As an example, there findings show that it appears to be believed that if an individual declares a conflict of interest, he / she can simply continue to participate in the matter. The truth of it is that if one has a material interest in a matter, one cannot be objective and must therefore recuse oneself.

The IoDSA offers that the solution to the problem of poor board governance is that directors should be obligated to belong to a professional body like the IoDSA which can hold members to a code of conduct and should obtain the professional certifications to act as a director. However, companies can also take proactive steps by engaging legal advisors who can carry out independent governance risk audits and assist clients by assessing and managing their governance procedures and strategies – including practical advice to company directors and boards on the effective implementation of governance actions.

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