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17/05/2019 Why company law and the King Codes can’t save corpora...

Opinionista • Xolisa Phillip • 17 May 2019

Why company law and the King Codes can’t save
corporate SA

35 Reactions

What lies at the heart of the rot in corporate SA may surprise
you. Where government gets it right, the private sector and SOEs
get it spectacularly wrong.
 Follow  Save

South Africa’s corporate governance framework has often been described as “ground­
breaking” and “world class”. And on the surface, this seemed an apt descriptor.

In 2011, the revamped Companies Act came into effect in tandem with sweeping regulations
intended to align the South African oversight regime with international best practice. The
Companies Act of 2008 also ushered in the birth of the Companies and Intellectual Property
Commission and gave rise to the Companies Tribunal.

In the latter part of 2018, the Trade and Industry minister published the Companies
Amendment Bill 2018, whose intent is to close loopholes discovered since the new
framework came into play in 2011.

The 2008 Act, and proposed amendments thereto, covers both the private sector and state­
owned entities (SOE). One of the important express aims of the Companies Act of 2008 was
to decriminalise company law, with the caveat being that anyone who signed “false or
misleading” financial statements or prospectus, or acted recklessly in the conduct of a
company’s business would be liable for a fine or 10 years’ imprisonment. Added to this
arsenal of oversight is the King Code on Corporate Governance.

When it comes to the conduct of company directors, both executive and non­executive, for
instance, the 2008 Act prescribes that they are subject to common law and the Constitution,
should discharge fiduciary duties and exercise duty of reasonable care, they must act in good
faith, they must disclose personal financial interests and may not use information for
personal gain or to cause harm.

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17/05/2019 Why company law and the King Codes can’t save corpora...

In addition, the regulations and the 2008 Act stipulate that directors serving on a company’s
audit committee must have qualifications in economics, law, corporate governance, finance,
accounting, commerce, industry, public affairs and human resource management. And a
meticulous record of the qualifications and experience of directors appointed to audit
committees ought to be kept. And anyone can ask for access to this information by filing a
request under the Promotion of Access to Information Act.

The 2008 Act also brought in the concept of social and ethics committees, which are
intended to act as a company’s or SOE’s conscience.

Social and ethics committees are deemed so important that some of the fundamental
changes proposed in the Companies Amendment Bill of 2018 speak directly to the
“composition of [a] social and ethics committee and its functions”. There are other
provisions in the Bill, which are designed to bolster social and ethics committees’ mandates
and ensure that they are not treated as “nice to haves”, but are rather effective structures set
up as a robust internal compliance mechanism.

In theory, the new company law regime and the various incarnations of and updates to the
King Codes were supposed to set the country on course for a glorious era of good corporate
citizenry. Right? To the contrary, recent experience says otherwise.

South Africa is awash with many instances of corporate malfeasance, both in the private
sector and within SOEs, with boards and management at the heart of the rot. In the process,
the concept of corporate governance has been unmasked as nothing more than a smoke
screen.

But why is that the case, given that both the Companies Act of 2008 and its regulations give
guidance on what constitutes acceptable conduct for company directors, and the King Codes
provide an outline of board mandates and the respective board sub­committees?

The answer may be deceptively simple: SA Inc has a corporate culture of follow the leader
and the cult of personality. Also, the Companies Act of 2008 and its regulations, as well as
the King Codes, do not make explicit the lines of delineation between management and
boards in terms of who has the final say on operational and strategic matters.

Would management have had a right to veto all the dodgy Steinhoff deals that involved
board members? Is it even conceivable for management to push back against an overly
active board? In other words, what tools and recourse are at management’s disposal when
boards go rogue or overstep their mandates? Furthermore, who is the final accounting
authority? And what powers are at a board chair’s disposal versus those of a CEO? Who is
the boss of whom?

This is where the government is streets ahead.

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A director­general is the final accounting authority within a department and is explicitly
empowered to veto a wayward minister. We have been witness to directors­general hauling
ministers before the courts to reinforce the notion of a separation of powers and to confirm
who is the accounting authority. And the debate about who directors­general report to was
reignited in 2018. The choice is between ministers and the Presidency, and the consensus
leans towards the latter exercising oversight on directors­general. The accounting authority
model empowers directors­general to make unpopular decisions and go on with the business
of executing departmental work without fear of reprisals from capricious ministers.

The president has even signed the Public Audit Act Amendment Bill into law, while the
proposed amendments to the Auditing Profession Act remain the subject of debate.

Upon careful reading of the Companies Act of 2008 and its regulations and the King Codes
guidelines, that level of clarity is missing within SOEs and the private sector and may, in
part, explain the rot that has unfolded in recent years – and will probably continue for years
to come until this structural defect is addressed.

By way of example, look no further than the boardroom brawl between erstwhile SAA CEO
Khaya Ngqula and the airline’s board. And the subsequent skirmishes between Dudu Myeni
and the national carrier’s long roster of CEOs and other executives. Think about the
governance lapses at Prasa and the fights that ensued between the passenger rail agency’s
board and its former CEO.

Other examples that come to mind are: Transnet, Denel, KPMG, McKinsey, Eskom, Bain &
Co, Hogan Lovells, African Bank, Steinhoff and the SABC. This is in no way an exhaustive
list – there are countless others, but these are the immediate examples that come to mind.

If you talk to any of the former executives and ex­board members of those companies, they
will point a finger at overbearing board chairs or partners. And this, in turn, raises a
question about their understanding of fiduciary duties and duty of reasonable care. In each
of the instances cited above, board members chose the line of least resistance, to the
detriment of good corporate governance. And this will continue to be the case until a clearer
line of delineation is drawn between executive authority and board mandates.

Until then, rogue board chairs will continue to inflict their will on management and steer
companies to the edges of ethics, while the merry­go­round of corporate malfeasance will
continue unabated. And, most frightening, the cult of personality and the follow­the­leader
culture in corporate will continue to flourish and put paid to the governance principles of
transparency and accountability. DM

Want to watch Richard Poplak’s audition for SA’s Got Talent?

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17/05/2019 Why company law and the King Codes can’t save corpora...

Who doesn’t? Alas, it was removed by the host site for proli c swearing*... Now that we’ve got your
attention, we thought we’d take the opportunity to talk to you about the small matter of book
burning and freedom of speech.

Since its release, Pieter-Louis Myburgh’s book Gangster State, has sparked numerous fascist-like
behavior from certain members of the public (and the State). There have been planned book
burnings, disrupted launches and Ace Magashule has openly called him a liar. And just to say
thanks, a R10m defamation suit has been lodged against the author.

Pieter-Louis Myburgh is our latest Scorpio Investigative journalist recruit and we’re not going to let
him and his crucial book be silenced. When the Cape Town launch was postponed, Maverick
Insider stepped in and relocated it to a secure location so that Pieter-Louis’ revelations could be
heard by the public. If we’ve learnt one thing over the past ten years it is this: when anyone tries to
infringe on our constitutional rights, we have to ght back. Every day, our journalists are uncovering
more details and evidence of State Capture and its various reincarnations. The rot is deep and the
threats, like this recent one to freedom of speech, are real. You can support the cause by becoming
an Insider and help free the speech that can make a difference.

*No video of Richard Poplak auditioning for SA’s Got Talent actually exists. Unless it does and we don’t know about it please send it through.
(https://www.dailymaverick.co.za/insider/?utm_source=DM_Website&utm_medium=post-
article&utm_campaign=poplak-audition)

Auditing Profession Act (https://www.dailymaverick.co.za/opinion-piece-tag/auditing-profession-act/)

Companies Act (https://www.dailymaverick.co.za/opinion-piece-tag/companies-act/)

Companies Amendment Bill of 2018 (https://www.dailymaverick.co.za/opinion-piece-tag/companies-amendment-bill-of-2018/)

KPMG (https://www.dailymaverick.co.za/opinion-piece-tag/kpmg/)

McKinsey (https://www.dailymaverick.co.za/opinion-piece-tag/mckinsey/)

Public Audit Act (https://www.dailymaverick.co.za/opinion-piece-tag/public-audit-act/)

SoEs (https://www.dailymaverick.co.za/opinion-piece-tag/soes/)

Steinhoff (https://www.dailymaverick.co.za/opinion-piece-tag/steinhoff/)

Xolisa Phillip

 Follow  Save  More (https://www.dailymaverick.co.za/author/xolisa-phillip/)

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17/05/2019 Why company law and the King Codes can’t save corpora...
Xolisa Phillip has had quite an adventure as a journalist in the roles of subeditor, news editor, columnist and commentator. She
pretends to be Olivia Pope during the day, ful lling the role of BUSA communications manager, while still maintaining a presence in
journalism – a passion project she cannot shake away. Journalism keeps nding Phillip no matter where she is and somewhat
manages to hold its own space no matter where she is professionally. She writes in her personal capacity and the views expressed in
this column are not those of BUSA.

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All Comments 1

Stephen Hall 2 hours ago


Well written and long overdue thank you Xolisa. Your mention of rogue Board Chairs, CEO’s and Ministers is
due in my opinion to the fact that these rogues are protected by a higher power. In your examples Dudu Myeni
was backed by Jacob Zuma and thus was impervious to proper corporate governance. The same can be said
for the Transnet, Eskom, Denel etc. rogues. I then argue that the delineation between executive, board and
minister is as clear as is required however this carefully crafted governance balance between executive, non-
executive and shareholder is ruinously skewed by the deployment of minions outside the reach of such
governance. As example the SAA board learned that Ms Myeni could not be defeated by weapons of corporate
governance and that any such attack would be suicidal as well as ineffective due to her Presidential shield. On a
level boardroom table the corporate governance arsenal is designed to be enough to defeat any such
malfeasant attack however once any party is shielded against the arrows of governance the code of the King is
generally defeated by the sheer power of the Emperor.

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