When a board pulls in two direc­tions

Sunday Times - - Business Opinion - Andile Khu­malo Khu­malo is an en­tre­pre­neur and char­tered ac­coun­tant

More than a year ago, in Oc­to­ber 2017, pres­i­dent Ja­cob Zuma an­nounced a per­ma­nent SABC board to re­place the in­terim struc­ture that had been in place.

The in­terim board had come into be­ing af­ter a com­plete col­lapse in gov­er­nance dat­ing from the time the gov­ern­ment saw fit to put Ellen Tsha­bal­ala and Ben Ngubane in charge of the broad­caster. As the gov­er­nance cri­sis rapidly mu­tated into an op­er­a­tional fi­asco, the SABC found it­self paral­ysed from within as the Hlaudi Mot­soe­neng ef­fect eroded all stability in the in­sti­tu­tion.

This week, the board yet again col­lapsed as four more members re­signed. The board al­ready had va­can­cies aris­ing from the loss of members who were con­firmed for a fiveyear pe­riod in Oc­to­ber 2017 and promptly left within months.

The Broad­cast­ing Act re­quires that 12 nonex­ec­u­tive di­rec­tors and three ex­ec­u­tive di­rec­tors serve as the guardians of the or­gan­i­sa­tion. Right now, the board is left with just four nonex­ec­u­tive di­rec­tors and three ex­ec­u­tives.

The board is nu­mer­i­cally in­quo­rate. Be­yond that, there is a need to dis­tin­guish be­tween a nu­mer­i­cally quo­rate board and a func­tion­ally quo­rate one. To un­der­stand the dis­tinc­tion, it is im­por­tant to un­der­stand what it is that board members sign up for.

For a long time, South African cor­po­rate gov­er­nance had the 1973 ver­sion of the Com­pa­nies Act as its guid­ing light. In 2010, the new Com­pa­nies Act of 2008 passed into law. This act cor­rectly high­lights the roles of di­rec­tors of com­pa­nies. Sec­tion 76, in par­tic­u­lar, con­firms their fidu­ciary du­ties. These in­clude the need to act in good faith, avoid con­flicts and al­ways seek to pro­mote the in­ter­ests of the com­pany.

More im­por­tantly, fidu­ciary du­ties and obli­ga­tions are non­nego­tiable and can­not be waived ran­domly. This is be­cause share­hold­ers and so­ci­ety en­trust di­rec­tors with wide-rang­ing pow­ers to take de­ci­sions that have far­reach­ing im­pli­ca­tions.

For large en­ti­ties and state en­ter­prises in par­tic­u­lar, their so­cial reach tends to be per­va­sive as they are em­ploy­ers, pro­duc­ers and tax­pay­ers all at once. To ensure their sus­tain­abil­ity, we need to have the best di­rec­tors in charge of af­fairs.

A board of di­rec­tors must al­ways have a num­ber of spe­cial­ist skills with a fo­cus on fi­nan­cial mat­ters. Whether we like it or not, when the liveli­hoods of employees, sup­pli­ers and other stake­hold­ers de­pend on an or­gan­i­sa­tion’s abil­ity to re­main fi­nan­cially vi­able, the voices of the fi­nan­cially savvy members will be am­pli­fied more than oth­ers. A board there­fore doesn’t have to be just nu­mer­i­cally quo­rate but must also be tech­ni­cally bal­anced to be ef­fec­tive.

In­ter­est­ingly, the ques­tion of tech­ni­cally quo­rate struc­tures mat­ters more at the on­board­ing stage than dur­ing an ex­o­dus such as the SABC board is ex­pe­ri­enc­ing.

For the SABC and other en­ti­ties, how­ever, the on­board­ing process seems to be a del­i­cate trade-off be­tween skills and af­fil­i­a­tion. In the Oc­to­ber 2017 an­nounce­ment, for ex­am­ple, the board chair was the head of the po­lit­i­cally af­fil­i­ated Bongi Ngema-Zuma Foun­da­tion. The for­mer deputy chair — Febe Pot­gi­eter-Gqubule — is an of­fice bearer of the ANC. An­other mem­ber who re­signed this week — Kr­ish Naidoo — is the of­fi­cial le­gal ad­viser to Luthuli House. John Mati­sonn — an­other res­ig­na­tion from this week — is cu­ri­ously re­ferred to as the DA nom­i­nee to the board. And that’s just a sam­ple. It is, of course, pos­si­ble that po­lit­i­cally af­fil­i­ated board members are the most suit­able can­di­dates for ap­point­ment. What re­mains less re­solved is what hap­pens when the fidu­ciary du­ties clash with the political stance. In the SABC case, the res­ig­na­tion let­ter of Naidoo in­di­cates the board in­cludes in­di­vid­u­als who are un­able to “un­der­stand the dif­fer­ence be­tween cor­po­rate in­de­pen­dence, ac­count­abil­ity and political in­ter­fer­ence”. Mati­sonn’s let­ter makes it clear that the board is grav­i­tat­ing away from the political process and to­wards fidu­ciary du­ties. His rec­om­men­da­tion for the board to change course and sus­pend re­trench­ments, for ex­am­ple, lays bare the ten­sions be­tween the fidu­ciary ques­tion and the political ques­tion. The minister of com­mu­ni­ca­tions — who has cut off all com­mu­ni­ca­tion with the board — has no fidu­ciary duty as she is not a direc­tor. Her political po­si­tion is sim­ply that, but it is dif­fi­cult to un­der­stand how di­rec­tors whose pri­mary duty is fidu­ciary can seek to cham­pion the political man­date.

What we had at the SABC was a board di­vided into two quo­rums, one made up of the po­lit­i­cally in­clined and the other made up of those committed pri­mar­ily to their fidu­ciary duty. For as long as the fidu­ciary cham­pi­ons re­main, we should be grate­ful. But as we have learnt, this will not last long.

What hap­pens when fidu­ciary du­ties clash with political stances?

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