What are the ins & outs of corporate governance in S.Africa? - CNBC Africa

What are the ins & outs of corporate governance in S.Africa?

Special Report

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In terms of a sport analogy, Van Wyk says the CEO is basically the captain. PHOTOS: Pedersen and Partners/Zone Property

Liza van Wyk, chief executive officer of management, business skills and human resources training provider, AstroTech Training, sheds light on the basics as well as on some of the processes that should take place within a business.

“The shareholders, collectively, own the company, and via the company they employ the directors to manage their company on their behalf and for their benefit. But a directorship is not an employer-employee relationship as defined in labour law,” she told CNBCafrica.com.

SHAREHOLDERS AND THE BOARD

“Generically speaking, directors are elected by the shareholders at a general meeting – typically the AGM. Any director so elected can also be dismissed from the board at any time by means of a resolution passed by a majority of the shareholders, provided the required process is followed.”

According to van Wyk, this process includes giving the director the reasons why you want to remove them, and giving them an opportunity to explain themselves first.

However, she added that a director can also be dismissed by the rest of the board, under certain narrow circumstances.

“The relationship between a director and the company or board is governed primarily by their contract. These contracts are not standard, so in each individual case you would need to examine the contract carefully,” van Wyk stated.

“Some contracts will allow the board to dismiss the director easily and cheaply, while other contracts might require the company to pay a huge severance package if the director’s contract is terminated early.”

THE DIRECTOR VERSUS THE EXECUTIVE DIRECTOR

Van Wyk further indicated that complications can arise when the director is an executive director, in that an executive director is often also an employee as well as a director.

“They can be removed from office as a director by a simple resolution as described above, but removing them from their position as an employee would then require following the defined process for termination of employment as per the Labour Relations Act,” she stated.

“The precise situation will again be governed by the wording of the contract of employment.”

DEFINING THE ROLES OF THE TEAM

By means of a sports team analogy, she stated that the CEO would effectively be the captain, the executive directors are the senior players, and the non-executive directors are the coaching and managerial staff.

“Only the captain and the senior players actually play in the match. While the coaching staff have very important on-going roles, including selecting the players and appointing the captain, during the matches they can only sit on the side-lines and shout advice,” van Wyk said.

“In a corporate environment the role of the board is primarily to provide strategy, governance and oversight. They also appoint an executive team and delegate to them specific powers and responsibilities, and must approve certain types of major decisions by means of a board resolution.”

She added that the executive team would then run the company on a day-to-day basis, subject to the instructions, delegations and constraints imposed upon them by the board.

“The board can over-ride the CEO on virtually anything by way of outvoting the CEO on a formal board resolution,” van Wyk explained.

“This would include the power to fire a senior executive against the will of the CEO, but again, the legal processes must be followed and the executive in question may well have the protection of the labour law.”

GORDHAN’S FIGHT WITH THE PPC BOARD

Former Pretoria Portland Cement (PPC) chief executive, Ketso Gordhan caused a stir recently when he claimed that he resigned from the cement maker due to difference of opinion with the board.

It was later revealed that Gordhan was “undermined” by the senior executive, whom he tried to fire, with PPC identifying the executive as chief financial officer, Tryphosa Ramano.

Following the failed retraction of his resignation, Gordhan then moved to mobilise the company’s shareholders, stating that the current board needed to be completely removed and a new board appointed.

(WATCH VIDEO: PPC to hold shareholder meeting next month)

In an interview with CNBC Africa, Gordhan stated that PPC needs more experienced people and that ultimately, he wants to do what is right for the business.

“What I’ve explained to shareholders is that we are a business that’s doing something quite complex, that’s quite risky and so, we need more experienced people with knowledge and know-how,” he said. 

“If we had a bunch of people there who understood the industry we’re in, or operating on the continent, or understood how to operate within a highly-geared business, because that’s what PPC is, that set of skills would guide a well-motivated and fully-aligned management team and that’s what we don’t have.”

THE OTHER SIDE OF THE PPC STORY

Following comments made by Gordhan that the PPC board considered defamatory, Chairman Bheki Sibiya stated that the company would be taking legal action against its former CEO.

“In terms of him being a delinquent director, we’re taking legal action. We’re not going to be hasty about it but we’re going to do a thorough job,” he told CNBC Africa.

“We wanted the reasons why he wanted to get rid of her and the reasons he gave were petty. What the CEO wanted to do was not procedural and was unfair and we told him that the board cannot support a process that is unlawful.”

ARE SHAREHOLDERS BEING UNDERMINED?

Gordhan however believes that he was within his rights to fire the CFO and stated that the situation with [DATA PPC:PPC] is now about shareholders taking a more active interest in the company.

“This is, hopefully, a good example where shareholder value was being undermined, shareholders have the right and they’ve exercised it, and hopefully the outcome is a very positive one,” Gordhan said.

“If things are normalised at PPC with a new board and a strong management team, I still believe that we will double the size of this business.”

Following the call from three of the company’s shareholders, with a combined 10 per cent of the company – Foord Asset Management, Visio Capital Management and Nedbank Private Wealth – a vote on whether or not to remove the company’s board has been set for 8 December.

(WATCH VIDEO: Will shareholder activism help Ketso Gordhan?)

“Shareholders, who are the owners of the business, need to understand what’s happening in the business and then take a view on what they think they should do,” Gordhan indicated.

“Ultimately, there’s a huge amount of shareholder value that is within the PPC structure and we’ve got to organise it in such a way that we can unleash its full potential.”

SHAREHOLDER POWER

Van Wyk indicated that the shareholders have the power to hire and fire directors, within the bounds of the Companies Act, the Labour Relations Act, the Memorandum of Incorporation and the individual director’s contracts, by passing a shareholders’ resolution.

“Shareholders can impose constraints on the board. However it’s not good practice for shareholders to try to run the company from the back seat. The idea is to set up a good Memorandum of Incorporation, hire a team of good directors and then step back and let the directors get on with it,” she said.

“It is also very important to note that the directors carry serious legal liability in the event of an adverse outcome, while the shareholders typically do not, so a director will not lightly allow shareholders to dictate policy and strategy from a safe distance.”

Van Wyk added that the director would probably choose to resign rather than to “carry the can” for decisions that he or she does not agree with.

DEPARTURES OF GOLDING AND HOGAN AT HCI

The suspension and ensuing resignation of Hosken Consolidated Investments (HCI) chairman, Marcel Golding was also in the spotlight recently, with Golding claiming that his suspension followed months of attempts to get him to resign as CEO of eTV and holding company, Sabido.

He said at the time that [DATA HCI:HCI] directors, John Copelyn and Yunis Shaik were the driving forces behind the attempts to push him out as a result of his refusal to permit eTV to be used for political purposes by SACTWU, a trade union that is invested in the group.

In the midst of this, HCI director Barbara Hogan also handed in her resignation. While the reasons for her resignation were not cited by the company, it has been reported that it was as a result of the situation with Golding and the way it was handled.

“We note the resignation of Barbara Hogan from our board and express our somewhat surprise at the hostile manner in which it is couched and publicly distributed,” HCI had said.

“We thank Barbara for her services to HCI and assure the public that, perhaps other than Marcel himself, no other board members of HCI see this matter similarly.”

Despite Golding’s appeals, the Labour Court eventually dismissed his application to have his suspension as executive chairman of HCI overturned, and he subsequently resigned.

(READ MORE: Court rules against eTV's Golding)

“The past 10 days have been challenging. My colleagues at HCI have won and I have lost, and I’ll be leaving. My hope is that the legacy I’ve tried to build continues under the new leadership of the company,” he stated at the company’s AGM.

“On the Ellies matter, I want to place it on record that I did not act dishonestly nor for personal gain and that at all times acted in good faith in what I believed was in the best interests of Sabido and its open-view HD platform.”

He also stated that he had lost the support of SACTWU and his colleagues at HCI and that he accepted this.

“In all of the companies in the Sabido group, there are excellent people. My greatest regret and sadness is I leave behind wonderful people. Trust, integrity and truth is what our media business is about. I’ve tried to uphold that,” Golding said.

HCI later announced the appointment of chief financial officer, Kevin Govender as acting chief executive of its Sabido unit.

THE TERMS OF A SUSPENSION

In terms of an executive committee member, van Wyk stated that he or she is usually an employee and that the provisions of the Labour Relations Act would apply if the board attempted to, for example, suspend them.

“The best practice is that the employee must be given a written notice of suspension, which should state the reasons for which they are being suspended,” she indicated.

“The grounds for the suspension must be legal and justifiable, otherwise the suspension might be an unfair labour practice.”

Van Wyk further stated that the suspension letter must also state the conditions of the suspension as a suspended employee is not necessarily on leave.

“The duration of the suspension is not specified – it will usually continue “until the investigation has been concluded.” However it cannot drag on indefinitely,” she concluded. 

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