South African Post Office Bill [B2-2010]: briefing by South African Post Office

Meeting report

Briefing by South African Post Office (SAPO)
Ms Vuyo Mahlati, Chairperson, SAPO Board, explained that the presentation from SAPO was in response to the Committee’s request during the meeting held on 19 October 2010 for a detailed explanation of the functions and responsibilities of the SAPO Board and the relationship with the SAPO subsidiaries.

Ms Motshoanetsi Lefoka, Chief Executive Officer, SAPO introduced the delegates from the Post Office to the Committee.

Ms Bessie Bulunga, Company Secretary, SAPO, presented the briefing to the Committee (see attached document).

The presentation included an organogram depicting the SAPO governance structure.  SAPO was a State-owned entity and the sole shareholder was the Minister of Communications.  The subsidiary companies were the Courier and Freight Group (CFG) and the Document Exchange Group (DOCEX).  Each subsidiary had its own board and was represented on the main SAPO board.  The board committees included the Audit Committee, the Risk Management Committee, the Chairperson’s Committee, the Human Resources and Transformation Committee, the Remuneration Committee, the Postbank Committee and the Stamp Advisory Committee.

An overview was provided of the SAPO Board and the mandates of SAPO and the SAPO Board were summarised.  The provisions of the SAPO Articles of Association concerning the members of the board and the committees were explained.  The SAPO Board currently had 15 members.  Board members served on the committees and on the boards of the subsidiary companies.  Information on the subsidiary boards, the SAPO Board committees and the appointment of directors were included. 

The presentation included an overview of the oversight and monitoring function of the SAPO Board and the SAPO Group as well as the statutory and legislative reporting requirements.  Details of the mechanisms in place to review the performance of the Board and the committees were given.

An outline of the legislative framework, within which SAPO operated, was provided.  The status of compliance with the King III Codes on Good Corporate Governance was included.

The presentation was concluded with a summary of the requests of the Committee concerning those issues that the Committee wanted to have dealt with in the South African Post Office Bill and the Postbank Bill.  The Committee was concerned over the size of the SAPO Board and the Post Office put forward three possible scenarios concerning the number of board members for consideration by the Committee.  The Committee had requested that the proposed legislation included provisions concerning the accountability of the subsidiary boards, the governance of subsidiary companies, the independence of members of the boards and the continuity of good governance practices.

Discussion
Adv J de Lange (ANC) complimented SAPO on the quality of the input provided.  He would have liked to have received more information on the operations of the two subsidiary companies.  There was a financial aspect to boards such as the payment of stipends to board members to attend meetings.  The Committee was reluctant to encourage board members to serve on a more or less full-time basis.  He would like to see that the legislation included more provisions dealing with matters of corporate governance.  The information provided in the presentation could be used to formulate the provisions concerning subsidiaries in the legislation.  The Committee had observed the negative consequences of a lack of legislation governing subsidiaries in the case of the South African Broadcasting Corporation (SABC) and Sentech. These entities had not applied the good policies of SAPO, with disastrous results.  Another problem was the loss of knowledge if experienced and knowledgeable persons left the entity and it was essential that provision was made to entrench institutional knowledge.  He was unsure if board members should be virtually full-time employees, who served on other boards and committees and flagged the issue for later discussion.

Ms Bulunga provided details of the amounts paid to the chairperson and the members of the SAPO Board and the subsidiary boards as stipends, retainer fees and attendance fees.  (The information was not circulated).

Adv De Lange said that there were two possible methods to deal with the subsidiaries in the legislation.  Clause 5 (2) had to be very clear that the subsidiary companies had to comply with the policy made by the Minister.  He found Clause 6 (2) to be very weak as it could be interpreted to allow for the establishment of further subsidiaries, without prescribing the processes that had to be followed.  Sentech and the SABC were cases in point where subsidiary companies were established without due consideration.  The subsidiaries concerned had not been profitable and had distracted the parent company from concentrating on its core mandate.  He suggested that the Bill made provision for subsidiaries to be established only once a viability study had been done and the establishment of the company had been approved by Parliament.  Clause 6 (2) (a) could be misinterpreted and that other shareholders were allowed.  Clause 9 made no mention of the accountability of the subsidiary board to the board of the parent company.

Adv De Lange suggested that the annual report of each subsidiary company was shown separately in the annual report of the SAPO Group.  The legislation should also make provision for the annual reports as well as the quarterly financial reports required from subsidiary companies.

Mr N van den Berg (DA) agreed that Adv De Lange had raised several valid points.  He said that the Members of the Committee needed time to study the information provided in the SAPO briefing.

Mr E Kholwane (ANC) complimented Ms Bulunga on the high standard of her presentation to the Committee. He said that it was gratifying for the Committee to find that certain State-owned entities functioned very well.

The Chairperson remarked that more work needed to be done of the Bill and asked the Department and the Principal State Law Adviser when a revised version could be presented to the Committee.

Mr K Zondi (IFP) asked if the Articles of Association made provision for the relationship between SAPO and its subsidiaries and if such provision would allay the concerns raised by the Committee.

Ms Bulunga pointed out that the Public Finance Management Act (PFMA) included requirements for the shareholder compact and specified that there must be a corporate plan in place that included the corporate plans of subsidiaries.  The corporate plan allowed for the shareholder to appraise the performance of the parent company as well as the subsidiary companies.  There was therefore a built-in mechanism in place for reports to the shareholder and the appraisal of the performance of the parent company and the subsidiaries.

Ms Mahlati added that SAPO had to submit a business case to the Minister before establishing any new subsidiary.  In terms of Section 54 of the PFMA, SAPO had to inform the National Treasury of any impending transaction and was required to account before and during any actions involving subsidiaries.  The problem was a matter of legislative compliance and it was necessary to refer to all the applicable legislation during the process.  Too detailed specifications could create a problem, for example the apparent conflict between the King III and legislative requirements concerning whether or not the Chairperson of the Board should be chairing the Remuneration Committee.

The Chairperson asked what the legal status was of the Articles of Association, the shareholder compact and the charter.

Ms N Michael (DA) asked what qualified the independence of the executives appointed to positions on the board.  The Minister had the power to appoint or change the directors but no mention was made of any consultation that had to take place.  She wondered what would happen if the Minister simply did not like one of the directors and how it could be ensured that changes or appointments of directors were free and fair.

Adv De Lange explained that corporate governance was created out of the Articles of Association, the shareholders’ compact and other types of instruments.  The problem was when the ‘tail was wagging the dog’.  Legislation should set the parameters and be followed by instruments such as Articles of Association rather than the other way around.  In the case of the Department of Communication, there was a bare minimum of legislation, with the result that the converse had happened.  In the case of the SABC, the Corporation had failed to sign the shareholder’s compact for three years but the consequences for this failure and he alternative were not spelled out in the relevant legislation.  The issue was the principle of accountability.  He agreed that it was unnecessary to specify too much detail in legislation but the aspects of accountability have to be clarified.

Adv De Lange pointed out that compacts were usually drawn up between departmental officials and the State-owned entity concerned, were not open to public scrutiny and were not seen by the Committee.  As a result, Members of the Committee had no knowledge of the content or standing of these agreements.  He was of the opinion that there was a fundamental flaw in the current process.  Legislation flowed from Government policy and should be followed by the instruments that implemented the legislation.  For this reason, he felt that the legislation should include provisions that imposed the principles of accountability and regulated the relationship between the entity and the shareholder.  It was unacceptable that the Members only recently discovered that the SABC had subsidiaries that the Committee was unaware of.  The applicable legislation had to ensure that institutional knowledge was entrenched and that the entity was not left in turmoil when people leave the organisation.  The legislation had to specify the processes that had to be followed to ensure continuity and the management of the entity cannot be allowed to introduce its own procedures.  It was possible to divert large sums of money to subsidiaries, which lends itself to fraud corruption and nepotism.  He was aware that this was happening in certain State-owned entities and was concerned that the same could occur in the Post Office if the current good management was no longer in place.

Ms Bulunga explained that the Companies Act prescribed record-keeping by companies.  Statutory records were public records and were available to members of the public.  The Articles of Association was a statutory record in terms of the Companies Act.  The new Act made provision for the Memorandum of Association to be incorporated with the Articles into a Memorandum of Incorporation.  The board committees had developed guidelines for the conduct of employees.  In terms of Section 52 of the PFMA, a shareholder compact had to be in place.  The compact included remedies in the event that the agreement was breached.  The King III Code specified that the chairperson of the Audit Committee had to be independent and defined independence as not under the influence of the shareholder.  For this reason, SAPO invited external persons to chair the Audit Committee.

Mr Alf Wiltz, Director: Legal Services, Department of Communications agreed with Adv De Lange that legislation should be put in place in the first instance and followed by the governance instruments.  The SAPO Bill and the Postbank Bill would set a good precedent.  He agreed that each State-owned entity should be governed by a dedicated Act that included provisions to ensure good governance and that the entity was managed in line with the new Companies Act and the King III Code.  The Department planned to present six to seven Bills to the Committee in the near future but he was not sure if the legislative programme would be completed during 2011.  He advised that the Department would be able to present an amended Bill to the Committee during the following week, provided that the changes were limited to the suggestions made by Adv De Lange.

Adv De Lange advised that he had further comments on the Bill.

The Chairperson asked that Adv De Lange postponed his comments to a later stage in the proceedings.  He noted that SAPO had proposed three scenarios with regard to the number of board members.  He asked which of the three scenarios was recommended by SAPO.

Ms Mahlati advised that scenario 1 was preferred, i.e. three executive members plus ten non-executive members plus two shareholder representatives to the Postbank Board (a total of 15 members).  There would a problem with having a quorum if there were a lesser number of board members.  Currently there were four executives to accommodate the Managing Director of Postbank but the number of executives would be reduced to three when the Postbank Board was established.

The Chairperson remarked that SAPO proposed that the status quo was maintained but the Committee strongly recommended that the size of the board was reduced.

Ms Lefoka supported Ms Mahlati’s position.  Two additional committees had to be established in terms of the new Companies Act, i.e. the Ethics Committee and the Nomination Committee.  If the number of board members was reduced, the remaining members would have to take on additional responsibilities and it would be difficult to have a quorum.  The Board had done much to ensure that the necessary structures and processes were put in place to ensure that these mechanisms became the norm and that the members and chairpersons of the committees understood their responsibilities.  SAPO was happy to work with the legal advisers of the Department on the inclusion of governance provisions in the legislation.

The Chairperson asked if the Department had a proposal concerning the size of the board.

Mr Kholwane pointed out that the Committee needed to consider the additional information provided by SAPO during the briefing in order to reach a conclusion regarding the size of the Board.  He remarked that SAPO’s success had become its challenge and it was understandable that the entity wanted to maintain what had been achieved. The Chairperson agreed that the Bill was still a work in progress.

Adv De Lange listed his other comments on the Bill.  It was most unusual to make the duties of the Post Office subject to another law as was the case in Clause 5.  The duties of SAPO were made subject to the Postal Services Act and there could be unforeseen consequences. She suggested that provision was made in Clause 8 (4) that any loans raised without the permission of the Minister would have no cause or effect.  He suggested that the timeframe of three months allowed under both Clauses 11 (4) (a) and (b) was reconsidered to allow adequate time.  There appeared to be a duplication of the provisions under Clause 11 (3) (b) (ii) and (4) (b) (i). The phrase ‘not withstanding’ in Clause 11 (4) (b) does not appear to make any sense.  He wondered why the provisions in Clause 14 could not be applied to all the employees of SAPO.  It was not correct to make labour-related matters dealt with in Clause 19 (1) subject to the Promotion of Administrative Justice Act (PAJA).  PAJA did not deal with labour matters.  He disagreed with the removal of Clauses 22 (2) (a) and (b).  Clause 22 (2) (a) should provide for the Minister to approve the terms and conditions of employment in consultation with the Minister of Finance.  If Clause 14 was applicable to employees then Clause 22 (5) had to be amended to allow for the disclosure of the financial interests of employees.  He noted that Clause 32 was amended to remove the provision that the Act would commence on a date determined by the Minister.  He queried the omission of the President from the process.

Ms Michael queried the relevance of Clause 14 (1) (a) in view of the provisions under (1) (b).  The financial interest of board members was only relevant if the interests of the member were involved in the provision of goods and services to SAPO.

Adv De Lange explained that the involvement of board members with interests in companies providing goods and services to SAPO in the awarding of tenders was completely forbidden.  There were many types of interests and the provisions in Clause 11 (1) (g) prevented the appointment of a person with conflicting interests from being appointed at all.  In the case of SAPO, there were existing board members and the Bill made provision for a period of three months during which members had to divest from their interests.

Mr Wiltz explained that the reference to the Postal Services Act in Clause 5 was made because the Independent Communications Authority of South Africa (ICASA) issued the license of SAPO in terms of this Act.  The intention was to avoid hampering ICASA in the issuing of the license.  More research was necessary to examine the logistics involved in making Clause 14 applicable to approximately 19,000 employees.

The Chairperson advised that Government wanted to see that provisions dealing with fiduciary duties were applied to at least senior management.

Mr Wiltz said that it would be more practical to apply the provisions to senior management than to all employees.  Clause 22 (2) (a) was removed because the Department felt that the provisions under Clause 22 (1) adequately covered the approval of the Minister of staff benefits.  With regard to Clause 32, the Office of the President was already involved when the Act was signed into law.  There had to be justification for involving the President in the secondary process of determining the commencement date of the Act.  This Bill required little preparatory work to be done before the Act could commence.

Adv De Lange disagreed with the Department’s argument.  He pointed out that, in terms of the Constitution, the President was the head of the Executive and delegated his powers to Ministers.  There were examples where the President had threatened to challenge legislation in the Constitutional Court and prevented the legislation from being enacted.  The Office of the President considered the effect of the implementation of legislation before it became law.  He urged the Department to reconsider the provision removing the role played by the President.

Ms J Killian (COPE) concurred with Adv De Lange and stated that the Bill would be unconstitutional.  Section 79 (1) of the Constitution was clear that the President must either assent and sign the legislation into law or send it back to the National Assembly for reconsideration.  There was no provision for the delegation of this particular responsibility of the President.  The Bill must adhere to the constitutional requirements.

Mr Wiltz agreed with Adv De Lange on the principle of the matter.  The Committee had to take into account that there two processes were involved.  The first process was when the President signed the Bill into law.  A second process was required if the Short Title of the Bill specified that the Act would commence on a future date, which required the date to be proclaimed.  The second process was necessary when the legislation required regulations to be developed, as was the case with the new Companies Act.  In the case of the SAPO Bill, the Department felt that the secondary process was not necessary.  The decision of the Committee on the matter would be accepted by the Department.

The Chairperson asked the legal advisers to amend the Bill in accordance with the recommendations made by the Committee and present a revised version during the following week.

Mr Kholwane was elected as the Acting Chairperson during the absence of Mr Vadi.

The meeting was adjourned.