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PUBLIC ENTERPRISE PORTFOLIO COMMITTEE
3 May 2001
BRIEFING ON CORPORATE GOVERNANCE
Documents handed out
Corporate Governance Presentation
Report of the Ad Hoc Committee on Report 13 of the Public Protector [appearing in the Announcements, Tablings and Committee Reports (ATC) of 1 March 2001]
Delegation: Mr M Gantsho, Chief Director: Corporate Performance Monitoring and Benchmarking, Mr L Montana, Director: Minister's Office and Ms M Msomi, Director: Corporate Governance.
An overview of on principles and objectives of good corporate governance was given and the role of parliamentarians within that process. Corporate Governance involves issues relating to government and State Owned Enterprises' transparency and accountability towards the public. From the discussion it was clear that the concern was how to implement a coherent strategy based on efficacy, accountability, responsibility and ethics.
Mr M. Gantsho Chief Director of Corporate Performance Monitoring and Benchmarking, provided an overview of the meaning, processes and benefits relating to Corporate Governance within State Owned Enterprises (SOEs) and current challenges of restructuring programmes within SOEs.
Mr Gantsho drew attention to the Report of the Ad Hoc Committee on Report 13 of the Public Protector particularly Recommendation 4. He highlighted the role of parliamentarians regarding Corporate Governance. He referred to the King Commission Report of 1994 and the Public Finance Management Act (PFMA) as instruments that were put forth to set the process in motion. One of the instruments developed by Corporate Governance is the Shareholder Compact between Government as shareholder and the State Owned Enterprises (SOEs).
Mr Gantsho stated that challenges facing SOEs required a coordinated approach and mechanisms for managing the relationship between government and SOEs. These challenges facing the strategy for good corporate governance were:
- is there a co-ordinated approach to Public Enterprises and Utilities?
- is there a vehicle to manage government shareholding in public enterprises?
- can the department adopt similar strategies to other departments on good corporate governance?
Ms Msomi, Director of Corporate Governance, emphasised the need for effective communication to ensure transparency and accountability amongst various government departments and SOEs. She insisted that, according to the King Report, corporate governance was important for the public sector as it was for the private sector, however certain flaws within the King Report were being reviewed for a new version.
Ms Msomi's presentation focused on the following themes:
- the definition of corporate governance
- the need for good corporate governance in South Africa
- the history of corporate governance in South Africa
- the role of shareholders and board members
- the role of the Cabinet
- issues involved in corporate governance
Ms Msomi stated that it was the responsibility of the shareholders to appoint the Board and the Board would be required to take decisions within the parameters of its defined mandate. The shareholder's role would be to guard the interests of the state by ensuring that the SOEs function efficiently where as the role of the Board would be to ensure that SOEs perform within the mandate set by the shareholders.
Ms Msomi stated the fiduciary responsibility of the directors appears in the Public Finance Management Act and these fiduciary responsibilities include integrity, honesty, proper accounting and the disclosure of conflicts of interest.
Ms Msomi insisted that there was a need for a balanced Board composed of executive and non-executive directors with a majority of non-executive members to monitor issues such as conflicts of interest. Ms Msomi added that the chairperson should be an independent person and not a CEO of a company for Corporate Governance to be effective.
Ms Msomi explained that the Shareholder Compact is an agreement between Government and the Board and seeks to reinforce areas of performance, efficiency and effectiveness. As such the Shareholder Compact measures issues such as budget, selling, and restructuring. It also addresses issues such as conflicts of interest and self-performance.
Ms Msomi emphasised the vitality of the Shareholder Compact which should be the centre of good governance in terms of communication and regulation of the relationship between shareholders and board members. She saw corporate governance as essential and necessary because State-owned enterprises should be run the same as private ones. She observed that good corporate governance should address ethical issues, be transparent, accountable, effective, and efficient and maximise shareholder value. Finally, she reiterated that the present legal structure has set in motion the process of good governance and the way forward is to implement the regulations.
Mr R Heine (DP) agreed with the development of corporate governance but was of the view that this exercise should begin with the Executive. He asked why audit committees were not mentioned and whether there were any existing programmes on corporate governance. Mr Gantsho replied that in terms of the PFMA it is a requirement for all the entities to have an audit committee. He added that the Department has identified a need for a credible Board appointment process. A policy has been developed for that and is awaiting the Minister's signature. The aim of this policy is to protect the shareholding minister in processes relating to Board member appointment.
Mr Gantsho also informed the committee that the Department was developing a pool of expertise for the purpose of appointing Board members. He said the Department was wary of appointing people who already sat on fifteen boards and questioned the value of the input of such people. The Department was considering appointing people who had never sat on boards before.
Mr M Maphalala (ANC) asked how far the Department has gone with the four recommendations made in the Report of the Ad Hoc Committee on Report 13 of the Public Protector [appearing in the Announcements, Tablings and Committee Reports (ATC) of 1 March 2001].
Mr Gantsho replied that in accordance with the Shareholder Compact, the SOEs should demonstrate and implement strategic plans, business plans, codes of conduct, corporate governance schedules, the register of conflict of interest and the statement of responsibility.
Mr Gantsho stated that some of the SOEs are in the process of developing these strategies and added that in some instances these strategies have not been coherent or coordinated. Further, Mr Gantsho said that the Department was looking at coherent and codified risk controlled plans which SOEs will be required to document.
Ms Dudley asked if there was any legislation in place to regulate the operations of corporate governance as outlined in the presentation.
Ms Msomi pointed out that the strategy for corporate governance is determined by the founding legislation She believed that there was sufficient legislation for corporate governance. Mr Gantsho added that the issue was not so much about legislation but implementation of the existing legislation.
Mr L Montana (Department of Public Enterprises) agreed that there was enough legislation and that now priority should be given to implementation. He also mentioned that there was a need to clarify the role of the Portfolio Committee so those boundaries should not be overstepped. He also observed that the culture of corporate governance should be entrenched within the broader society.
Ms Dudley (ACDP) asked how the Department viewed the oversight role of the Public Enterprises Portfolio Committee.
Mr L Montana said that the oversight role of the Committee was to prevent fragmentation within the SOEs. Mr Montana further explained that not all SOEs fall under the Department of Public Enterprise and that some fall under the Department of Minerals and Energy. He concluded by emphasising the committee's duty to educate their constituencies which, Mr Montana stated, was part of the committee's oversight role.
The Chairperson adjourned the meeting.
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