Zondo Report demonstrates the chair’s vital governance role
On one level, the Zondo Report reads like an over-the-top morality tale about the perils of poor governance. In this morality tale, the villain is frequently the chair of the captured state-owned enterprise.
This is particularly ironic because it is the chair who is supposed to be the apex of the governance structure, the very person charged with ensuring the organisation is run on ethical and effective lines, says Parmi Natesan, CEO, Institute of Directors in South Africa (IoDSA). “When one reads what went wrong at South African Airways, South African Airways Technical, the Passenger Rail Agency of South Africa, Transnet and others, it seems that a chair played a crucial role in either facilitating corruption or actively participating in it,” she says. “The Zondo Report is at once an indictment of these leaders but also a powerful demonstration of how important the chair’s role is—and thus how important it is to understand how chairs are supposed to act.”
The final Zondo Report contains two graphic illustrations of the ways in which chairs can cause damage. In relation to the former chair of South African Airways, the report says: “Ms Myeni knowingly misrepresented to the Minister of Public Enterprises that the Board of SAA had taken two decisions when it had not. Those misrepresentations caused financial losses to SAA. It is likely that her conduct constitutes the crime of fraud.”
In relation to another SOE chair, it states, “Ms Yakhe Kwinana, received payments from JM Aviation around the time that these decisions were taken. The payments were likely kick-back payments to these officials.”
As a leader of the governing body, the chair plays a crucial role in the ability of the organisation to set and realise its strategic goals. The chair should be independent and non-executive. In line with its non-prescriptive approach, King IV does not provide detailed guidance on what the proper role of the chair should be; that has been fleshed out in practice notes created by the IoDSA.
The chair’s core role is to lead the governing body. The performance of the governing body is thus ultimately the responsibility of the chair; conversely, the chair needs to enjoy the confidence and support of his or her board colleagues. As such, he or she is accountable to the board.
“Clearly, an incompetent or unethical chair can compromise the whole governance structure. In that case, though, it becomes incumbent on the board to raise the alarm even if, as in the case of our SOEs, best-practice governance is not followed because of the overwhelming power of the state as the sole shareholder,” she explains.
Given the importance of the chair’s role, King IV took the innovative step of recommending that a lead independent director be appointed in every case, even if the chair is deemed independent. According to Ansie Ramalho, chair of the King Committee, the thinking of the King Committee was that a lead independent was necessary to strengthen the effectiveness and independence of the board. Having a lead independent director offers support for the chair in that the incumbent in this position could serve as a sounding board if called upon by the chair.
At the same time, having the position in place is a mitigation against the possibility of a rogue or domineering chair, says Ramalho. In particular, the lead independent oversees the regular evaluation of the chair’s performance and acts as a conduit between the rest of the board and the chair in the event of there being an issue of some sort between the chair and board.
“One might well imagine that if the SOE boards had a strong lead independent director, there might have been some change of reining in rogue chairs,” Natesan ends. “In any event, a read through of the Zondo Report is convincing evidence that it’s vital to have a good governance structure in place, and that begins with the right chair.”
 Judicial Commission of Inquiry into State Capture Report: Part VI. Vol 4: All the recommendations, p 4, available at Home – Commission of Inquiry into Allegations of State Capture
 IoDSA, “Practice Notes. The role of the chair and lead independent” (22 September 2022), available at https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/562ED5CF-02E8-4957-97C8-D3F0C66A7245/King_IV_Practice_Note_on_Role_of_Chair_and_LID.pdf.View more
ESG – Taking a ‘beyond compliance’ approach. What it means and why it matters
ESG (Environmental, Social, Governance) has evolved from decades of focus on sustainable development and is increasingly becoming a critical business imperative.Continue reading View more
Webinar 29 July: Environmental, Social and Governance and Asset Management
Webinar broadcast: Thursday, 29 July 2021
03h30 GMT | 04h30 London | 05h30 Amsterdam | 05h30 Johannesburg | 09h00 New Delhi | 11h30 Singapore | 13h30 MelbourneContinue reading View more
Has ESG become the new normal for miners and investment?
The expectations and priorities of a modern-day investor in the mining sector have significantly changed in line with global demand for more responsible and sustainable extraction of mineral resources. Environmental, Social and Governance (ESG) standards have firmly established itself across the investment community.
ESG standards are a must-have for investment
Financial evidence suggests that the ability of a mining business to successfully manage environmental, social and governance risks is directly linked to greater return on investment in the long term. Investor perception has moved away from regarding ESG as a desirable but non-essential component to a “must-have” for de-risking any investment decisions.
The industry has evolved in line with this demand and adopted a set of initiatives identifying the main ESG performance standards along with a variety of self-assessment tools to direct the implementation process.
Mining principles evolved to meet these standards
A prime example is the mining principles initiative recently launched by the International Council on Mining and Metals (ICMM). The members of ICMM, which include some of the world’s biggest mining companies, don’t get to choose to which assets these principles apply. Covering 38 areas, including biodiversity, gender, human rights due diligence, labour rights, local content, mine closure, pollution, resettlement and waste, they apply to more than 650 of ICMM members’ assets in over 50 countries. Their implementation by member companies — which account for about 30% of global production of major commodities such as iron ore, copper and gold — will drive performance improvements at scale. The initiative also features the standards related to the disclosure of the site-level validation of progress associated with the ESG issues listed above.
Even though the requirements and implementations guidelines greatly vary between different initiatives, there is clearly a global focus on enhancing ESG performance across the sector. It is important to note that the majority of ESG initiatives out there all point towards a universal need to meet the Sustainable Development Goals set by the United Nations. This link is translated through the ability of a mining company to channel their impact investment and contribute to government revenues that support socio-economic transformation.
ESG investment leads to long-term value
As the access to capital presents an increasing challenging for the extractives sectors, competition for investment will force mining companies to move beyond compliance and to demonstrate the ability to meet ESG standards at an operational level. For example, less than 30% of precious metals projects are currently delivered on time, with the primary reason for delay being social opposition. Furthermore, companies adhering to the high levels of ESG performance are significantly more likely to generate long-term value and are less susceptible to stock price volatility.
The development of ESG standards and widespread engagement of the investment community represents a huge opportunity for an increase in impact investment, and an improvement in the responsible mining practices across the globe. However, if this is to become the “new normal”, we need to see an acceleration of the uptake and implementation of ESG standards, initiatives and best practices.View more