Questioning qualifications: The importance of good governance

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JIMMY MOYAHA: In light of recent developments in the media and ongoing conversations that seem to crop up time and time again, are the qualifications that individuals hold – and whether or not those individuals are able to hold those offices or their positions – based on those qualifications? I think the conversation goes a little deeper than just a set of qualifications. It speaks to a lot more than that.

Joining me for that conversation now is the chief executive officer at the Institute of Directors in South Africa, Professor Parmi Natesan.

Prof Natesan, good evening. Nice to speak to you again. The last time you and I spoke, we looked at ensuring the competency of those appointed candidates within SOEs in particular. But now I want to look at competencies in general. It’s more than just looking at a director’s degrees or the qualifications that they hold; it’s about due diligence and about good governance.

PARMI NATESAN: Absolutely. Good evening, and thank you for having me. Yes, certainly – the due diligence prior to the appointment of a director, and a non-executive director especially. Because they are not vetted as employees of the entity it’s critical that at least certain areas are vetted. So, as you would for your employees, do certain checks like qualification checks, criminal checks, ID checks, credit checks and all these other things.

It makes sense to do it for your board members as well, considering the big role and responsibility that they have within the organisation.

But even outside of those, those standard checks that are done – or should be done – I think should go much deeper for directors. The role of directorship is a complex one. You’re making decisions that impact on an organisation, and ultimately the stakeholders of that organisation, and therefore it goes without saying that you need to have the necessary knowledge, skills and experience in order to serve as a director. Understanding governance, understanding your role as a director is so important.

Apart from knowledge, skills and experience of course come with it – the whole ethical stance and your whole moral compass. So you’re looking for individuals who will do the right thing no matter what for the entity, and not necessarily for themselves. So those are some of the critical things that need to be considered.

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JIMMY MOYAHA: Prof, how important is it from an entity point of view as well? We touched on the directors and the responsibilities that directors ultimately bear, but the directors also bear different levels of responsibility, dependent on the entity. So for a public entity, for example, there needs to be a greater level of accountability and scrutiny than for a private entity because you’re dealing with publicly invested funds as well.

So surely, it’s not just about the actual individuals that are being appointed, but also in the context of where they will sit in the ecosystem that is our economy.

PARMI NATESAN: Look, I think what you’re saying makes absolute sense. There’s nothing in our legislation at the moment that sort of distinguishes between the two, and requires further in-depth vetting on one versus another. But, having said that, it only makes sense that if an organisation has a large public interest – either because it’s funded by public money or it’s a non-profit there to deliver service to the public, etc, or even your listed companies where shareholding is widely held – the interrogation and vetting of candidates needs to be quite deep.

I know in certain industries like the financial services industry the regulator actually does very intense due diligence before accepting directors who are put forward for the banks and insurance companies, for example.

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JIMMY MOYAHA: Prof, should we be looking at that as a blueprint of sorts to say that we need to have certain checks and balances in place? Yes, step number one; but we also need to do a certain level of due diligence, a certain depth that is required, because, again as you said, of the positions that these individuals will hold.

Regardless of the institution now, should we not improve the systems and, if so, how do we improve them? How do we improve the level of due diligence that’s done and ensure that good governance continues?

PARMI NATESAN: I think there is improvement needed, and it’s not like the recommendations aren’t there because King IV already talks about it where it says candidates’ backgrounds should be independently investigated and their qualifications independently verified. It’s very clear and explicit.

In the most recent case in the media involving questions around the director’s qualifications, unfortunately what was reported this morning by another news outlet was that a number of organisations – on whose boards the specific director served – say that they never vetted her qualifications as they thought it was either not necessary or not a requirement.

I think that’s surprising because it’s clear in King IV that it should be done. How can one determine that it’s not necessary to check or vet candidates before appointing them to a board? It’s a critical position.

JIMMY MOYAHA: Especially in the context of the public interest that lies with certain positions. Obviously within the King IV governance – and other policies that are in place – these are policies that need not only to be implemented, but also educated about. I think a part of this sits in understanding the role and the responsibility that you take on as a director. The reason why policies and structures and statutes like King IV are in place is to ensure, of course, that you as a director have a detailed understanding of what you’re getting into but, also from a company perspective, what they’re bringing in terms of services.

PARMI NATESAN: Absolutely. Many organisations and individuals see governance as just another burdensome compliance exercise and perhaps don’t buy into the substance of it and the purpose of it. If you think about the reputational damage that an organisation can suffer if it is found that one of its directors misled or faked their qualifications, it’s just not worth ending up needing to answer those sorts of questions and face the public and the media.

The more common-sense thing to do is to just adjust processes and make sure that these things are checked prior to appointment.

JIMMY MOYAHA: Hopefully those conditions are met, and the requirements kept in check. Obviously, the governance and the importance of this cannot be stressed enough, and we hope that all those individuals who occupy these positions are properly vetted by the institutions that are looking to employ them.

Thanks so much, Prof. That was Professor Parmi Natesan, who is the chief executive at the Institute of Directors in South Africa, on the importance of good governance within institutions and the importance of ensuring that individuals go through the proper checks and verifications before being appointed.