SA’s boards need non-executive directors with right mix of skills and financial expertise

South Africa’s boards need to have the right mix of skills and financial expertise in the wake of new company law requirements and corporate governance practices. PwC’s recent sixth edition of ‘Non Executive Directors’ Practices and fees trends report’ shows that South Africa’s risk landscape is undergoing change in the aftermath of the recent global economic uncertainty.  Risk is gaining focus as a critical corporate governance consideration.
Gerald Seegers, Director of Human Resource Services at PwC, Southern Africa, says: “The corporate landscape is being reshaped by financial and regulatory reform and the implementation of governance principles. Pressure and challenges are mounting on South Africa’s non-executive directors with increased reputational risk, more time commitment and regulatory challenges.”

The growing accountability of non-executive directors under the new Companies Act and the King III guidelines means that directors are taking on fewer roles. South Africa needs to identify and develop talent and skills for the foreseeable future, says Seegers.
“Best practice now places more emphasis on boards taking into account objective criteria when appointing directors.
“Boards need individuals with a combination of skills and experience. They also need to be aware that the combination changes over a period of time.”

He points out that in some international jurisdictions, such as the UK, studies were conducted to evaluate the role of boards in the business failures that occurred in the aftermath of the global financial crisis. In the UK it was found that board conduct had in many instances been below par and responsible for poor risk management and strategic misjudgements.
The implications of these findings are that the selection procedures for non-executive directors need to be redirected to identifying individuals who not only possess key experiences, but also exhibit behaviour competences, appropriate to effective board performance. “Directors and officers who breach the law, or who breach their fiduciary responsibilities to the companies they represent are personally liable for the losses they cause. This personal liability can in fact be unlimited” says Seegers.

The study sets out a number of suggestions and recommendations that the board should have regard to when considering the selection and appointment of non-executive directors. For instance, the board should search the available market of non-executive directors rigorously and go beyond the normal pool of candidates. The board should also ensure that candidates have the required business skills and experience. Furthermore, the board should be wary of appointing ‘professional’ non-executive directors who sit on a number of boards and are not able to devote sufficient time to their functions and duties. It is also not desirable to allow non-executive directors to sit on the board for beyond a recommended term of three years – this should only be applied in exceptional circumstances.
An annual board evaluation should be conducted either internally or using an outside service provider to benchmark against best practice.

“Developing board talent is an on-going process,” says Seegers. “There needs to be a focused plan in place to identify individuals of a high calibre. In addition to an ongoing-development plan, there also needs to be a succession plan in place.”
A board must be robust, independent and representative. Furthermore, one of the many challenges facing boards is to continually identify and mitigate risks, he adds.
“Given the heightened levels of risk and transparency, non-executive directors will be required now more than ever to focus on their responsibilities and engage in a considered and constructive process to discharge those functions and responsibilities,” concludes Seegers.