Eskom Board probity practice of flagging, declaring and recusal – is it a natural guarantee for zero manipulation?

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Clyde Ramalaine

AfricaNews 24-7 on Thursday broke a story of Eskom having suspended awarded ICT contracts since it instituted an internal investigation following allegations of kickbacks levelled against some of its senior employees. Eskom has since confirmed that it is investigating the issued contracts on the back of allegations of impropriety from a procurement process and “governance perspective”. According to this report, several employees at the power utility are now suspended, while Jay Pillay, the Chief of Procurement at Eskom was served with a precautionary notice. Gijima, a contract beneficiary who submitted its bid for the R2bn worth of ICT contracts in November 2017, is now speculated to be involved. Gijima’s contract is further clouded with the fact that its former director Sifiso Dabengwa who resigned effective January 31, was appointed to the Eskom board with the effective date 22 January.

The company responded to a set of questions explaining when Dabengwa was appointed as director of Eskom’s board on 22 January 2018, he informed the company and requested a conflict check regarding any Eskom business with Gijima. Eskom remonstrates that Dabengwa, at the time of the awarding of the contract, already had resigned from the Gijima Board and though he was no longer a board member, opted to recuse himself from the Board decision that awarded the lucrative contract to his former company.

Eskom’s response: “It must be noted that at this time he had already resigned from the board of Gijima but saw it prudent to still recuse himself. We believe this speaks to the seriousness with which the new board and its members take good governance practices. The said tender was still at negotiation phase by the executive and as such, the board decision was purely to grant management authority to continue negotiations and is still subject to further internal approvals, including final Board approval of preferred suppliers,” said the company. Gijima. This is considered commendable by Eskom since its policy and praxis really only requires board members to flag, declare and recuse themselves from meetings of the board where companies they may have any interest in seeking to do business with Eskom.

Eskom’s representative further explains the typical conflict scenario with the following words: “There would only be a conflict in the event that Dabengwa was party to a discussion or decision relating to Gijima in his capacity as an Eskom Board member. All interests of board members are subject to a probity check where members who have interests in companies that are potential suppliers to Eskom are flagged. At every board meeting or decision of the board, members are required to declare their interests again in relation to specific items on the agenda or any matters for approval and would have to recuse themselves should there be any potential conflicts.”

This explanation on the part of Eskom portrays a Dabengwa going the extra mile for recusing himself, despite the fact that he was no longer a Gijima director.

Let us then hear what Gijima the company that in November 2017 submitted a bid for the R2bn worth of contracts to Eskom. At the time Dabengwa was a director and therefore active. We know he effectively resigned from January 31, 2018. This was after he was appointed to the Eskom board.

According to Gijima: “Mr. Dabengwa resigned from the Gijima boards to avoid any conflict of interest when he learned from Gijima that it is already doing business with Eskom. It must be noted that there is nothing that prohibits Mr. Dabengwa or any board member from being a board member of Eskom simultaneously with an appointment to the board of Gijima or any other company provided that the director in question, being a responsible person, declares a conflict, if any, to his fellow board members and recuses himself whenever a matter is being adjudicated by the board or relevant committees.”

We will attempt to make sense of the Eskom and Gijima’s responses to appreciate if corporate governance is served in the true sense with the practice of periodic flagging, declaring and recusal that occurred in the instance of Mr. Sifiso Dabengwa.

While it is accepted that King 4 places tremendous responsibilities on the part of boards and members, as to how these must function independent of all forms of influence, we all know that this is the idyllic world and not the practical experience.

The responses of both Eskom and Gijima relayed to AfricaNews 24-7 as to what constitutes for a conflicted context and how that in an Eskom setting is understood in practical application sense of flagging, declaring and recusal proves rather interesting. Conscious of the ongoing Eskom investigation, we attempt to ask questions in particular to the explained practice of probity for Eskom Board members. We ask as to the practice of “overboarding” and the recycling of the same faces for boards in SA corporate sector threatening Governance? We ask if this practice is open to manipulation while it may not be illegal.

1. Can “overboarding” and recycling of the same faces threaten corporate governance?

It is perhaps a good place to start with, is there a case to make of the claims of a practice of recycling the same faces in SA’s corporate landscape and what this potentially may mean for corporate governance in general?

It is a given that the 24 years of democracy, in which liberation struggle leaders and their families came from abject poverty to political and economic power, a trend was set in the corporate sector space of appointing the same people into boards, usually less for their skills but for the buying of favour from the political elite. We know that presidents, cabinet ministers their spouses and families continue to benefit from this practice since the days of President Mandela. To cite one example, at one stage the late Eric Moloi, a founding member of Kagiso Trust, held more than 40 board seats. There are many examples similar to Molobi we can cite.

The SA reality dictates, serving on boards became a business for some and a means to position oneself to access more economic opportunities for either self or kin. In the USA activist – investors and governance experts warn of a practice dubbed “overboarding”— the notion that individuals on numerous boards lack time to adequately oversee or meaningfully contribute to a company’s management, especially during difficult periods. We have seen how in South Africa “overboarding’’ is common with the same faces with political proximity is recycled to sit on many boards. The case can be made that Eskom is in a difficult time and warrants the undivided and full attention of its Board.

We in South Africa have seen “overboarding’’ practised as a common occurrence with the same faces recycled in both the corporate and State-Owned Entities environments. Usually, appointments share a proximity to political power. While in the USA we are seeing a cracking down on the number of boards an individual may occupy given the fact that directorship increasingly has become a job, in SA the practice continues unabated. In a move to curb “óverboarding” the USA is seeing major institutional shareholders, including BlackRock, the investment arm of JPMorgan Chase and the California State Teachers’ Retirement System, oppose the re-election of directors with more than four spots.

There is, therefore, a case to be made that governance as a vital practice in a corporation is open for compromise with this practice of “overboarding”, and it is further exacerbated if the same names and faces are replacing each other across the spectrum of what is considered the South African corporate society.

2. Is there a challenge with the good faith articulated practice of flagging, declaring and recusal as sum total to ensure governance adherence?

The challenge with this articulated policy and practice resonates in the fact that it appears this practice of probity places the absolute focus on the periodic flagging and declaring of a conflict of interest where necessary, with recusal as its ultimate repository for effective governance, as it relates to the decisions of the board on the matter where a board member is regarded as conflicted for interest in the supplier that seeks to do business with Eskom.

The practice it appears is made in absolute good faith with the conviction and underlying guarantee that one’s presence will influence, but one’s absence will not influence the outcomes of the Board.

There appears to be an over-reliance that one’s absence will not influence the outcomes of the Board. Recusal, therefore, is assumed to guarantee a transparent process that will objectively determine an outcome. While recusal may assist the process of engaging the subject before a Board where one may be conflicted, it does not annihilate the actual influence of the absent board member may have in that very sitting.

On another level perhaps, a point to make here is, the advanced recusal as practised in Eskom inadvertently admits the fact that Board members can be influenced. To suggest being absent guarantees one not influencing fellow board members in whichever way to decide in one’s favour is also a matter of challenge. It can be postulated that a board member does not necessarily have to be present to have a decision in favour of his/her associated company, or to ensure his/her interest is taken care of.

3. Is the current probity practice of Eskom immanent in flagging, declaring of interest and recusal immune to manipulation?

Given the nature and size of Eskom in its business description, it becomes highly probable that the entire fourteen Eskom team made up of executive and non-executive thus constituting the Board to varying degrees may be conflicted for being directors of others entities that all to varying degree seek or may seek to do business with Eskom.

What then are the chances that there may be personal agreements, off the record agreements and self-serving covenants among board members to take care of each other where necessary – when conflict is declared and one is to recuse oneself? We cannot assume that this possibility is far-fetched or completely impossible. This is no reflection on any of the board members of Eskom but raised as a potentiality in an environment and space of Africa’s biggest power utility.

The reality of personal gain in a greedy capitalist society where the gap between the rich and poor daily expands unabated in a sense confirms a practice where the elites regardless of black and white identity configurations are known to hunt in packs to protect self-interest and control of sectors.

We have seen and lived through that in many of our industries, remember the corruption of the major construction companies that in sophisticated means agreed to defraud the state to benefit from tenders extended by advancing each other.

We have lived through epochs where the Eskom board proved at odds with the stakeholder representatives, namely the minister. Parliament entertained investigations against Eskom with the Gupta claimed state capture frame and summoned former minister Lynne Brown to explain herself against claims levelled against her by the Eskom board chairperson. What makes the current Eskom Board Are immune to this type of influence from that vantage point? Will this board be at odds with its stakeholder minister and what will be the implications for Eskom, Board and the minister? Or do we assume this era is immune to that type of conflict?

4. Some Eskom Board may members have colossal personality extended from political proximity?

On another level, what happens where the conflicted board member has a huge personality by extension for being close to political power, be that the Minister or President ultimately responsible for his/her appointment? Are fellow board members naturally immune to this type of influence from political power?

How does the Eskom Board, understood in its individual members, engage and manage in some instances and where known very close relations with those principally responsible for appointments to the Board? In this instance, we can include the minister and the president among others. If for example Dabengwa and President Ramaphosa share a long-standing business relationship framed in personal economic interest, how does that play out where opportunities for gain are very real, as in Eskom? Taking cognisance of the words of the EFF leader Julius Malema, the President and Sifiso Dabengwa share very close relations. Hence, Dabengwa may be an Eskom Board member, present with a colossal political personality for his proximity to the president of the country.

What happens when the Eskom Board may be at odds with its principals? What happens when the board are at odds with its principals? We have lived through epochs where the Eskom board was at odds with the stakeholder representative, namely the minister. Parliament entertained investigations against Eskom with the Gupta claimed state capture frame and summoned former minister Lynne Brown to explain herself against claims levelled against her by the Eskom board chairperson.

5. How does the Eskom Board deal with projects where its principals have interest?

How does the board deal with situations with projects, where the principals understood in frames of the minister or president their families and friends may have direct and indirect interest in entities that seek to do business with Eskom? Is good faith good enough?

Conclusions:

§ Eskom’s articulated policy for conflicted board members appears to over-rely on a good faith combination of periodic flagging, declaring and recusal and is not necessarily watertight to ensure corporate governance is adhered to. It warrants ensuring corporate governance is not merely ticking the proverbial box exercise.

§ Dabengwa’s appointment, therefore, may present a compromise, since he was part of a company, Gijima, that bid and eventually won a stake in the lucrative R2bn worth ICT contract, which he resigned from to join Eskom and though he may have recused himself from the decision the Board took, there are those who argue his proximity to the president is not comforting.

§ Dabengwa’s closeness to President Ramaphosa places him in a position of being a board member with a colossal political personality for his known proximity to the president.

§ Eskom is correct for having launched an investigation on the ICT contract claims.

Our discourse is replete with claims of how SOE boards are vulgarised for political and economic interest. Since the assumption of previous Eskom, Denel, SAA, Transnet board members are made as having been puppets for those who appointed them, essentially working for the interest of those who exacted them an office of board membership, what exonerates the new SOE boards to equally bow to political power and economic interest of those who appointed them in similar claims of puppets? Or should we naturally assume the current board is exempted from such influence because we still believe in SA the sophism of natural demons and angels?

In our SA political environment of toxic levels of testosterone and enlarged egos of some cabinet, ministers it will not be long before we will hear Minister Gordhan accused of his own political agenda with his approach to SOE board appointments.

Clyde N. S. Ramalaine
Political Commentator & Writer Chairperson of TMoSA Foundation