Fiduciary responsibility

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Some lawyers are again trying to get around the law. There is a campaign in some circles, legal included, to dilute recent legislation surrounding the duties and responsibilities of company directors.
The new Companies Act and pending amendments to the Competition Act will hold company directors criminally and civilly liable for certain transgressions.
A lawyer recently opined in a newspaper column that this terrible state of affairs would drive out good people. He argued that these more onerous measures would make fit and proper persons more reluctant to become or remain company directors.
I do not believe this will be the case. Indeed, the line of argument followed by the lawyer is also downright insulting. The necessary implication is that the “good people” he is seeking to protect are crooks or at the very least are planning to sail close to the wind. Surely that is not the case!
The planned changes to the Competition Act, for example, plan to hold accountable company directors and managers who fix prices. South Africa has had a spate of such scandals with the authorities imposing massive fines on the bakeries, pharmaceutical and chemical companies concerned. But these were ultimately paid by the shareholders (lower share price and reduced dividends) and consumers (higher or stagnant prices), not by the actual connivers.     
In the same way, the changes introduced by the Companies Act will only affect the rats, those who knowingly and willingly betray their fiduciary responsibilities. That can only be good.  
Walking the walk
A more positive development is steps by government from talking the talk to walking the walk (versus talking the walk) on fighting corruption, including tender rigging.
Business Day yesterday reported Gauteng Premier Nomvula Mokonyane has vowed to introduce tougher measures against corrupt public servants “and is punting criminal charges against them”.
About time! The Public Finance Management Act has been on the statute books since 1999 – a decade this year – and its provisions to hold bad bureaucrats accountable have hardly been used. In addition, if one wants to be old fashioned, there is the common law crime of fraud.
Awarding tenders to companies in which you – or family or friends – have a stake in and will benefit from is certainly a conflict of interest. Not disclosing that interest can create misrepresentations that could cause the state material harm. In other words, it is fraud at first glance.
           
The Business Day adds that if Mokonyane`s “proposals are adopted, it would be the toughest action yet taken against public servants”.
Business Report last month noted that Auditor General Terence Nombembe had told the Standing Committee on Public Accounts (SCOPA) that about R600 million had been paid to firms in which state officials, or their spouses, had financial links. Neither he nor SCOPA could find no evidence of any disciplinary action against any official and “no explanation was forthcoming on why no action had been taken so far”.
 
Public Service Commission chairman Ralph Mgijima briefed SCOPA this week that at least 300 high-ranking civil servants, directors or above, have repeatedly failed to disclose business interests to the state.
Reporting on the matter on Tuesday, Business Report quoted Mgijima as saying it was a concern that such senior managers – including several directors-general – “displayed a total disregard for the disclosure regulations.”
SCOPA chairman Themba Godi has previously accused directors-general “of neither answering questions nor taking responsibility and action against offenders.” But why would they, considering that some are personally involved and that none are incentivised to stamp out this practice? 
 
Business Report Wednesday quoted Godi saying Parliament should consider imposing a permanent ban on employment and even shareholding in companies doing business with the state by bureaucrats or former officials.
“It has been suggested that the Public Administration Management Bill, being prepared by the public service and administration department, should prohibit directorships for public officials in a company doing business with government.
“A R1 million fine for individuals guilty of resigning and taking up posts with companies to which they gave tenders as senior state officials has also been proposed,” the paper added.
This would be a good start. Locking a few up, giving them “custodial sentences” as it is properly called, will be an even better incentive. It could even have the added benefit of convincing public works and prisons officials to improve conditions in our overcrowded jails if they – or their friends – have a chance of residing there.