Principal secretaries should not chair any commercial entities or budget dependent organisations |23 January 2018

As the government’s commercial entities and budget dependent public bodies play a vital role in advancing government’s policy priorities and objectives in providing valuable services at ‘arm’s length’ from the government with varying levels of autonomy, and given the importance of arm’s length operations from the main administration, principal secretaries should not chair any commercial entities or budget dependent organisations.

The Ministry of Finance, Trade and Economic Development has outlined this in its remuneration policy and framework on fees for executive boards which it said is to contribute towards strengthening the governance of the boards through a more transparent and accountable manner in board remuneration.

To that effect a remuneration policy and framework has been set up to provide the executive with a standard approach to the remuneration of board members for both government’s commercial entities and budget dependent public bodies.

Commercial entities range from big organisations employing a large number of staff and administering millions of public money in terms of assets and operating budget, and managing risks in a business model. Commercial entities operate in a complex and challenging environment; operating in unstable financial markets that often result in lower returns on investments while under pressure from government to contain costs and operate efficiently.

The framework is part of the government's wider reforms to governance arrangements for all its executive entities.

The policy objectives are a board, of either a commercial entity or a budget dependent public body, is set up to govern the entity, through powers, duties, and responsibilities delegated to it, or conferred on it, by its own legal instrument. The board makes decisions about the entity's operations, matters that are detailed in the organisation's Act.

“Being appointed to a board must be seen as part of one’s public duty and hence the fees are symbolic rather than an economic reward to board directors. Furthermore, so as not to act as a detriment to the work load of officers serving on boards, Schedule 2 Section 23 of the Public Enterprise Monitoring Act 2013, shall apply, and to maintain consistency in the framework the same will apply to budget dependent bodies. A full time board director, such as a retired executive, will not occupy memberships in more than five boards; one individual cannot chair more than two boards at the same time; and one individual employed by government cannot chair or act as an ordinary board member on more than three boards at the same time,” the ministry explains.

To determine the rate of board fees for commercial enterprises, the ministry has said a base rate of R1,000.00 per sitting has been adopted. Therefore, the total base of 8 hours R1,000.00 = R8,000.00 has been set as the maximum fee that a board should pay. However, board members are not expected to be paid this full rate in view of their public practice.

“To determine the base rate of board fees for budget dependent organisations, the average basic salary of a chief executive (R38,109 on the PSST April 2014) is used. A percentage of the CEO’s base salary is set as the fixed fee, for the chairperson and on a diminishing rate for the other board members,” it says. And the rational being, that a budget dependent public body needs its board to fulfill certain essential roles and tasks and whether this takes the meeting up to two hours or more is not important so long as the job is done properly and effectively; hence board members receive compensation for their position on the board; their skills which got them appointed.

With regard to the remuneration policy objectives, they are aimed at recognising the importance and professional nature of the differing board work and levels of responsibility; attract qualified individuals to serve on these boards; and provide an affordable and sustainable framework to ensure a consistent and transparent approach to paying out board fees.

The board of directors has the responsibilities to ensure that the entity is governed and operated diligently, efficiently, transparently and safely, and members are to provide their knowledge and skills to administrate on organisational priorities and governance concerns in the exercise of the entity’s statutory powers and functions.

“The board of directors has a collective responsibility for the proper conduct of the entity’s affairs; the principal duty of the board is to govern the entity to which they have been appointed, performing oversight management, giving strategic direction, evaluating strategy and the implementation of government’s policies. It is also their responsibility to ensure that the requirements of propriety, regularity and value-for-money are met in its use of the entity’s resources to attain the entity's mission and goals,” the ministry explains.

As to expectations directors are expected to invest the time and effort necessary to understand the entity’s operations and procedures, strategies and challenges, and understand the policies of government related to the operations of the entity.

The framework specifies how the board members of government’s commercial entities and budget dependent public bodies are to be compensated for their position on the board (their skills which got them appointed. It also aims to ensure a consistent, equitable and fiscally responsible approach to payment of board fees to board chairs and members. It includes a grouping structure, which categorises different types of boards and committees.