Board appointments at Johannesburg Property Company questionable – Institute of Directors

The Institute of Directors is the latest entity questioning the board appointments at the Johannesburg Property Company, where the MMC for economic development reportedly unilaterally appointed a receptionist, a cashier and a person without matric.

The institute said these individuals that were appointed to the board, on the surface, do not possess the necessary skills to govern a municipal entity with a property portfolio worth an estimated R8.7 billion.

Many of the buildings the company manages have reportedly been hijacked and the devastating Albert Street fire that claimed 77 lives was apparently one of them.

“The company’s board bears ultimate oversight accountability for the inadequate management of its valuable property portfolio properly and it requires no stretch of the imagination to assume that the possible lack of skills could lie at the heart of the problem.

“Media reports also suggest that the MMC treats the company as a private fiefdom where political cadres are appointed, based presumably on their loyalty and political importance and not necessarily their skills as directors,” said the institute’s CEO, Professor Parmi Natesan.

“The sad state of municipal entities across the city and indeed the country, shows the devastating consequences of flouting robust nomination processes for board and senior executive positions.”

The Citizen asked Nthatisi Modingoane, deputy director of communications at the City of Johannesburg for comment, but has not received any at the time of publishing this article. Any update will be included once received.

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Public sector must appoint competent boards

Natesan says the institute has repeatedly said public sector entities face particular challenges when it comes to appointing competent boards. Government, as the sole shareholder, has not been seen to follow best practice in this regard.

According to King IV, directors should have the correct mix of skills and experience to discharge their legal duties. A robust and transparent nomination process that includes in-depth vetting of candidates should be followed.

“Without such a nomination process, the board members can hardly act competently and independently to fulfil their legal duties, which are to the company and not to whoever appointed them,” Natesan says.

“I wonder if these directors realise that they can be held personally liable for any untoward decisions they make. Modern-day directors need not only business and sector skills and experience, but also finely honed governance expertise.”

The performance of local government generally, including municipal entities like the Johannesburg Property Company, has a direct bearing on service delivery and therefore on the most vulnerable sectors of society, she says.

The Auditor-General’s Consolidated General Report on Local Government Audit Outcomes 2021-2022 – an annual report on audit outcomes for entities governed by the Municipal Finance Management Act – notes fruitless and wasteful expenditure continues to balloon.

It doubled in 2021-2022 to R4.74 billion, plus an estimated R5.19 billion in financial loss from non-compliance and fraud.

Board appointments not necessarily made to meet entity’s needs

Natesan says it is imperative that municipalities and municipal entities are properly governed and the Auditor-General highlights the need for competent people to be appointed for governance to be strengthened.

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“The Johannesburg Property Company is just one of many municipal entities perceived to be, and often are, underperforming, with one of the reasons for that underperformance reasonably assumed to be that board appointments not necessarily made with the entity’s needs in mind,” she says.

“These entities need proper governance and strong oversight or they are likely to fail to do their jobs, with disastrous consequences for society and our country.”

Natesan said board members must have very specific technical knowledge and experience of applying that knowledge in practice in the boardroom. They must also have certain personal attributes and behaviour to function effectively as directors.

These are all contained in institute’s Director Competency Framework that underpins its SAQA-registered director designations.

According to the framework, directors should have or develop integrity, competence, responsibility, accountability, fairness, transparency, courage, the ability to read people and situations, critical analysis and synthesis of information, decision making, strategic and visionary thinking, constructive challenge and conflict resolution, effective communication, independence of mind and commitment to personal and professional growth.

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Technical knowledge required

The technical knowledge that directors should know and apply include organisational ethics and culture, corporate citizenship and sustainability, strategy development, financial literacy and reporting, integrated reporting and thinking, legal duties of directors, board and committees, composition of board and committees and board performance evaluation.

This knowledge is alleged to be missing among the current board.

According to the Johannesburg Property Company’s integrated annual report for 2021/2022, the board chairman is paid R16 000 and board members R12 000 per board meeting.