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After the Bell: Directorial independence should be a lot more than a state of mind

After the Bell: Directorial independence should be a lot more than a state of mind
Kgomotso Moroka, non-executive director at MultiChoice. (Photo: MultiChoice) | MultiChoice City. (Photo: Lubabalo Lesolle (Luba) / Gallo Images | Jim Volkwyn, independent non-executive director at MultiChoice. (Photo: MultiChoice)

The Institute of Directors last week took aim at MultiChoice because not one, but two of its ‘independent’ directors were also providing consulting services to the group.

Here is a situation to consider: you are at a board meeting and a legal issue comes up. One of the board members suggests that the board should get legal advice on the issue. You are another board member, a lawyer, who says you know just the person who would do a good job providing said legal advice. Yes, surprise! You! 

What does the board do? One moment it was discussing the company; the next moment it’s receiving a heavyweight pitch from a fellow board member. Let’s say, to make things more complicated, you are an independent director. Because directorial independence is such a hallowed notion in SA — as it is around the world — and because the idea is so rigorously applied, there is no conflict of interest. Why, it’s like … magic.

But if you keep on giving legal advice to the company, are you in fact independent? Now you are a service provider, so obviously you are independent to the extent that your independent advice doesn’t affect your independent contract. Fortunately, because this issue presumably comes up sufficiently frequently, there is a King Code rule on the issue. The code does not bar directors from providing services to the company, but the guideline is that these services should really be of an insignificant, ad hoc nature.

None of the above is theoretical. The Institute of Directors last week took aim at MultiChoice because not one, but two of its “independent” directors were also providing consulting services to the group. And it’s even more embarrassing than that for MultiChoice because it seems it scrapped the consultancy services of one of the directors (who happens to be a black woman) and kept the advisory services of the other director (who happens to be a white guy).

I am not making this up.

No less a person than Ansie Ramalho, who is the current chair of the King Committee, pointed out, however, that while both service contracts were acknowledged in the annual report, both maintained their “independent” director specification. But, Ramalho also told us that a service contract with one of its directors, Kgomotso Moroka, had been terminated. Moroka had been providing consulting services to the company, for which she was remunerated R1.5-million for the year.

Another of the “independent” directors, Jim Volkwyn, who is listed as the lead independent director and the chair of the remuneration committee, was also providing “advisory services” to the company. He was earning R5-million a year, and that contract had not been terminated.

“Labelling a director as independent signals to the users of the integrated report that the director is free from any relationship and interest that may affect decision-making,” Ramalho said. She noted that MultiChoice’s Integrated Report for 2023 mentioned that legal opinion was taken in maintaining Volkwyn’s classification as independent. 

But, she said, “It is hard to see what the rationale would be”, and added, “It is arguable that neither of these two directors should have been categorised as independent.”

I contacted MultiChoice and the group executive for corporate affairs, Collen Dlamini, drew the short straw and sent a written explanation to me. King IV is clear, he said, that an independence assessment must be undertaken comprehensively and on a substance-over-form basis.

“Whether a director is providing advisory services is only one consideration and is not by itself decisive — all relevant factors need to be considered holistically,” Dlamini said.

The decision to terminate the legal consultancy services with Moroka had been mutually agreed upon, and she remains on the board. Volkwyn’s consultancy agreement was “of a materially different nature”. His deep strategic insights and understanding of the media environment, in particular major strategic shifts, were “invaluable at a time when MultiChoice is transitioning from a traditional, linear pay TV platform to a broader ecosystem of consumer-based services”.

The board was comfortable that the consultancy agreement should continue and accepted some more independent legal advice that it does not affect his categorisation as an independent non-executive director, Dlamini said.

Well, you know, maybe. But it looks pretty questionable to me. By all means, let me (or MultiChoice!) know what you think. DM

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