By Chamwe Kaira
August 1, 2013

DELOITTE & Touche, in a report released yesterday on governance, said it was worrying that chief executive officers or managing directors of State Owned Enterprises (SOEs) who have been suspended or dismissed have been offered compensation by the boards of the companies.

“A disturbing trend we have seen in the SOE sector in Namibia is the number of CEOs/MDs who have been put on suspension or dismissed in the last two years. What is most worrying is that a number of these CEOs are offered compensation by the boards. The question that arises is whether formal performance evaluations and performance management processes are instituted before these suspensions,” the report. [EXPAND Read more]

Deloitte said this should be viewed against good governance practice as stipulated by the Companies Act 2004, which in Section 235 states that a company must not make payments to any director as compensation for loss of office unless full particulars have been disclosed and the payment has been approved by special resolution of the company.

The report recommends that employment contracts should not commit companies to pay termination arising from an executive director’s or CEO’s failures. The King Report on Corporate Governance is a ground-breaking code of corporate governance in South Africa issued by the King Committee on Corporate Governance.

“Where termination benefits are paid to executives, it is usually for breach of contract by the company through the directors who suspended or dismissed the executive unprocedurally or unlawfully,” Deloitte said.

The report said in Namibia, especially in the SOE sector such actions made by directors have never been debated in the context of the liability of directors.

It is accepted that a director of a company is held liable for any loss, damages or costs sustained by company as a consequence of any breach by director of his duties, including the duty to act with care, skill, experience, intelligence and honesty to the advantage of the company, the report said.

“The intention of the legislature is clear, to encourage directors to act honestly and bear responsibility for their actions. The question has never been asked whether the actions by the directors in suspending or dismissing a CEO unprocedurally or unlawfully is reckless and instead of the company paying the suspended CEO, if the directors should personally be responsible. It is unfair that the companies/SOEs should be held liable to pay for the reckless actions of individual directors,” Deloitte said.

“Our aim is to be a catalyst to discussions on governance practices in the country. We believe that strong governance structures underpinned by strong boards of directors providing guidance and monitoring to management teams and strong moral codes that encompass honesty, transparency and fairness are a necessity,” said Vetumbuavi Junius Mungunda, Regional Managing Partner of Deloitte Southern Corridor.

The report said another matter requiring caution is the proliferation of SOEs in the last five years. From only 42 in 2009, this has now grown to 72 SOEs at the end of May this year, the report noted.

“SOEs should only be established for key infrastructure and service industries such as water, energy and development financing. They should exist only where particular basic services required cannot be provided by the private sector as result of significant infrastructure and capital requirements where these services are of critical importance to the well being of all citizens. This proliferation of new SOEs and the number of SOEs should be reviewed against the key criteria of whether these SOEs are providing essential services and products and which the private sector cannot or is not providing,” the report said. [/EXPAND]