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Boards need to be balanced between knowledge, skills, experience, diversity and independence

Boards need to be balanced between knowledge, skills, experience, diversity and independence

African boards should look carefully at King IV’s guidance on board composition and director independence rather than simply trying to impose a one-size-fits-all rule, according to Richard Foster CD(SA), a governance advisor, professional non-executive director and Institute of Directors in Southern Africa (IoDSA) facilitator.

For instance, an overemphasis on independence can actually rob boards of institutional knowledge and experience.

The issue of director independence recently hit business headlines with no fewer than eight members of the Comair board resigning in the past year. The departure of at least four of them has been linked to concerns about their independence expressed by Bidvest.

“Principle 7 of King IV was carefully constructed to indicate that optimal board composition required a balance to be struck between knowledge, skills, experience, diversity and independence.
Independence has to be seen within the context of the total composition of the board and its ability to achieve the goal of good governance,” he says. “King IV”s approach is pragmatic and outcomes-based and does not lay down a fixed rule that no director can be considered independent after a nine-year tenure.”

By contrast, the governance codes in the United Kingdom and certain countries in the European Union both prohibit directors from serving longer than a nine-year term.

King IV specifically states that independent non-executive directors may serve for longer than nine years if a vigorous assessment is conducted annually to establish that the director “exercises objective judgement and there is no interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to influence unduly or cause bias in decision-making” (Recommended Practice 29).

“The litmus test must always be the individual director’s contribution to the board, not his or her length of service,” Foster argues. “By the same token, a wholesale rotation of the board unless particular circumstances dictate risks losing institutional memory, which in turn could compromise the board’s ability to govern effectively.”

Another consideration is that long-tenured directors can actually make a positive contribution to the organisation’s performance. Research shows that in the United States, where there are no explicit term limits for directors, 24% of independent directors have “continuously served in the same firm for fifteen years or more”. The research shows further that firms with one such long-tenured director “exhibit superior performance, a lower risk of outside litigation, and higher disclosure and information acquisition.”

Foster explained that there are no hard-and-fast rules. Some directors can retain their independence over many years, while others remain valuable but might need to be reclassified simply as ‘non-executive” over time.

Given the concern that many institutional investors feel about the independence of non-executives, Foster says that boards should take steps to evaluate the independence of long-serving directors rigorously and to communicate both their methodology and the reasons for their conclusions.
“Disclosure is one of the pillars of King IV because it supports the imperative to apply the practices, not for their own sake, but to achieve the outcomes outlined in its 17 Principles,’ he said. “Having a good succession plan in place is further evidence of ongoing and meaningful evaluation, as are structured opportunities for key institutional shareholders to meet with independent directors.”


Caption: Vikeshni Vandayar, Executive: Governance and Corporate Services at IoDSA, said that the Institute is currently developing an online tool that organisations can use to probe the independence of their governing bodies. “Assessing independence is part of our board appraisal process, but we have realised that there is a need for a standalone product to guide boards. There are many dimensions to independence, and they are affected by the legislation and governance codes that apply.”


 

About The Author

SADC Correspondent

SADC correspondents are independent contributors whose work covers regional issues of southern Africa outside the immediate Namibian ambit. Ed.

Following reverse listing, public can now acquire shareholding in Paratus Namibia

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20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.