Dudu Myeni: Delinquent Director Judgement and State Capture at Executive level

Dudu Myeni: Delinquent Director Judgement and State Capture at Executive level

This Non - Executive Director analysis objectively reviews the controversial delinquent Director misconduct judgement passed by the Zondo commission over former SAA Chairwoman Dudu Myeni.

Background review:

Duduzilie Myeni also known as Dudu Myeni was born in Australia and holds primary and secondary school certificates. She entered a Bachelor of Administration from the University of Zululand as formal education into her records but later removed it due to 2 outstanding majors [1]. No other formal Director or Chair qualifications are known for her. It is also not known if she was a registered member of The Institute of Directors (IOD) or the Directors Association of South Africa (DASA). It is widely known that she has a close relationship with former South African President Jacob Zuma and was appointed as Executive Chairperson of the Jacob G Zuma Foundation from September 2008 to May 2020. The government of Jacob Zuma appointed her to the South African Airways Board of Directors in 2009.?

Ms Myeni has held appointments as Board member of the Jacob Zuma Foundation, Vice President of the African Water Association, Chairperson of the South African Association of waste utilities and the Mhlathuze water board, Director of Trade and Investment KwaZulu Natal as well as Chairperson of South African Airways. She was appointed to the Chairperson of the Board of SAA in 2012 following the resignation of eight of the fourteen Board members. It was alleged that she was appointed to the Chair position despite performing poorly as Non -Executive Director on the SAA Board [2].

In 2012 she removed then acting chief executive officer Vuyisile Kona from his position at the airline amid accusations that Myeni organised a security service to spy on him [1]. In January 2014, Six Non- Executive Directors of the state owned South African Airways wrote to the then minister of Public Enterprises Malusi Gigaba of their major dissatisfaction with Ms Myeni’s leadership. However. she was not re-evaluated or removed from her Chair position due to vote of no confidence amongst her peers. Gigaba requested that the airline attend to its management problems and stated that he would ‘deal with Myeni later’ regarding her dispute with the airline CEO. A week later, the Zuma administration removed him from the office of Public Enterprise minister and appointed Lynn Brown in his position whilst keeping Ms Myeni in her Chair role.

In March 2015 South African airways signed an agreement with Airbus as part of the Airline’s turnaround plan to lease five airbuses A330. Later in October 2015 without involving SAA executives, Ms Myeni informed Airbus that the Airline will be re-negotiating the purchase agreement to be an outright sale to an unnamed third party that would purchase the planes of behalf of SAA. This action raised concerns around corruption due to bypassing normal procurement processes and triggered a clause in the original agreement that stated that any renegotiation of the agreement would need to be approved by the SA Minister of Finance. Ms Myeni cited that the reason for the involvement of a third-party rental company was to mitigate the impact of the volatile exchange rates on the running costs of the aircraft. In December 2015, the Minister of finance Nhlanhla Nene refused to agree to the re-negotiation of the purchase agreement with Airbus. He was later removed from his position as Finance minister by then SA President Jacob Zuma and replaced by David van Rooyen. This replacement called a nationwide public outcry and received a strong negative reaction by the international markets. The South African rand plummeted down to 1: 24 to the Great British Pound at this time destroying the institutional credibility of the National Treasury. Due to the strong negative reaction by the international community, David van Rooyen was replaced a few days later by former minister of Finance Pravin Gordan to reinstate confidence in the South African economy.

Director liability and the role and power of the Chair position:

The Chair position of a board of Directors of a company is not formally legislatively recognised but fully acknowledged by legislation. The implication of this is that a Chair cannot be charged?for ethical misconduct and abuse of power in the Chair position but the Director occupying the office of a Chair can be charged for Director ethical misconduct via the breech of the company’s governance charter rules directing the conduct of its Board of Directors.

The alignment and abuse of governance protocols for Chair:

The Chair by virtue of his or her position on the Board of Directors holds the most power, has the ability to influence and sway the decision -making process, then tabling and passing of resolutions. The Companies Act section 73. 5 (e) gives the Chair the power to cast a deciding vote at Board level thus allowing the chair to strongly influence decisions. As such, it is required that the Chair be independent, objective, unbiased to the business of the day and have no conflict of interest declarations, to hold office of the Chair of the Board of Directors.

The Chair position is occupied by the most respected Director and is either elected to the office of the Chair, either by majority vote of the Board of Directors or by Shareholders nomination through the memorandum of incorpation (MOI) document. Typically, a consistent high performing Director amongst the Board of Directors is nominated to Chair position. The Chair of a Board of Directors is accountable to the natural or juristic entity that appointed the Chair. The Chair wields the most power on the Executive Board in that the Chair sets objectives, performance targets and conducts performance appraisals for the Board of Directors. In keeping with the vein of objectively, it is required of the Chair to maintain relations and key oversight over the CEO and executive team’s operational strategy, but not become involved in making operational decisions of the company thereby side stepping the C suit team.

In light of the above mentioned governance protocols for the Chair as Head of the Board of Directors to uphold, it can been seen that Ms Myeni clearly violated basic governance protocols as she worked according to her personal agenda and not objectively managed the business of the day as Board Chair at South African Airways. She clearly used her personal influence with the Zuma administration to remove Mr Gigaba from his position as Public Enterprise minister and replace the Minister of Finance with David van Rooyen so that the 3rd party deal for the sale of airbus could be passed. In addition. she breeched her position as Chair by failing to stand independently aside and exercise only over sight into Operations matters, instead she over stepped into Operations of the airline and made Operations related procurement decisions without consulting first with the Executive C suit team?and getting agreement from her fellow board of Directors regarding the amending of the procurement contract with Airbus to include sale to an unnamed 3rd party.

In March 2017, the Organisation undoing Tax abuse (OUTA) and the South African Airline Pilots Association (SAAPA) brought an application in the Pretoria High Court for an order to declare Dudu Myenu a Delinquent Director in terms of section 162(5) of the South African Companies Act 71 of 2008. The application was based on Myeni’s conduct whilst chair of the SAA Board. During the five years 2012- 2013 and 2016-2017 that Myeni held office, SAA ran up losses of R16.8 billion although it was previously profitable [2].

The delinquency trial was based on leading evidence on two of the cases of alleged misconduct namely the Emirates Deal and the Airbus swap transaction deal. OUTA and SAAPA called six witnesses against Myeni including former SAA executives whilst Myeni was the only witness in her own defence. Her legal argument for defence was based on the team dynamics of the Board of Directors, where she emphatically argued that she as a Director was being charged for delinquency whereas the Board as a team of Directors agreed upon the resolutions which was passed at Board level. As a Chair she could not be charged under legislation but she as an individual Director she was being charged with Director Delinquency. Advocate Carol Steinberg in her closing argument for the SAAPA said that Myeni blocked, delayed and obstructed important initiatives to turn the airline around. She broke the law and flouted basic governance principles [1]. The evidence in court showed a pattern of repeated misconduct, dishonesty, obstruction and interference, improperly inserting middlemen and governance failures. Myeni was declared a Delinquent Director and banned from holding any Directorship position for life by Judge Tolmay at the Pretoria High Court on 27 May 2020. Judge Tolmay commented that she was a Director gone rogue and that she did not have the slightest consideration for her fiduciary duty to SAA. On 15 February 2021, Myeni failed in her attempt to suspend the delinquency order against her and the North Gauteng High Court asked her to formally step down from all director positions.

State Capture at highest executive presidential level, nepotism and wide scale corruption on South African Airways Executive Board

The Zondo Commission was established pursuant to the remedial action taken by the then Public Protector, Adv T Madonsela, in her “State of Capture” Report in October 2016. That Report arose from Phase 1 of an investigation that she conducted concerning certain complaints she had received regarding allegations of improper conduct on the part of the then President of the Republic of South Africa, Mr Jacob Zuma, and certain members of the Gupta family. Acting Chief Justice Zondo was appointed as Chair of the commission on 9 January 2018. The first part of the Zondo commission report extensively views state capture at the executive Board level at South African airlines and it’s associated stakeholders.

The findings from the Zondo commission were that state capture thrived at SAA and its associated companies. [2]. The companies were managed to suit the interests of a select few individuals who captured the favour of the then President Jacob Zuma. In 2016 the Zondo commission instructed Minister Gordhan to replace the entire Board of directors at SAA to ‘mitigate the harm’ that its Chair had caused.

The report presented Ms Myeni as a personal friend of then President Jacob Zuma and due to this influential association, she was strongly favoured and supported by him in her decisions and management of the Board. The Zondo commission report part 1 found that Ms Myeni?was appointed Chairperson of the Board of SAA in circumstances where she was an underperforming Board member. She proceeded, through a mixture of negligence, incompetence and deliberate corrupt intent, to dismantle governance procedures at SAA, create a climate of fear and intimidation and make a series of operational choices at SAA that saw it decline into a shambolic state [2]. Justice Zondo said that Ms Myeni?had operated SAA “under a cloud of fear, intimidation, secrecy and paranoia, when a public entity should be operated transparently and with accountability to the South African people who fund its operations” [2]. He dissected the benefits Myeni unlawfully received from State Security Agency resources, including protection from undercover operatives “trained overseas in counterintelligence strategies and intelligence gathering”.?“This reveals how powerful Ms Myeni was and how close she was to President Zuma. The extent of Ms Myeni’s proximity to former President Zuma is also reflected in her dealings with Bosasa and in relation to Eskom.”?Chief Justice Zondo commented that auditors who were appointed to SAA for the 2012 to 2016 financial years failed to detect any of the fraud and corruption. The internal audit function within SAA was also hopelessly ineffective in identifying or limiting these criminal acts. [2].

IOD and DASA Professional Director training institutions in South Africa

In conclusion it is imperative that the Chair be considered a great custodian of the King Code on Corporate Governance. Directors need to ensure that they are fully informed about the nature and extent of their duties. The judgement passed in Ms Myeni’s case should be seen as a clarion call for current and would be directors to ensure that are well equipped with the relevant knowledge to fully execute all their fiduciary and legal mandates. Directors cannot use the legal defence of collective decision making as a way to evade individual responsibility [3].

Currently in South Africa, there are 2 registered training institutions to develop competent and ethical directors, namely the Institute of Directors?(IOD) and the Directors Association of South Africa (DASA). There is a need to deepen the pool of directorial talent in the country and this is offered by these institutions in 2 routes namely a Certified Director designation and a Chartered Director designation. To obtain these designations, Directors need to acquire all the skills in the Director competency framework and follow a programme of continuous professional development. A certified Director designation allows the Director to sit on SME , NPO and NGP Executive boards. These boards are not JSE listed. A Chartered Director designation allows the Director to sit on any board of any organisation both listed and not listed on the JSE. In addition to the Director training, there are special programs which offer leadership skills to develop Directors into the Chair position. As part of Director or Chair continuous development, these individuals need to be bound by their institution’s code of ethical conduct.

?References:

1.????Wikipedia, Dudu Myeni Biography educational and life story.

2.????Judicial commision inquiry into state capture- Vol. 1: Chapter 1 – South African Airways and its Associated Companies by Acting Chief Justice R. M.M?Zondo.

3.????IODSA welcomes Myeni deliquency ruling, calls for directors to commit to education. 28 May 2020.

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