The judicial commission into the Public Investment Corporation (PIC) has made far-reaching findings on the governance of the state-owned asset manager, recommending measures to insulate it against political influence, in particular that it should not be chaired by the deputy minister of finance.
It is also recommends that trade unions and depositors — such as the Government Employees Pension Fund (GEPF) — do not sit on the board and that board members are not selected through a public process in parliament but on the basis of skills and experience.
Evidence at the commission, which probed several large transactions by the PIC and looked into governance and the role played by top executives and the board, illustrated that abundant opportunity existed for political influence in decision-making.
Since the late 1990s, convention has been that the chair of the board fell to the deputy finance minister. The convention was not prescribed by law. But in March 2019, parliament passed an amendment to the PIC Act to make it binding that the board would be chaired by “a deputy minister”.
The amendment also made provision for representation of constituencies on the board, for parliament to process board nominations and for full disclosure of all investments, particularly those in unlisted entities, to be disclosed annually to parliament.
The changes came out of growing pressure from MPs, both from the opposition and from quarters within the ANC, for better transparency around the PIC in light of several reports about dodgy investments.
But the commission has found that changes such as these, with the exception of disclosure, would not work in the interests of the PIC’s clients, who are mostly pension holders in the GEPF. Nor would it work in the interests of good governance.
Board members of the PIC, especially the chair, must have specific skills and experience in the pension funds industry and must not be appointed by virtue of their political standing. The commission applies a similar rationale to the selection or processing of candidates for the board, which if done by parliament, the report implies, stands to yield a political outcome.
The process of appointing the board “should reside with the PIC and the directors affairs committee, and board members should then be approved by the minister, together with cabinet. The PIC, not National Treasury, should source new directors, and once established, the board must elect its own chairperson, rather than the minister of finance appointing the chair,” it says.
The board members should not be individuals whose main source of income derives from PIC board fees as this would cast doubt on their independence. They should also have a term of office limited to three years.
Directors must not be removed at the whim of the finance minister, and the reasons for any decision to remove a director must be made public immediately.
On the structure, the commission says the PIC should be “broken up” by creating a holding company with three main investment units or businesses for specialist classes of investment. Decision-making on investments must be decentralised and decided by the business units.
The way the PIC has operated since Dan Matjila became CEO has been highly centralised, due in large part to changes to the memorandum of incorporation (MOI) in 2013, which reduced the executive committee to two individuals — the CEO, who was Matjila, and the COO, who was Matshepo More. Both are implicated for wrongdoing in the report.
While these changes were made with the consent of the minister of finance at the time, Pravin Gordhan, a further change was also made to the memorandum of incorporation in which the roles of CEO and chief investment officer were collapsed into one, giving Matjila inordinate powers at the PIC.
The commission recommends that these two roles should be restored, that the executive should be expanded once again, and that the CEO must not be involved in decisions on investments.
Parliament’s finance committee said last week it welcomed the report and would be engaging with the commission over its recommendations.
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