Transnet Board: Our view on the latest changes

On 28 August 2023, Futuregrowth published an article titled “Transnet Board: Our views on the latest changes”. In the note we referenced Mr Andile Sangqu (Board Chairperson) as being the only qualified Chartered Accountant on the board. The note was premised on the statement issued by the Department of Public Enterprises (DPE), dated 11 July 2023, titled “MINISTER PRAVIN GORDHAN ANNOUNCES NEW TRANSNET BOARD APPOINTMENTS, REAFFIRMS GOVERNMENT’S COMMITMENT TO REVITALISE THE SOC”. The DPE statement incorrectly referred to Mr Sangqu as a qualified Charted Accountant. Through discussions with the Transnet team, we have been made aware of the oversight contained in DPE statement and that Mr Sangqu is not a qualified Charted Accountant. We have amended our article accordingly.

On 15 June we published a note[1] highlighting some of our observations and concerns regarding the lack of timely appointments to the Transnet State-Owned Company (SOC). Since the date of that note some changes to the board have been made by the shareholder representative.

Following months of operating with an under-capacitated board, on 11 July 2023[2] the Minister in the Department of Public Enterprises (DPE), Mr Pravin Gordhan announced the appointment of nine independent non-executive directors to the Transnet SOC Limited Board. Two of the pre-existing non-executive directors were retained, while four previous directors’ terms were not extended. There were no changes to the executive directors.

In our view, the new appointments result in a board that is better capacitated. The new appointments include seasoned directors who have served in both the private and public sectors, and who possess some of the qualifications, experience and skills that were previously lacking.

New board sub-committees

The board has established board sub-committees to assist with the functions of the board. The sub-committees adhere to the respective sub-committee mandates.

A concern about the audit committee

We believe that the newly constituted sub-committees have largely addressed the skills shortage concerns we outlined previously, although we have some residual questions about the composition of the audit committee - which does not have a chartered accountant (CA) appointed to it.

The King IV Report on Corporate Governance[3] recommends that “the members of the audit committee should, as a whole, have the necessary financial literacy, skills and experience to execute their duties effectively”. Considering this, and based on our experience with other public and private entities, members of the audit committee typically include chartered accountants who are members of the South African Institute of Chartered Accountants.

Despite the new appointments to the Transnet Audit Committee, we remain concerned about its lack of any qualified CA(SA)s.

Minister Gordhan seems to have mitigated this through the appointment of Ms Zolisa Zwakala as an independent advisor to the Transnet Audit Committee. Ms Zwakala is a qualified CA(SA) and a Certified Internal Auditor, and per her CV, has extensive experience across the private and public sectors.

While the appointment of Ms Zwakala may provide the necessary financial skills and experience, and in that way support and strengthen the audit committee, we note that, as an advisor, Ms Zwakala does not have the fiduciary obligations that she would have to assume had she been appointed as a director to Transnet. Furthermore, it is not clear what would happen once her advisory contract terminates, which could leave the audit committee without the necessary skills and experience once again. We believe it would have been preferable for the Minister to appoint more directors with the requisite financial qualifications and experience to the audit committee, with fiduciary responsibilities to Transnet’s stakeholders in the execution of their duties.

Much still rests on the shoulders of the new board and the DPE

Notwithstanding this, we look forward to watching the newly constituted Transnet board and the management team moving swiftly to address the significant operational challenges that Transnet faces. Furthermore, we hope that the Department of Public Enterprise’s SOC Governance Assurance and Performance programme will proactively and diligently review governance at Transnet and the other SOCs - and take the necessary action where needed.

[1] https://www.futuregrowth.co.za/insights/executive-oversight-at-transnet-derailed

[2] https://www.gov.za/speeches/minister-pravin-gordhan-11-jul-2023-0000

[3] King IV Report on Corporate Governance 2016, paragraph 55

[4] King IV Report on Corporate Governance 2016, paragraph 36(a)