Johannesburg - The Public Investment Corporation’s (PIC’s) recent success in the Supreme Court of Appeal highlights the need for such institutional investors, banks and other asset managers to clarify the position of individuals they appoint to the board of investee companies.
The court ruled that the directors’ fees paid to the PIC by four companies in which it was invested were owed to it and not to its appointee.
“The ruling is neither good nor bad for corporate governance, it merely highlights the need for the directors’ position to be clarified,”Ansie Ramalho, the executive director of the Institute of Directors in Southern Africa, said.
The institute has written a paper highlighting the potential difficulties of “representative directors”, arguing that such directors can be conflicted. This is because the law requires a director to act in the best interests of the company and not in the interests of any one shareholder, no matter how large.
Kagiso Bodigelo represented the PIC as a non-executive director on the boards of DCD-Dorbyl, Blue Label Investments, Kulungile Metals and Global Roofing Solutions.
Reflecting the fact that he was on the board to represent the PIC, Bodigelo’s fees were paid to the PIC. There seems little doubt that he would not have been on these boards other than as a representative of the PIC.
However, it seems Bodigelo believed that he was entitled to the traditionally generous payments that are awarded by companies to their directors.
He instituted legal action against the PIC, claiming that the board fees and bonuses, which amounted to R2.3 million and were paid to the PIC by the investee companies, were owed to him.
Bodigelo argued, successfully in the lower court, that the fees were for his personal benefit.
However, the Supreme Court of Appeal came to a different conclusion and dismissed Bodigelo’s claim with costs. The appeal court ruled that he had failed to prove his claim to the fees. There was no agreement between him and the PIC that would have entitled him to the fees. His employment contract required him to work outside normal hours without additional pay.
In terms of corporate law and strict corporate governance, it could be argued that each of the four companies should have paid the fees to Bodigelo and not to the PIC to ensure he realised his duty was to the company and not to the PIC. There should have been an agreement between the PIC and Bodigelo, which was supported by the investee company providing for the fees to go directly to the state fund manager.
The PIC, which started this case under Brian Molefe’s watch, is understandably pleased with the outcome, which it says bodes well for good corporate governance.
“Had the courts found that the board fees should be paid to Bodigelo, the implications would have been huge, not only for the PIC but for corporates as they would now have to pay board fees to employees nominated to sit on boards of various companies,” the PIC said.
Bodigelo no longer works for the PIC. - Business Report