SOUTH AFRICA - PRETORIA - 27 February 2019. Justice Lex Mpati at the PIC Commission of Enquiry. Picture: Oupa Mokoena/African News Agency (ANA)
PRETORIA – Former executive head of risk and compliance at the Public Investment Corporation (PIC), Paul Magula, expressed concern about conflict of interest that is posed by the practice of having a PIC board member becoming a PIC representative in an investee company.

Magula, who was making his submission to the PIC Commission of Inquiry on Monday, said board members were conflicted in favour of the investee company that paid them income. 

“Such, a conflict could be to the detriment of the PIC. The appointment of such PIC board members to the PIC’s investee companies is mainly influenced by management or the chief executive, who makes recommendations to DAC … remember nothing goes without his approval,” he said. 

Magula said to some board members, board fees were a sole source of income, this made it difficult for such conflicted board members to hold management to account. 

“In essence, this creates loyalties to the management of PIC, chief executive and chief financial officer … The board members who depend on board memberships from investee companies are effectively captured by the management, and hence, strong defence for the chief executive by the outgoing board as mentioned by the chairperson. 

“It is standard practice in the financial sector … that members of staff – especially investment professionals – should be appointed as board representatives of the investee companies. Typically, an investment professional who worked on a transaction would be appointed to monitor the investment. The nominated investment professionals should not receive payment for board memberships but the company that sent him/her,” said Magula.

He said currently the PIC board members could be appointed to various PIC investee companies and these board members earned fees – probably worth millions – from these investee companies to which they were nominated by PIC. 

Magula said it could further be reasonably assumed that their travels to any investee companies’ board meetings were paid for by the investee company. Most of PIC current board members are PIC representatives in PIC investee companies.