PIC report: 7 changes the commission thinks will prevent further blunders | Fin24
 
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PIC report: 7 changes the commission thinks will prevent further blunders

Mar 14 2020 07:30
Khulekani Magubane
Chairperson of media group Independent Media and t

Chairperson of media group Independent Media and the head of Sekunjalo, Iqbal Surve gives evidence during the Judicial Commission of Inquiry into the Public Investment Corporation on April 02, 2019. (Photo by Gallo Images/Phill Magakoe)

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The commission of inquiry into the Public Investment Corporation released its long-awaited report on Thursday, dropping multiple bombshells regarding its investigation of governance issues at the state-owned asset manager.

The 955-page report, published on the Presidency's website, details how executives went to great lengths to conclude contentious deals, including intimidation of staff and misleading the board.

These deals include a R2.7 billion investment into troubled clothing retailer Edcon, a R4.3 billion investment into Ayo Technology, and a R9.35 billion extension to Lancaster 101 to buy shares in Steinhoff.

The report also recommends action be taken against individuals including former acting CEO Matshepo More and former head of human resources Chris Pholwane.

Looking ahead, the report recommends the asset manager make long-term institutional changes to avoid similar blunders in future. Here are some of the fixes recommended by the report.

Legislative gaps? Plug them, please

The report recommended that that legislation governing the work of the asset manager be "reviewed and drafted afresh".

These include the Public Finance Management Act, The Public Investment Corporation Act and the Financial Advisory and Intermediary Services Act.

"This must take account of the Amendment Bill currently before the President for his consideration, as well as the existing PIC, PFMA and FAIS legislation as well as the findings and recommendations of this report," the report said.

Dodgy advice? Check it twice

The report also recommended that PIC board of directors must institute a review of all contracts signed with advisors over the past five years to see if any contain similarities to the PIC's R2.7 billion investment in Edcon.

"[It is recommended that] the PIC consider the legal options available to it regarding recouping any payments made to the advisors, and that [former acting CEO] Ms [Matshepo] More be asked to explain her approval of the flawed agreement," the report said.

Go on a round-robin diet

The report recommended that "round-robin resolutions" – resolutions arrived at in a company without a formal meeting – should be the exception and undertaken only in rare circumstances, especially for major decisions. 

Deploy directors with care

The report recommended that the board develop clear policies to guide the involvement of PIC employees and non-executive directors in investee companies.

"Appointment of PIC employees and/or non-executive directors of the PIC to serve on the boards of investee companies must be reconsidered," the report said.

Keep directors in check

The report recommended that the PIC overhaul the way it deals with directors that serve on investee companies, and ensure proper oversight and management of conflicts of interest.

"The process of appointment, skills needed, and the fees paid need to be examined to safeguard the interests of the PIC," the report said.

Keep an eye on how sponsor companies perform

The report said there should be a limit to the amount of funds a sponsor can access from the PIC, especially when the sponsor's companies are under-performing.

Got transparency?

The report also recommended that lines of communication and accountability be strengthened between the PIC and its clients, to avoid a materially adverse impact on investments the asset manager makes on their behalf.

"There should more meaningful engagement between the PIC and its clients such as the Government Employee Pension Fund. The PIC should ensure that it effectively manages any subsidiaries and associate companies, should they be created," the report said.

The report cites deal advisor, Sello Motau, as saying that it was concerning that the PIC would pursue a transaction and later decide to remove a sponsor to include their preferred sponsor.

Motau added that this "opens the door to favouritism and gate keeping".

The report said that the commission would not interfere with the findings and recommendations or conclusions of these hearings.

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