Is Organisational Performance Effective In The Public Sector?

Performance management is a buzz word in both the public and private sectors, as a means to ensure that elected public officials are held accountable for cost-efficient service delivery and to ensure a return on investment in the case of private companies.

In the public sector where performance management has been reduced to the effectiveness of an individual manager, linked to a performance bonus, the subject has become a controversial one, despite the regulation of all spheres of government; local, provincial and national government.  The question remains – can performance targets result in effective government departments that produce tangible service results?  President Jacob Zuma believes so; he recently reiterated that his cabinet’s delivery will be measured through performance targets.

Performance that translates directly into organisational effectiveness is not just about developing new performance related standards, targets and monitoring systems that are implemented top-down. Each individual that makes up the company or department must have a mindset shift from being an employee to being an accountable, value-adding citizen.

A number of reasons for the performance challenges faced by the public sector include a lack of annual planning, delayed response to environmental challenges that impact on pre-set targets and a pervading culture of “routine work”, which goes against the purpose of performance measures.

All too often, a hangover from the ‘performance bonus culture’ that is so embedded in the public sector results in an inability to manage under-performance. Some sectors of management consider it a function of HR, and so do not take ownership for the results of their teams.

More concerning is the perception in some instances that ‘performance management’ is a ‘witch hunt’ on the part of management, designed to rid the organisation of unwanted elements, not a means of improving the results achieved by the team and the organisation.

To be or not to be – a director

There may be a public perception that there is significant status involved in being appointed a director of a company.  However, despite the apparent status involved, changes to various statutes over the past number of years have made the role of director an increasingly onerous one and it is becoming questionable whether individuals will in future be prepared to accept an appointment, particularly as a non-executive director.

The common law has always required that a director act with due care and diligence in the interest of the company, and that he act in good faith and not act in breach of his fiduciary responsibilities.  The Companies Act of 1973 contains a number of transgressions which could lead to criminal prosecutions, but most of these have hardly ever led to any successful prosecutions or convictions.  Examples of companies or third parties suing directors are few and far between.

In one of the few examples of a conviction of a director, the former CEO of Regal Treasury Bank, Jeff Levenstein, was recently convicted some eight years after the collapse of the Bank.  However, the case against Gary Porritt of Tignon and Dave King, the alleged tax offenders, just drags on and on.  It would also seem that the liquidator of Regal Treasury Bank intends suing a number of the non-executive directors, based on a claim that they either allowed the Bank to trade recklessly or that they failed in their duty to stop Levenstein.

Times are clearly changing.  Increasingly, statutes are providing for both civil and criminal liability of directors with draconian consequences for those directors who fail to comply.  Examples of this are:

•   The VAT Act which provides that directors who are regularly involved in the financial affairs of the company can be held personally liable for VAT penalties and interest payable by the company;
•   The National Environmental Management Act which deems a director to be guilty of the same offence as the company in the event of pollution or degradation of the environment, unless the director can show that he took all reasonable steps to prevent the harm;
•   The proposed amendments to the Competition Act (which have been signed by the President but are not in force) which seek to hold liable directors who are aware of or fail to prevent prohibited practices.

The new Companies Act 71 of 2008, which is scheduled to become effective in 2010, now codifies in detail the standards of conduct expected of directors in Section 76.  In particular, a director must act in good faith for a proper purpose, in the best interests of the company and with the care, skill and diligence that may be reasonably expected of a person carrying out these functions and having the general knowledge, skill and experience of the director (an objective and a subjective test).  Section 77 spells out the liability of directors, prescribed officers and members of committees of the board.  In particular, it specifies that all of these persons may be held liable either for losses, damages or costs suffered by the company as consequences of breaches of their duties.
 The only saving grace is that a court may excuse a director, either wholly or partly, if the court accepts that he has acted reasonably and honestly or if it would be fair in the circumstances to excuse the director. 

Section 78 precludes a company from indemnifying a director from most of his obligations or relieving him of any duties or liabilities.  Although a company may purchase insurance for directors, it may not do so in respect of wilful misconduct or breaches of primary duties, such as fiduciary duties.

No distinction is drawn in any of the statutes mentioned between executive directors, non-executive directors and independent non-executive directors.  However, in the King III draft Code of Governance, it is recommended that boards should comprise a majority of non-executive directors and that the chairman should be an independent non-executive director.  While the report does provide that non-executive directors should be fairly remunerated, the inevitable question is, what is fair having regard to the onerous obligations which a non-executive director incurs.  This concern is of course greatly exacerbated where the director is not involved in the day to day management of the company.

Whilst it is quite clear that the authorities believe there is a need to provide for onerous liabilities in the case of delinquent directors, there is little doubt that these increasingly stringent provisions will frighten off reasonable and honest persons from accepting board appointments and the smaller companies will find it difficult to remunerate their non-executive directors adequately to enable them to accept the inherent risks involved.