Why it is important to verify directors’ qualifications upfront

It is important to verify directors’ qualifications upfront before they are appointed to a board because it is basic good governance and protects the organisation from reputational damage if a director is unable to provide quality input.

This important requirement for appointing directors and, in fact, all senior management is in the spotlight now after a newspaper said an economist who uses the title doctor did not seem to have a PhD in economics.

This is not an isolated incident and it has happened before that senior managers did not have the qualifications they said they had.

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Previous problems with directors’ qualifications

Tshepo Mahanuke was fired in June last year as CEO of the Johannesburg Roads Agency after Daily Maverick reported that he claimed to have a Harvard master’s degree that does not exist. His honorary doctorate from the Trinity International University of Ambassadors could be bought for a small “support honorarium”, while his master’s degree in competitive intelligence from ACI College is not offered at Harvard Business School.

In another case it was revealed that Daniel Mthimkhulu, an executive of Prasa, did not have a national diploma in mechanical engineering from the Vaal University of Technology and no degree in mechanical and maintenance engineering from Wits. He also did not have an engineering doctorate from the Technische Universitat Munchen as he said.

Professor Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA), says whatever the case, questions around directors’ qualifications should be raised before they are appointed.

“Performing due diligence on any appointment in any organisation and especially for senior appointments is basic good governance. Given the huge responsibility that directors carry and their importance to the organisation they of all people must be thoroughly vetted before appointment,” she says.

ALSO READ: JRA CEO Tshepo Mahanuke dismissed over fake qualifications

Directors’ qualifications affect future success of organisations

Research by the IoDSA shows that board composition probably has a greater impact on the future success of an organisation than any other aspect of governance. Natesan says, therefore, ensuring board members have the right skills for the organisation’s needs is vital in line with Principle 7 of King IV, a set of voluntary principles and good practices of corporate governance.

According to Principle 7, a governing body should be made up of people with the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.

Ensuring that the board members have the highest ethical standards is equally important, Natesan says.

King IV’s Recommended Practice 19 specifically states that “candidates’ backgrounds should be independently investigated and their qualifications independently verified”.

Natesan points out that failure to perform this item of governance housekeeping makes an organisation vulnerable to reputational damage, while longer-term harm could be caused by the unqualified director’s inability to provide the quality input needed.

ALSO READ: Doctored qualifications: ‘Dr’ Daniel Mthimkhulu ordered to pay Prasa back R5.7m

Due diligence process includes vetting directors’ qualifications

The due diligence process should be formal, transparent and rigorous, the IoDSA says. It must begin with ensuring that the potential director meets the criteria for serving on the board as determined by applicable legislation and the organisation’s founding documents. This typically includes identification, qualification, reference and even credit checks.

In addition, the board must interrogate the candidate’s knowledge of and experience in directorship.

“It is no longer enough to be a subject-matter expert. Modern day directorship requires a range of professional directorial skills,” Natesan says.

“It is also important to assess whether the potential director has the right personal qualities, which would include integrity, honesty, curiosity, courage, teamwork and communication skills. In addition, care should be taken to ensure that any potential director would fit with the board’s culture and dynamic and has a genuine interest in the organisation and what it does.”

Natesan warns that an organisation that does not perform this routine vetting of directors before appointments risks eroding the trust that shareholders, potential investors and other stakeholders have in its wider governance and thus in its potential to succeed.