Former Denel chair warned Lynne Brown against wholesale board changes

Brown was quoted having said: “Thank you, Denel, maybe we should second your CEO to Eskom as well.”

Yet a request by former Board chairperson, Martie Janse Van Rensburg, that the contract of the parastatal’s Group CEO be extended amid concerns over the impact the drastic Board changes could have on the implementation of Denel’s turn-around strategy, allegedly went ignored by Brown.

Janse van Rensburg told the State Capture Commission that the former Cabinet minister had disregarded a request to ensure continuity when she instead replaced the entire board in 2015. Brown retained only Johannes “Sparks” Motseki, a business partner of the Guptas.

“I am compelled to state that her decision to remove the 2011 board does not appear to have been reasonable.”

Good corporate governance requires continuity and good practice is for only a third of board members to be rotated, Janse Van Rensburg said.

In this case, with the exception of Motseki, the entire board was let go and replaced by one – described several times at the Commission as having lacked the requisite skills as a collective.

Brown installed controversial lawyer, Daniel Manthsa, as the new chairman and the new board, who came in with not a single Chartered Accountant, normally a critical skill requirement for the constitution of company boards. The commission heard testimony on Monday about how Brown allegedly ignored a list of nominees compiled by her own department when deputy director-general Kgathatso Tlhakudi was instead presented with an “unrecognisable list of names” a day later.

It was under this new board that Denel would push hard for a joint venture with an associate company of VR Laser Services, a company acquired under strange circumstances by the Guptas in early 2014.

The commission heard that the outgoing Denel Board had attracted high praise for its achievements and that a Deloitte board evaluation in 2015 concluded that it had been “highly effective” in terms of oversight and providing direction to Denel.

Janse Van Rensburg testified that the executive summary of this report showed that the board had managed a proper distinction between management and the board authority and that the various board committees were efficient.

Denel had met all but three of the performance indicators as per the Shareholders Compact with government as the shareholder, while it “exceeded” just about every other one.

Commission chairperson, Deputy Chief Justice Raymond Zondo, quoting performance statistics presented during testimony, said for all intents and purposes, that board appeared to have been in the “summa cum laude” category of achievement.

To this, she said: “Thank you, chair. The journey was not completed. We still had work to do and the role of the executive team was critical.”

Asked by Zondo why those board members would have been removed en masse, Janse Van Rensburg said she could only speculate.

Among the board members whose stints were not renewed by Brown in 2015 was Dr Gert Cruywagen, a risk management specialist, Dr Mavuso Msimang, an experienced corporate executive who served on the social and ethics committee of the board, Advocate Ghandi Badela, who is also an engineer, and Matodzi Ratshimbilani, who had 20 years of legal experience in areas including mergers and acquisition, contracts and advising state-owned companies.

The commission heard that Brown, following her appointment to Cabinet in May 2014, initially extended the term of the Denel board – allowing some them to stay on for another year whilst she came to grips with her new portfolio.

However, for some reason, and despite the significant successes of that board (with the exception of the Gupta-linked Motseki), they were all replaced a year later.

Upon being informed of the impending changes, Janse van Rensburg said the board sent Brown two letters and in one of those, dated 25 May 2015, they expressed concern about the 90% change in the non-executive directors’ lineup and referred her to the King Code which warns against such a drastic move.

In another letter shortly after, the board urged Brown to ensure the extension of CEO Saloojee’s contract because executive management was key to rolling out an agreed-upon strategy at a company. The company was starting to reap the fruits of its labour and the board wanted to ensure it stayed on course.

Saloojee’s term was only scheduled to end in January 2017 and the outgoing board wanted approval for a contract extension ahead of time as it usually takes up to 12 months to recruit a replacement, Janse van Rensburg said.

Saloojee and two senior colleagues were in fact suspended by the new board several months later. Saloojee is scheduled to testify at the State Capture Commission on Wednesday.

Janse van Rensburg is a chartered accountant who has served on various public sector boards including the Airports Company of SA, Johannesburg Water, and Development Bank SA. Her qualifications and experience allowed her to chair Denel’s audit and risk committee.

The replacement board did not feature a single chartered account even though this was among the few concerns raised in the Deloitte review of the board.

Asked what impact this would generally have on a company, Janse Van Rensburg said it deprived the company of the ability to effectively ensure risk management.

Denel at the time was still in the midst of a turnaround plan and it was important the board had someone who understood existing contracts, how those related to financial forecasts and, importantly, someone who could help the company manage its cash “tightly” while effectively weighing up acquisitions and associated contracts. DM

The Commission resumes on Wednesday by former Denel CEO, Riaz Saloojee who was later suspended by Brown’s replacement Board.