The merger of the chief executive and the chief investment officer roles at the Public Investment Corporation (PIC) was a centralisation of power that exposes the PIC to huge risk, the Mpati commission into the state owned asset manager heard on Monday.
Giving testimony before the commission, former board member Vuyo Jack, who was integral in attempting to improve the governance and oversight structures of the PIC, said there were no principles on which consolidation of the two roles could be justified.
He said this meant there were no “checks and balances” in place which are necessary for every investment process.
“You need to have a segregation of duties because not all of us have the wisdom of Solomon, so we do need to have others with different points of views [in order to] have stronger decisions coming out,” said Jack.
The two executive roles were combined when Dan Matjila was appointed PIC chief executive in 2014. This after he had served as the chief investment officer since 2005.
The structure is in contrast with practice by private sector fund managers where the chief executive role is mainly administrative and has limited influence on investments. Previous testimony at the commission highlighted how the controversial R4.3-billion Ayo deal had come from Matjila’s office.
Despite concerns raised by employees regarding Ayo being overvalued Matjila “exercised [his] authority as CEO” and signed off the subscription agreement to buy shares in Ayo before due process was completed and the requisite committee could approve the deal, according to testimony from an official who worked closely on the transaction
One of the terms of reference of the commission headed by retired Judge Lex Mpati involves looking at the current governance and operating model of the PIC to determine if it is the most effective and efficient model.
Evidence Leader Jannie Lubbe highlighted how the merger had practically and effectively left two people at the apex of the executive, namely the chief executive and chief financial officer. The role of the chief operating officer was also scrapped.
Jack said due to the conflict of power between the chief executive and investment officer that the PIC had experienced in the past, merging the two roles and concentrating the power in one individual’s hands was probably seen as a pragmatic solution.
But, Jack said it was not the best design to have accountability and longevity within the PIC which “exposes the organisation to huge amounts of risk”.
“One of the key lessons we have learnt in this country is don’t design structures based on people, design structures based on what is in the best interests of the organisation.
“It can be anyone who can occupy that position, you need to go beyond the issue of personalities,” he added.
The PIC’s structure as it stands — with the dominant roles of the CEO and CFO – also hampers proper succession planning because if the two people leave the organisation there will be a loss of institutional memory.
Jack also questioned the tradition of appointing the deputy finance minister as the chairperson of the board saying the continued practice did not mean that it was correct and it only served of further open the PIC to political influence.
“I do not see any reason from sound economic and governance principles that this position would enhance the governance and returns of the PIC,” Jack said.
The commission continues on Tuesday.