Recent years have seen a number of high-profile cases where questions have emerged regarding the qualifications, conduct or suitability of individuals occupying positions of trust. While each case is unique, they highlight an important governance lesson: organisations should not rely solely on CVs, interviews or reputations when appointing directors.
The Institute of Directors in South Africa (IoDSA) is calling on boards to strengthen their due diligence processes following the publication of its new guidance paper on fit and proper assessments for director appointments.
The guidance comes at a time when governance expectations regarding director appointments are increasing. While King V has long advocated thorough background checks and independent verification of qualifications, recent amendments to the JSE Listings Requirements have elevated these expectations into an explicit regulatory requirement for listed companies.
“The appointment of a director is one of the most important decisions the shareholders can make,” says Parmi Natesan, CEO of IoDSA.
“Directors are entrusted with significant responsibilities, including oversight of strategy, risk, performance and ethics. Boards therefore need confidence that the individuals they appoint have the necessary integrity, credibility and standing to fulfil these responsibilities.”
The guidance paper notes that while boards commonly consider CVs, interviews, references and personal networks when assessing candidates, these sources are insufficient in isolation.
“The days of relying purely on reputation should be behind us,” says Natesan.
The IoDSA guidance highlights that fit and proper assessments should include independent verification of key information such as identity, qualifications, professional designations, criminal records and financial standing. Boards should also consider broader matters that may pose governance or reputational risks, including regulatory findings, litigation history, adverse media coverage and sanctions exposure.
According to Natesan, effective due diligence is not about creating unnecessary barriers to board appointments. “The objective is not to exclude people. The objective is to ensure that boards make informed decisions and that stakeholders can have confidence in the governance processes supporting director appointments.”
The guidance also cautions against common mistakes, including relying solely on information provided by recruitment firms, assuming that prominent individuals do not require vetting, failing to conduct appropriate checks on executive directors who are already employed by the organisation, and assuming that a director who was fit and proper at the time of appointment will necessarily remain so years later.
“While the JSE amendments have brought additional focus to this issue, the underlying governance principles are relevant to all organisations,” says Natesan. “King V recommends that governing bodies oversee and monitor that, prior to candidates being nominated for election, thorough background checks are conducted, with qualifications and designations independently verified. Good governance requires boards to satisfy themselves that directors are fit to serve, regardless of whether the organisation is listed or unlisted.”
Every board has a responsibility to satisfy itself that directors are fit to serve. Robust due diligence helps protect the integrity of the board, strengthens stakeholder confidence and reduces the risk of governance failures later.