Golden Handshakes

Anele Mtwesi | Sep 20, 2016
This brief looks at the extent of golden handshakes in the public sector and legislation governing financial misconduct.
Few things provoke public anger quite as much as the payment of huge sums of tax payers’ money as a golden handshake to an individual, particularly when government seems to be rewarding an individual who is seen as a poor performer, pushing out an independently minded individual or turning a blind eye to mismanagement and improper conduct at the expense of taxpayers.  
 

The SABC

An alleged settlement awarded to former SABC CEO, Frans Matlala was one such occasion. According to media reports, Matlala’s legal team and the SABC agreed on a settlement amount of R18 million, in July this year. This came a day before his disciplinary committee hearing. Frans Matlala was suspended in November 2015, four months into his five year contract.[1]
 
Frans Matlala’s settlement is the largest ever, followed by Dali Mpofu’s R6.7 million payout by the public broadcaster. In 2015, the Minister of Communication revealed that the SABC had paid former CEO Lulama Mokhobo R5.6 million in 2014; former head of news Phil Molefe R4.9 million in 2013; acting COO Christine Mampane R4.3 million in 2012; another former CEO Solly Mokoetle R3.8 million; and former company secretary Thelma Melk R3 million.[2] These payments were in many cases unnecessary, avoidable and can be described as fruitless and wasteful expenditure. The 2014 Public Protector’s Report “When Governance and Ethics Fail” stated that the acts and omissions of both the SABC board and management with regard to the unnecessary and procedurally irregular suspensions, dismissals and forced resignations at the public broadcaster amount to fruitless and wasteful expenditure and constitute improper conduct and maladministration.  
 
The Public Finance Management Act (PFMA) places a fiduciary duty on the SABC Board (1) to exercise utmost care in ensuring reasonable protection of the assets, which includes monies, and records of the SABC[3] and (2) act with fidelity, honest, integrity and in the best interest of the SABC in managing all aspects of  the public entities financial affairs[4]. This duty extends to all aspects of financial management within the entity. 
 
It further places a general responsibility to maintain efficient, effective and transparent systems of both financial and risk management[5]. While taking appropriate steps to prevent irregular expenditure, fruitless and wasteful expenditure, losses resulting from criminal conduct, expenditure not complying with the SABC’s operational policies[6] and act against employees who contravene or fail to comply with the provisions of the PFMA, undermine the financial management and internal control systems of the SABC or permits an irregular/ fruitless and wasteful expenditure[7].  
 
The SABC Boards failures to act on the Public Protector’s report and the most recent payout to Frans Matlala are just some of the questionable actions taking place at the public broadcaster. These acts, together with the Boards inactions on what is taking place at the SABC currently are grounds for non-compliance with the regards the PFMA and form a basis for which criminal proceedings could be instituted  against the entire Board. 
 
The SABC Board is liable for financial misconduct if they “wilfully and negligently” fail to comply with sections 50 and 51 of the PFMA and permit irregular/ fruitless and wasteful expenditure as stated in the Public Protector’s report[8]. The Board is guilty of an offence if they “wilfully and in a grossly negligent way fail to comply with the provision of sections 50 and 51” and on conviction are liable to a fine or imprisonment for a period not exceeding five years[9].  
 
The SABC board has to date not taken any steps to recover monies irregularly or unlawfully spent by the COO and his clique.  
 

Other public institutions

The SABC isn’t the only state institution paying out huge settlement amounts and squandering on public funds. There seems to be a general trend of huge payouts and financial mismanagement in the public sector. In just the past two years we have seen the number and monetary value of golden handshakes increase. Anrwa Dramat, Peter Richer, Ivan Pillay, Tshediso Matona, Tsholofelo Molefe and Mxolisi Nxasana were paid out to the sum of nearly R60 million. The payments included severance payments, outstanding leave, legal costs, restrain of trades and pay lieu of notice; these are all justifiable in accordance with employment contracts and relevant legislation. However, in one form or another, these payouts seem far larger than necessary.   
 

Golden handshakes in the private sector and the public sector

Golden handshakes or mutual separation agreements are common practice in the private sector where there is a breakdown in relationship between a board and its executives or between ordinary employees and executives. Many contracts make provisions for dealing with payouts when there is an irreconcilable breakdown of the employment relationship. The payout is usually made in cash or equity and in most cases includes a non-competition clause. However, contracts rarely make provisions for personal grievances and these have to be carefully negotiated until a settlement is reached. Private sector companies do however have an incentive to minimise the extent of golden handshakes as part of a general strategy of cost containment. 
 
The problem with applying the private sector approach in government is that the incentive to contain costs isn’t there. The taxpayer funds these golden handshakes but plays no role in preventing or minimising them. This sense of powerlessness rouses public anger. How come is it, people ask, that there are so many appointments of poor performers? Or, are competent individuals being pushed out for political reasons, with the taxpayer funding the sweeteners?  
 
In the public sector, a break down in relationship between a minister and director general or between the head of a government institution and minister or president cannot be dealt with in the same fashion as in the private sector. A no-fault divorce is not an option. There have to be legally acceptable reasons for all terminations like ill-health, misconduct or poor performance. Contracts and legislation make provisions for ending employment relationships in such circumstances. Abiding by these would ensure that employment contracts aren’t ended to settle personal or political agendas, in the process eroding independent institutions and disrupting the work flow of departments and state institutions. 
 
What we are seeing at present in the public sector is a grave cause for concern. The key distinctions between competence and incompetence, wrong doing, corruption, mismanagement, and political interference are not made. Employees are often suspended haphazardly pending an inquiry, disciplinary action or legal action. In many cases the inquiry is terminated before its conclusion, with the parties then reaching an agreement resulting in millions of Rand at the taxpayers’ expense. It avoids embarrassing exposure of dirty laundry in employment relationships or in the working of public institutions. It also averts public scrutiny of such terminations, setting a dangerous precedent which can be seen as fostering a corrupt relationship between the parties. If the payout is large enough, it is acceptable to the parties regardless of the public and financial damage it imposes on government, the individual and the department or institution. 
 
Understandably the reason for golden handshakes is a mix of the law, cost of litigation, goodwill standing, and unjustified reputational damage to the parties. However, in the public sector we are dealing with taxpayers’ money and care needs to be taken to minimise this cost. This requires a degree of scrupulousness, procedural regularity, moderation and restraint to be exercised. However, currently these appear to be in short supply. While a complete ban on golden handshakes and over reliance on the courts would be taking it too far, a line does however need to be drawn. Changes to the approach of terminations are desirable. 
 
Anele Mtwesi
Researcher
anele@hsf.org.za
 

[1] http://www.fin24.com/Tech/Companies/suspended-ceo-ready-to-take-sabc-to-high-court-20151120
[2] Politicsweb,  http://www.politicsweb.co.za/documents/this-is-what-all-the-sabcs-golden-handshakes-have-
[3] Public Finance Management Act, section 50 (1)(a)
[4] Public Finance Management Act, section 50 (1)(b)
[5] Public Finance Management Act, section 51 (1)(a)(i)
[6] Public Finance Management Act, section 51(1)(b)(ii)
[7] Public Finance Management Act, Section 51 (1)(e)(i)(ii)(iii)
[8] Public Finance Management Act, Section 83 (1) (a) and (b)
[9] Public Finance Management Act, Section 86 (2)