In this opinion article, Dale T McKinley outlines the instruments available within the Public Finance Management Act and the Companies Act to hold nonexecutive directors and executives at State-owned enterprises legally accountable for their actions.

It is not as if South Africa needs more nega- tive characteristics added to its curriculum vitae. After all, we are already one of the most unequal societies in the world, our per capita levels of murder and rape are among the highest globally and the national unemployment rate ranks up there with the worst.

Unfortunately, though, one of the clearest things to emerge from the ongoing ‘State capture’ saga is the reality that a culture of impunity from the law and democratic sanction now threatens to engulf society. While such a culture applies to both the public and private sectors, it is especially galling to witness the accompanying levels of corruption and malgovernance from those who are sworn to uphold the law and respect the very democratic practice and ethos that they so loudly proclaim to politically follow.

Nowhere is this more apparent than in respect of the country’s State-owned enterprises (SOEs). What we have been witnessing over the last few years, in particular – the practical extent of which is only now beginning to be confirmed with all the recent revelations – is the extent to which the top management and boards of SOEs are centrally responsible for this state of affairs.

Nonetheless, despite the overwhelming evidence, both past and present, coupled with mounting citizen anger and frustration, impunity still reigns supreme. Precious few of those implicated SOE leaders and board members have had to pay any price whatsoever, something political (party and State) protection has gone a long way to ensure.

Although the law is one of the most potentially effective weapons to attack that impunity and thus to improve the governance of SOEs, it has not really been used in any targeted or sustained way. This is because most citizens, SOE employees and, indeed, civil society organisations simply do not know the law and the different ways it can be used.

Further, most individuals appointed to either senior management positions or SOE boards are probably not aware of the possible implications of their unethical or unlawful conduct. This is based on the incorrect assumption that there will be no adverse personal consequences for their behaviour as long as they enjoy the support of, or do the bidding of, their political or corporate principals.

So, what are the relevant laws and what do they provide that would assist in trying to end the impunity?

First, there is the Public Finance Management Act of 1999. Secion 86 explicitly states that it is a criminal offence/constitutes financial misconduct if any ‘accounting authority (that is, a relevant individual, governing body or board) “wilfully or in a grossly negligent way” fails to, besides others, protect “the assets and records of the public entity” and “act with fidelity, honesty, integrity and in the best interests of the public entity”. Sections 50 and 51 add that an “accounting authority” may not “use the position or privileges of, or confidential information obtained . . . for personal gain or to improperly benefit another person”.

Further, there is a duty “to prevent irregu- lar . . . fruitless and wasteful expenditure, losses resulting from criminal conduct, and expenditure not complying with the operational policies of the public entity”. A criminal conviction can result in a fine or a prison sentence of up to five years.

Then there is the Companies Act of 2008, which provides for civil and other legal remedies and applies to those SOEs that are companies. According to Section 72, a claim for damages can be made against a director and a member of the executive management (the liability being joint and several) if such a person has breached his or her “fiduciary duty, resulting in any loss or damages suffered by a company for a failure to properly disclose any personal financial interest or for a failure of a director to act in good faith and for a proper purpose, in the best interest of the company and with care, skill and diligence”.

Section 165 also empowers certain parties, including shareholders, registered trade unions and prescribed officers of the company or a related company to take a “derivative action”, or an action which forces a company to act in instances where the company does not want to. For example, if the company has suffered a loss by the actions of certain directors, a relevant party or person can take legal steps to compel action to be taken.

Additionally, Section 162 allows for those same ‘certain parties’ to apply to a court for an order declaring a director delinquent or under probation. Such an application would succeed if the director, among others, “grossly abused” his or her position, used information for “personal gain or the advantage of another” and “acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust in relation to the performance” of his or her duties. If successful, a declaration of delinquency lasts for seven years and such a person cannot serve as a director again for that period.

There are definitely some challenges to successfully pursuing these legal avenues. These include issues of locus standi, or whether one has the standing in law to institute action, and meeting sometimes onerous evidential burdens, as well as the general reluctance of prosecuting authorities to pursue charges filed. Nevertheless, given the ongoing and hugely damaging crisis at SOEs such as Eskom, Transnet, the Passenger Rail Agency of South Africa, South African Airways and the South African Broadcasting Corporation, it is surely time to make active and maximum use of all the ‘weapons’ in our constitutional and legal arsenal.

Those who have engaged, and continue to engage, in corrupt activities and mal- governance are also breaking the law. Just like every other citizen, they need to face the legal consequences of their actions and to know that they will no longer enjoy the impunity that is threatening to tear the political, economic and social fabric of society apart.

Dr McKinley is an independent writer, researcher, lecturer and long-time political and social activist who believes in holding all authority and leadership to democratic accountability.