Liberty Medical Scheme’s trustees not ‘fit and proper’?
News that the chairman of Liberty Medical Scheme’s board of trustees, Daniel Pienaar, had resigned last week brought to an end a chapter that began in October 2010, when the Council for Medical Schemes (CMS) first addressed governance problems that had a
FAnews readers may remember the CMS investigated Pienaar’s conduct when a third party allegedly attempted to blackmail the former CEO OF Liberty Health Holdings into setting up a marketing company in which Pienaar and former chairman of the scheme, Larry Jacques, would hold shares. Jacques resigned in June 2011 but Pienaar approached the High Court in Pretoria in March last year to try to prevent the CMS from investigating him.
The court dismissed his application and Pienaar finally stepped down in the same week that the North Gauteng High Court in Pretoria ordered former trustee Advocate Boyce Mkhize to pay back the R1.7m he received from the scheme as something of a golden handshake. At the time Mkhize and Liberty came to a ‘special agreement’ that saw Mkhize pocketing R962 500 for resigning and R700 000 for agreeing not to assist anyone investigating the scheme.
The question, now, is whether the remaining trustees are fit to remain on the board – an issue the CMS is looking into.
A ‘supine board’ awarded Advocate Mkhize his golden handshake
Back in 2010, when the two schemes amalgamated, Liberty became the fourth largest scheme in South Africa. According to the 2011 annual report, “This transaction was undertaken for the purpose of best protecting the interests of the members in the respective schemes and was approved by the Council for Medical Schemes on 11 November 2009.”
All well and good – but the boards of the two schemes agreed that five trustees from each board would go on to make up the new board, which would be reduced to eight trustees in 2010 and seven in 2011. Trustees were encouraged to resign voluntarily and where they did not do so the board would vote in secret as so which trustees should resign. This is evidently where relations between Mkhize and the board members turned sour as he did not want to resign.
Instead of waiting until Mkhize’s term of office – a mere month – the board paid out Mkhize in what they called a ‘compromise agreement’ as they were afraid he would pass on information to competitors.
Judge Fayeeza Kathree-Setiloane said that Liberty should have followed its own rules and voted when it was clear Mkhize would not resign – the scheme should not have acted outside the ambit and confines of its own rules.
“The payment has all the hallmarks of the conduct of a supine board succumbing to the demands of a trustee who self-confessedly would have resigned only on the terms of the agreement, or on better terms, despite the fact that he could simply have been voted out by the board,” she asserted. Mkhize had a fiduciary duty not to disclose confidential information, so the argument that he was paid to ‘keep quiet’ is hardly a valid one.
The fitness and propriety of the remaining trustees is therefore under scrutiny.
Editor’s thoughts:
Suggestions of skullduggery shouldn’t eclipse Liberty Medical Scheme’s best defence – its strong audited financial results for 2012, which were released last week. Its good reputation appears to be intact, according to the results of a reputation survey conducted by Sentinel Research & Strategy Consulting last year. The scheme’s solvency ratio stood at 27.9%, well above the minimum 25% that is required by legislation, and claims costs came in 2% below budget. Its claims-paying ability is not in question. One hopes, then, that its governance issues will be resolved sooner rather than later. Do you think the CMS will find the trustees guilty of impropriety? Comment below or email [email protected].
