1. GOVERNANCE OF MEDICAL SCHEMES
Squaring
the Circle
THE ROLE OF A MEDICAL SCHEME
TRUSTEE vs
THE ROLE OF A COMPANY DIRECTOR
Presented by MJ Brown
The BHF Southern African Conference July’07 Sun City

2. THE ROLE OF A MEDICAL SCHEME TRUSTEE vs THE ROLE OF A COMPANY DIRECTOR
Squaring
THE ROLE OF A MEDICAL SCHEME TRUSTEE vs THE ROLE OF A COMPANY DIRECTOR
the Circle
Introduction
Qualification Trustees & Directors
Executive vs non-executive
King II application
Structures and processes
Responsibilities
Summary
The BHF Southern African Conference July’07 Sun City

3. The BHF Southern African Conference 22-25 July’07 Sun City
INTRODUCTION
Squaring
the Circle
Extract from the Registrar’s comments in the CMS 2004/5 annual report on Governance
“Poor behaviour in governance of schemes inevitably has the result of forcing costs up for medical scheme members while reducing the overall effectiveness of the scheme.”
The BHF Southern African Conference July’07 Sun City

4. The BHF Southern African Conference 22-25 July’07 Sun City
INTRODUCTION
Squaring
the Circle
J and L Hendrikse in their “Business Governance Handbook”, Juta 2004:
“ Business governance contributes to business success by making leadership aware of the importance of making sound decisions that involve returns and risk, and of making the business responsible and accountable with integrity from top to bottom.”
The BHF Southern African Conference July’07 Sun City

5. The BHF Southern African Conference 22-25 July’07 Sun City
INTRODUCTION
Squaring
the Circle
Price Waterhouse Coopers in their Survey on Effective Management of SA Retirement Funds dated March 2007:
“29% of funds have not done a King II compliance test
81% of boards have never evaluated their own performance or effectiveness
41% of funds have not made any assessment of trustees’ knowledge and understanding
61% of funds have not considered or formalised a governance policy”
The BHF Southern African Conference July’07 Sun City

6. The BHF Southern African Conference 22-25 July’07 Sun City
INTRODUCTION
Squaring
the Circle
J and L Hendrikse in their “Business Governance Handbook”, Juta 2004:
“Corporate and business governance should not be seen as an added burden for businesses, but as a catalyst for improved compliance that leads to improved performance”
The BHF Southern African Conference July’07 Sun City

7. The BHF Southern African Conference 22-25 July’07 Sun City
INTRODUCTION
Squaring
the Circle
A medical scheme derives its initial existence from a sponsor whilst a company derives its initial existence from its founding shareholders:
The sponsor/shareholder establishes the initial rules which are registered with the regulator
Governance flows from these rules and legislation
Trustees/directors govern the scheme/company & protect members’ interests
Trustees/directors acquire their mandate to govern by being appointed to office
The BHF Southern African Conference July’07 Sun City

8. APPOINTMENT OF A DIRECTOR OF COMPANIES
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the Circle
Elected by shareholders. (each director appointment is voted on separately)
Bill lists persons who are disqualified from appointment as a director
Juristic person
Not consented to appointment
Under legal disability
Does not reside in the RSA
Does not satisfy qualification in “rules”
The BHF Southern African Conference July’07 Sun City

9. DISQUALIFICATION OF A DIRECTOR OF COMPANIES
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the Circle
A court has declared the person to be a delinquent director
Prohibited in terms of public regulation
An unrehabilitated insolvent
Removed from office of trust, on grounds of misconduct
Convicted in RSA or elsewhere and imprisoned without the option of a fine for theft, fraud, forgery, perjury, or an offence involving fraud, misrepresentation or dishonesty.
The BHF Southern African Conference July’07 Sun City

10. DISQUALIFICATION OF A DIRECTOR OF COMPANIES
Squaring
the Circle
Disqualification means that a person must not:
Be appointed, elected or consent to an appointment
Make or participate in making a decision
Exercise the capacity to affect a company’s financial standing
Communicate advice, instructions or wishes to the directors, other than as a professional advisor in terms of a business relationship with the Coy.
The BHF Southern African Conference July’07 Sun City

11. APPOINTMENT OF A MEDICAL SCHEME TRUSTEE
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the Circle
At least 50% are elected by the members
Trustees not elected by the members are appointed or elected in terms of the rules
Bill - Person may not be a trustee if:
Employee, director, officer, consultant or contractor of any person contracted by the scheme to provide administrative, marketing or managed health care services or of its holding company, subsidiary, joint venture or associate.
The BHF Southern African Conference July’07 Sun City

12. DISQUALIFICATION OF A TRUSTEE
Squaring
the Circle
Is a broker or an employee, director, shareholder, officer, consultant or contractor of a person which provides broker services
Otherwise has a material relationship with any person contracted by the medical scheme to provide administrative, marketing, broker, managed health care or other services, or with its holding company, subsidiary, joint venture or associate.
We find the same restrictions on the appointment of the principal officer.
The BHF Southern African Conference July’07 Sun City

13. QUALIFICATION OF A TRUSTEE
Squaring
the Circle
Fit and proper requirement remains in the Bill
How do we measure fit and proper?
When do we measure fit and proper?
Nominations for trustee appointment should contain a statement by the nominee confirming his/her fit and proper status.
Trustees should approve all nominations for “fit and proper status” before election
The BHF Southern African Conference July’07 Sun City

14. QUALIFICATION OF A TRUSTEE
Squaring
the Circle
Fit and proper measurement should be applied throughout the period of appointment by way of:
Disclosure of interests
Assessment of trustee performance (individually and collectively)
Measure fit and proper against the Company’s Act disqualification clauses and/or holders of political office ito the constitution.
Removal of a trustee requires CMS approval
The BHF Southern African Conference July’07 Sun City

15. EXECUTIVE VS NON-EXECUTIVE
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the Circle
Companies have 3 categories of directors
Executive
Non-executive
Independent non-executive
(Chairman is usually a non-executive director)
A correct balance is sought in decision making with independent input
Executive is accountable to the Board and can vote in decision making process
The BHF Southern African Conference July’07 Sun City

16. EXECUTIVE VS NON-EXECUTIVE
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the Circle
Medical schemes have 2 categories of trustees
Elected by members (usually one is chairman)
Appointed or elected by the Board of Trustees
Principal officer is the chief executive officer but has no voting power at the Board of Trustee meetings
Trustees are not involved in executive functions of the scheme.
The BHF Southern African Conference July’07 Sun City

17. EXECUTIVE VS NON-EXECUTIVE
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the Circle
There is no difference between responsibilities and accountability of executive and non-executive directors to stakeholders
Executive directors have hands on responsibility and accountability checked and controlled by non-executive directors.
The BHF Southern African Conference July’07 Sun City

18. EXECUTIVE VS NON-EXECUTIVE
Squaring
the Circle
The responsibility and accountability of trustees is somewhat more onerous than that of directors.
In as much as they are more distant from the executive functions than are the directors of a company.
The PO has no voting rights at BoT meetings. Trustees carry ultimate accountability and responsibility.
The BHF Southern African Conference July’07 Sun City

19. The BHF Southern African Conference 22-25 July’07 Sun City
KING II APPLICATION
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the Circle
Applies equally to directors and trustees.
All companies listed on JSE
Banks, financial and insurance entities as defined in financial services sector legislation
Public sector enterprises and agencies that fall under the PFMA
All other companies should consider applying the code
Medical schemes adopt the code.
The BHF Southern African Conference July’07 Sun City

20. The BHF Southern African Conference 22-25 July’07 Sun City
KING II APPLICATION
Squaring
the Circle
Seven characteristics of good corporate governance:
Discipline
Transparency
Independence
Accountability
Responsibility
Fairness
Social responsibility
The BHF Southern African Conference July’07 Sun City

21. STRUCTURES AND PROCESSES
Squaring
the Circle
Board of Directors duties include
Management
Care and skill (at a level of a reasonable director)
Fiduciary
Disclosure
Conflict of interest and secret profits
Liability
{Section 91(1) of the Bill}
The BHF Southern African Conference July’07 Sun City

22. STRUCTURES AND PROCESSES
Squaring
the Circle
Board of Trustees duties include:
Sec 57(4) of the Act
Management, controls and record keeping
Communication with members
PI Insurance
Obtain expert advice
Compliance with the Act
Confidentiality of beneficiary medical matters
Fiduciary responsibilities
The BHF Southern African Conference July’07 Sun City

23. STRUCTURES AND PROCESSES
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the Circle
Bill has new section 57A:
“The BoT and the PO shall establish and maintain an adequate and effective process of corporate governance, which shall be consistent with the nature, complexity and risk inherent in the activities and the business of the scheme”
The BHF Southern African Conference July’07 Sun City

24. STRUCTURES AND PROCESSES
Squaring
the Circle
CMS may publish guidelines and requirements for disclosure to assist the BoT and PO to establish and maintain adequate and effective processes of corporate governance.
The disclosures to be to the Registrar and trustees must record the extent to which the scheme has met the prescribed guidelines in the manner and format as the CMS may from time to time determine
The BHF Southern African Conference July’07 Sun City

25. STRUCTURES AND PROCESSES
Squaring
the Circle
Company legislation calls for the Board to appoint sub committees but only prescribes an Audit Committee whilst referring to a remuneration committee.
Medical scheme legislation calls for a BoT to appoint sub committees but only prescribes an Audit Committee
The BHF Southern African Conference July’07 Sun City

26. STRUCTURES AND PROCESSES
Squaring
the Circle
King II recommends the following corporate governance processes:
Audit Committee
Remuneration Committee
Risk evaluation and management
Board and committee charters or ToR
Internal audit
Board self evaluation (and sub committees)
Integrated sustainability reporting
Code of ethics
The BHF Southern African Conference July’07 Sun City

27. COMMON RESPONSIBILITIES
Squaring
the Circle
Election and appointment of Board
Nominees not disqualified
Fit and proper
Understand duties
Appointment of CEO
Appointment of sub-committees
Audit Committee
Remuneration Committee
Others as identified
The BHF Southern African Conference July’07 Sun City

28. COMMON RESPONSIBILITIES
Squaring
the Circle
Risk assessment and management plan
Strategic planning
Codes of ethics and conduct
Disclosure of conflict of interests
Terms of reference and charters
Stakeholder relations
The BHF Southern African Conference July’07 Sun City

29. COMMON RESPONSIBILITIES
Squaring
the Circle
Compliance with legislation
Corporate governance processes
BEE
Fraud prevention and protection plan
Internal audit
External audit
Safety health and environment (SHE)
Social involvement
The BHF Southern African Conference July’07 Sun City

30. TRUSTEE RESPONSIBILITIES
Squaring
the Circle
Contribution and benefit structures
Provider negotiations
Protection of the member
Member and beneficiary relations
Regulated by CMS
Financial reporting to comply
PMB REF SHI??
The BHF Southern African Conference July’07 Sun City

31. The BHF Southern African Conference 22-25 July’07 Sun City
SUMMARY
Squaring
the Circle
Directors and Trustees carry similar responsibilities and are accountable to their respective stakeholders.
Directors are responsible in terms of legislation, their own rules and regulators such as CIPRO and SARS.
Trustees are responsible in terms of legislation, own rules and particularly to the Registrar of Medical Schemes.
The BHF Southern African Conference July’07 Sun City

32. The BHF Southern African Conference 22-25 July’07 Sun City
SUMMARY
Squaring
the Circle
Suitability for appointment differs
Directors appointed by shareholders after careful consideration of suitability
Trustees appointed by members which may be for “political” or “other” reasons as opposed to “skill” and “experience”
Trustees must be “fit and proper” to accept appointment
The BHF Southern African Conference July’07 Sun City

33. The BHF Southern African Conference 22-25 July’07 Sun City
SUMMARY
Squaring
the Circle
Disqualification
Directors according to prior behaviour patterns as defined in the Companies Act
Trustees if involved in any way with the administrator, marketing and/or the managed care organisation providing services to the scheme, and
Trustees if a broker or employed by a broker
Trustees – what about prior behaviour patterns??
The BHF Southern African Conference July’07 Sun City

34. The BHF Southern African Conference 22-25 July’07 Sun City
SUMMARY
Squaring
the Circle
Boards of directors have executive and non-executive structure
Company CEO is an executive director
Boards of trustees are basically non-executive
Scheme PO is the CEO but is not a trustee
The BHF Southern African Conference July’07 Sun City

35. The BHF Southern African Conference 22-25 July’07 Sun City
SUMMARY
Squaring
the Circle
All public companies, financial and insurance institutions should follow King II governance processes
It is recommended that other large companies follow King II
Medical schemes are not required to follow King II but as insurance institutions should do so. CMS evaluates scheme governance compliance against King II
The BHF Southern African Conference July’07 Sun City

36. The BHF Southern African Conference 22-25 July’07 Sun City
SUMMARY
Squaring
the Circle
Duties and responsibilities are similar.
Trustees have additional specific roles as set out in section 57 of the Act
Common accountability to members
Company shareholders
Scheme members
The BHF Southern African Conference July’07 Sun City

37. The BHF Southern African Conference 22-25 July’07 Sun City
SUMMARY
Squaring
the Circle
Companies are under supervision of the DTI, FSB and JSE (where applicable)
Companies subject to income tax
Schemes are subject to detailed supervision by the Registrar for Medical Schemes
Approval of contribution and benefit structures
Statutory and REF returns
Credentialising, inspection and discipline on business functions and financial standards
The BHF Southern African Conference July’07 Sun City

38. The BHF Southern African Conference 22-25 July’07 Sun City
CLOSURE
Squaring
the Circle
Questions
Recommendations
The BHF Southern African Conference July’07 Sun City