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JIMMY MOYAHA: We’re taking a look now at state-owned entities and appointing the right individuals for state-owned entities. I’m joined by Professor Parmi Natesan, who is the chief executive officer at the Institute of Directors in South Africa (IoDSA), to take a look at this. Prof Natesan, good day, thanks so much for taking the time. How do we ensure that we appoint the right people at any entity, not just state-owned entities?
PARMI NATESAN: Good afternoon. I think it’s something we’ve been speaking about for a very long time because directorship is quite a serious role played within organisations and we’ve seen the consequences where it isn’t done properly or serious errors are made, misconduct and so on. So I think it’s really important to consider what competencies are being sought before appointments are made.
So what technical knowledge, experience, qualifications and so on that we want individuals to have in order for them to understand the business and apply their business judgment and ultimately make good decisions for the organisation. Then, of course, we are looking for social and personal skills, so how do they interact in a boardroom, add value and so on.
Then most importantly, we are also looking for a certain moral compass, to do the right thing for the organisation you’re serving and not for your individual needs or wants.
I think those are the three things that you need to look at.
JIMMY MOYAHA: Prof Natesan, we’ve got a very clear governance structure that governs and dictates this. I’m referring to King IV obviously, the importance of legislation or policy or procedures such as that in ensuring that we don’t have board appointees driving the wrong agendas or shareholders that have appointed them asserting a certain level of dominance that almost takes away the independence or the ability of these appointed individuals to conduct what they’re elected to do. How important is it to be referring to framework like this and relying on framework like this?
PARMI NATESAN: I think it’s very critical. King IV sets out governance best practice, which should be followed. I think the challenge comes in is that King IV has to work within the legislative framework that already exists for entities. I think in the public sector, what I’m seeing is either they’re enabling legislation or their shareholder compact documents or their MOIs (Memorandum of Incorporation) and so on blur the lines and don’t necessarily comply with what King IV is recommending.
So that’s where you’ll see the issue of non-consideration of competencies when appointments are made. Because the way it works currently in our public sector is government or the minister makes appointments to these boards, and one has to wonder what criteria they’re taking into account when we know that there’s political play here.
Read: SOE CEO appointments remain a governance minefield – IoDSA
Then also with blurring of lines, again, in a normal governance structure, you have a shareholder who appoints a board. The board are the ones with the liability and obligations towards the entity. They should, therefore, be free to exercise their own discretion and make up their own minds independently on decisions. But far too often we see a shareholder being a minister, representing government, is making decisions, is wanting to set strategy, is wanting to guide the board on how they must make the decisions instead of letting them apply their minds.
We also see that the shareholder wants to appoint CEOs very often, and even that messes with the governance structure because the CEO should be accountable to their board and should be appointed by their board.
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Because how can you put a board in place, tell them legally in terms of our Company’s Act and so on you have all these legal duties and potential liability when things go wrong, but then your hands are almost tied on the other end in terms of making decisions. It doesn’t make sense.
JIMMY MOYAHA: Prof Natesan, would you say this is one of the reasons why we’re seeing a limited effectiveness of boards? One example that comes to mind is the Post Office’s board. Just from an accountability point of view as well, is this why we’re not seeing that boards are held to the same standards as perhaps in the private sector because of this blurred relationship once the shareholder appoints the board members?
PARMI NATESAN: Absolutely. I think there are challenges for boards in both the private and public sector. So we’re not saying the private sector boards are perfect either. I think all of them need to really look at their nominations processes and how they’re finding candidates and so on. I think it’s just exacerbated in the public sector because of this political influence.
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Now, if we are appointing candidates because of their political stance or relationships with a certain political party and so on, and not necessarily looking at whether they have the competencies to serve as a director, obviously there’s going to be impact to the organisation. So that board itself is not going to be performing and that’s going to flow down to the organisation not performing, unfortunately.
JIMMY MOYAHA: What do we make of the rotation of certain board members between SOEs? You’ll find that a CFO of one SOE will jump off and become CFO of another SOE. How does that factor into one, the limitation of bringing in new and experienced personnel, but two, also from a transparency and a governance point of view?
PARMI NATESAN: I think if you’re looking at CFO specifically, that’s an employment position, not necessarily a non-executive director position. So yes, we may have executives moving from one entity to the other and that’s not in itself a problem.
I think the problem comes in when there’s a lack of transparency on the reasons they left the initial entity.
So oftentimes there are reasons related to performance, misconduct and so on. These may or may not be public and oftentimes settlements are reached with confidentiality clauses and so on. Then people are just appointed elsewhere and then that really leads to a lack of accountability in the end.
JIMMY MOYAHA: A lot more needs to be done to ensure that we have the right people in the right positions, especially at state-owned entities. Thanks so much, Prof. That’s Prof Parmi Natesan, who is the CEO of the Institute of Directors in South Africa, giving us her thoughts on appointing the right individuals
