The appointment of Eskom Chair, Jabu Mabuza, as interim CEO has provoked many questions, particularly from a governance point of view. While it is true that governance best practice is to keep the positions of CEO and Chair separate, there could be some justification for the move—provided that the right safeguards are put in place, says Parmi Natesan, CEO of the Institute of Directors in Southern Africa, the custodians of the King Reports on Corporate Governance.
 
Principle 10 of King IV states: The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibilities.
 
“King is clear that the roles of the CEO and Chair are quite distinct, and that good governance requires them to be kept rigorously separate. The Chair leads the Board in exercising oversight over management, and should be independent, while the CEO leads the management team. The CEO and his or her team are accountable to the board, and this separation of powers is vital to ensure the necessary checks and balances are in place,” she says.
 
“However, King IV also makes it clear that governance is not a matter of blind compliance either—the board must exercise its judgement to come up with solutions that are in the best interests of the organisation, and will lead to a stated and desired outcome.”
 
Ms Natesan goes on to say that while governing bodies need to have the freedom to consider what would be best for the organisation, they must also take care to communicate their reasoning to stakeholders—transparency is critical in demonstrating that the board has exercised its judgement.
 
In the circumstances in which Eskom finds itself, appointing the Chair as CEO as an interim measure, with the purpose of creating a stable transition period until a new CEO is appointed, may be in the best interests of the organisation. However, this is not an ideal situation, clearly, and we urge that the following two issues are properly addressed.
 
First, in order to maintain accountability while Mr Mabusa holds both roles, there should be clear steps taken to ensure that the lead independent director plays an active role where necessary.
 
Second, it must ensure that the process of appointing a new CEO is transparent and, critically, that it is concluded within the short-term period as stipulated. To have to extend this temporary arrangement would not be ideal from a governance perspective.
 
A final point to be made is that succession planning for key management roles needs to be made a top priority. Ideally, somebody within the organisation should had been groomed to assume the CEO role, even temporarily in an emergency such as this.
 
“The way this three-month period is handled will show whether the individuals in power are acting decisively in the best interests of the organisation,” she concludes.
 
ENDS
 
MEDIA CONTACT: Stephné du Toit, 084 587 9933, [email protected], www.atthatpoint.co.za
 
For more information on the IoDSA please visit:
Website:  www.iodsa.co.za
Twitter:  @The_IoDSA
LinkedIn:  Institute of Directors in Southern Africa Company Page  
 
 

The recent news around Old Mutual’s decision to terminate the contract of its CEO, Peter Moyo; and his response regarding the Chairman Trevor Manual, has once again put conflicts of interest into the spotlight. While not wanting to prejudge this particular issue, we are reminded that these are not simple matters.
 
Conflicts in the boardroom need to be carefully managed to ensure they do not put either the director or the organisation at risk—or create a negative public perception. And the fundamental key to managing conflicts of interest is open, full and candid disclosure and appropriate management.
 
That’s according to Parmi Natesan, CEO, Institute of Directors in Southern Africa (IoDSA), who explains that a conflict of interest arises when there is tension between competing interests, whether they are personal, financial or other. These conflicts might be real, potential or perceived; perceived conflicts can be as reputationally damaging as real ones and should also be managed.
 
Where conflicts are pervasive, handling them is simple: they should just be avoided rather than managed. For example, a director should not serve on the boards of two competing companies.
 
Other conflicts can be manageable because they are not as pervasive. “In the case where there is such a conflict, and the parties still want to work together, it is highly advisable to put comprehensive safeguards in place,” says Natesan.
 
These safeguards include identification and appropriate management of conflicts by the Chair and company secretary, as well as comprehensive and timely disclosure from the conflicted individuals themselves,” Natesan points out.
 
Directors have a duty to avoid or manage conflicts of interest. This, for example, requires directors with an interest in a matter to be discussed by the board, to declare that interest at first instance.
 
The declaration should include any material information known to the director, as well as disclosure of any observations or pertinent insights if requested to do so by other directors.
 
If a conflict is declared, the Chair should ensure that this is minuted, and then lead a discussion about the implications and steps needed to manage this conflict, in order to comply with all the relevant legal regulations as well as governance policies in play. 
 
Where considered necessary, the conflicted individual should leave the meeting and take no further part in the discussion/decision relating to this matter.
 
There are consequences for failing to manage conflicts effectively, as she makes clear, which go beyond reputational damage. “Any decisions which flow from conflicted interests which weren’t managed may be regarded as void. This can lead to legal action and if a director relies on the business judgment rule to defend a decision, they should demonstrate that any conflicts of interest were appropriately managed,” she adds.
 
 “The reality is that conflicts of interest are a fact of business life. Their existence doesn’t necessarily mean impropriety – but failing to declare and manage them means impropriety is likely to be strongly suspected. The consequences can be severe, and thus members of governing bodies should follow these steps to ensure that they and the organisation are protected,” Natesan concludes.

ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, [email protected], www.atthatpoint.co.za
 
For more information on the IoDSA please visit:
Website:  www.iodsa.co.za
Twitter:  @The_IoDSA
LinkedIn:  Institute of Directors in Southern Africa Company Page  

SOE boards: It matters who gets appointed and how they get appointed

Chief Justice Mogoeng Mogoeng, during his address at The Directors Event in Sandton, highlighted the issue of board and other leadership appointments in the public sector.  “I think we should begin to think about tests that people must be subjected to before they can be elevated to positions of high responsibility,” he said.
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“It is the president who appoints people who head state-owned companies or enterprises. If you appoint a rotten apple at any level, you don’t even have to split hairs to understand what is going to happen to that entity.”

According to Parmi Natesan, CEO of the Institute of Directors in Southern Africa: “The Chief Justice’s statement brings to the fore two major challenges in director appointments in the public sector; flaws in the appointment process and leadership competencies not being sufficiently considered.”

The appointment process
In the private sector, a nominations committee – or failing that the board themselves – would typically be responsible for conducting a due diligence on prospective non-executive directors and making recommendations to the shareholders for appointment. Appointment of executives, on the other hand, would be the responsibility of the board alone.

By contrast, director appointments in the public sector are largely led or solely influenced by one single individual – the relevant Minister – especially in the case of non-executive directors. Whilst executives like the CEO are interviewed and shortlisted by the board, there is often still interference with this process during the initial recruitment process.

"It is critical that the Ministers ensure that thorough due diligence are performed and that existing boards are consulted to determine the skills and experience needed before making any non-executive director appointments,” recommends Natesan. “It is equally critical that Ministers allow the board to appoint executives without undue influence.  In addition, Ministers should consider a staggered rotation process to provide continuity and institutional memory within boards.”

According to the King IV report on corporate governance, the board should consider the collective knowledge, skills and experience required by the board, the diversity of the board, whether the candidate meets the appropriate fit and proper criteria before nominating a candidate for appointment.  This thorough consideration is sometimes lacking in the public sector, in favour of political pressure.

"Although the Minister is under no legal obligation to consider the recommendations made by a board or a nominations committee, it would serve the organisation well if the processes for nomination, election and ultimately, the appointment of members to the board are transparent and sufficiently aligned to the needs of the organisation.”
 
Leadership competencies
Appointments in the public sector are sometimes based on political connections rather than the necessary knowledge, experience and integrity.

“Boards are only as good as the people who serve on them,” explains Natesan. “One of a Minister’s key responsibilities is therefore to appoint effective and ethical individuals to the boards they oversee. This is absolutely critical for the success of these entities.”

“It would serve any public sector organisation well if its board members possess the relevant competencies that meet the needs of the organisation and the role board members are required to play in meeting those needs. This would lead to public trust in the appointment process and the individuals themselves.”

“During 2018, government gave an undertaking to finalise a framework for board appointments to state-owned entities, as part of National Treasury’s Inclusive Growth Action Plan,” says Natesan. “The IoDSA made several recommendations related to our director competency framework at that stage, and we keenly await the release of finalised guide.”

Natesan points out that the ongoing tribulations at most state-owned institutions – as well as within the private sector – strengthen the IoDSA’s argument that building a cohort of professional directors is imperative in order to strengthen our economy’s ability to grow. To that end, the IoDSA has formal Chartered Director (SA) and Certified Director designations that provide a framework for directors to acquire and demonstrate the specialist skills, experience and integrity needed to discharge their duties with mastery – the very tests needed prior to individuals being elevated to directorship positions.

ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, [email protected], www.atthatpoint.co.za
 
For more information on the IoDSA please visit:
Website:  www.iodsa.co.za
Twitter:  @The_IoDSA
LinkedIn:  Institute of Directors in Southern Africa Company Page