 Recent events in both the public and private sectors are again highlighting the key role that proper succession planning plays in supporting any organisation’s sustainability, particularly when it comes to CEOs and governing-body chairs.
Poor succession planning inevitably creates a leadership vacuum at both governing body and executive management level resulting in a loss of the longer term strategic focus. The impacts of this uncertainty can be dire, says Richard Foster, facilitator at the Institute of Directors in Southern Africa (IoDSA). Impacts can include a loss of performance delivery influenced by such factors as possible churn at the senior management level, the loss of market share to more focused competitors, severe reputational damage and erosion of investor and other key stakeholder confidence in both the governing body and senior management alike. “Because good governance relies on effective leadership, succession planning receives significant focus in King IV. In addition, its five sector supplements deal with the specific issues relating to succession planning in different contexts,” Mr Foster notes. The position is particularly complex when it comes to state-owned entities (SOEs) because certain appointments like the CEO and governing-body chair are typically mandated in legislation or founding documents. The shareholder thus plays a key role, and the process is not as easily aligned with what is considered governance best practice, he says. A similar situation exists in local government. One mark of the difficulties of proper succession planning at SOEs is the reliance on interim appointments. However, they inevitably create uncertainty unless they are well thought-through and the process is properly communicated to stakeholders. “One of the governing body’s primary functions is to create and oversee the implementation of strategy, implying a three-to-five-year, or even longer timeline. Interim appointments, by contrast, tend to be operationally focused pending a permanent appointment,” he says. King IV recommends that governing bodies should ensure succession plans exist for their own members, as well as for the CEO and executive management team. However, because succession planning is intimately connected with the appointment of these senior office-bearers, succession planning for SOEs is, as previously mentioned, more complex and challenging. Typically, the shareholder/executive authority (ultimately the government) has the power (or obligation) to appoint the chair and/or the CEO and/or other governing-body members. In its SOE Sector Supplement, King IV recommends that these appointments should be accomplished via a robust and transparent process that involves the governing body (the accounting authority) as much as possible to give effect to the aspirations of the relevant principle. “The processes for appointing CEOs or chairs at certain SOEs is sometimes questioned. The damage caused by unsuitable appointments is now plain, and both the organisations and the economy as a whole are affected,” he says. To align succession planning in SOEs better with governance best practice, the King IV SOE Sector Supplement recommends that the CEO’s letter of appointment should clearly state that the CEO is accountable to the governing body (rather than the executive authority i.e. shareholder), that the governing body and CEO jointly agree on how the CEO’s performance should be measured, and that the governing body has the primary responsibility for firing the CEO. “It is encouraging that Government seems to have now recognised that good corporate governance requires ethical and effective leadership, and that increased focus appears to have been placed on the succession planning and attendant appointment process,” Mr Foster concludes. “The consequences of not following the recommended practices of good governance are now plain to see.” ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, 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
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 One of the most persistent challenges relating to governance is the tendency to focus on form rather than substance. In line with King IV, it’s time finally to accept that governance is not an end in itself, but a tool for delivering outcomes, says Parmi Natesan, Executive: Centre for Corporate Governance at the Institute of Directors in Southern Africa (IoDSA) and Professor Deon Rossouw, CEO of The Ethics Institute.
“Organisations only exist in order to deliver on their purpose and, similarly, governance only exists in order to help them do that,” says Professor Rossouw. “Governance got a bad name because people persist in seeing it in terms of compliance, structures and policies. Of course, these things are important only as tools to help deliver outcomes.” This focus on outcomes is very much a feature of King IV, which was designed to link governance practices with four governance outcomes, notes Ms Natesan. “The critical point is that structures need humans to give them life, to use them to deliver the desired results. Governing bodies must therefore ensure that the governance structures are indeed achieving the desired governance outcomes,” she says. King IV identified four governance outcomes: an ethical culture, good performance, effective control and legitimacy. Boards can therefore measure whether the structures they have put in place, and the way they are being used, are effective by measuring the extent to which these outcomes are being attained. Clearly, then, the personal qualities and actions of the members of the governing body are critical in ensuring that the governance objectives are achieved, that substance follows form. King IV retained the four cardinal values that should underpin good governance—responsibility, accountability, fairness and transparency (RAFT)—but added two further ones: integrity and competence. This recognises that governance structures will only be valuable if they are used by people who are prepared to put their own interests aside and act ethically in the best interests of the organisation, beyond mere legal compliance, and who have the requisite knowledge both of the organisation and the industry in which it operates. “It is important to recognise that governing-body members have to cultivate these characteristics in order to make them instinctual,” Professor Rossouw argues. “People aren’t born with integrity, competence or any of the others, they have to be nurtured.” As with any enterprise involving human behaviour, moving from form to substance is no easy task. Some guidelines for assisting are: • Select members of the governing body carefully. It all begins with selection, says Professor Rossouw, so nomination committees must actively seek people with these cardinal virtues. • Orient new members properly. Once selected, it is vital that new members of the governing body are properly educated about what their new role entails, and continually reminded that they are there primarily to serve the best interests of the organisation, not those of any particular stakeholder. • Structure meetings carefully to ensure that members have the right types of conversation, and do not confine themselves to ticking the boxes. Courage becomes important here—not just moral courage but also the courage to take the right risks. • Hold members of the governing body accountable. There are several elements to this. First, peer pressure must be harnessed to create a positive atmosphere in which members continually assess their own performance and that of their fellow members. Courage will also be at a premium here but it is equally important the board is truly diverse, says Ms Natesan. This is needed to overcome the “buddy mentality” in addition to measures like gender, race and age. At the same time, though, it must be recognised that self-appraisal is no substitute for the stakeholders assessment of the extent to which the four governance outcomes have been achieved. Ms Natesan stresses that there is not necessarily more unethical behaviour now, just that it is more visible—something she sees as positive. She argues that, going forward, how governing bodies disclose about governance and its results will become more and more important. The disclosure must convince stakeholders not just that the right governance structures are in place, but that they are delivering results, she says. Looking forward, adds Professor Rossouw, as we move away from compliance to reporting on integrated performance, the triumph of substance over form will be shown when it is clear that the organisation has not only achieved its purpose in the past, but is well-positioned to continue achieving it into the future. ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, juanita@thatpoint.co.za, 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  Parmi Natesan Executive, Centre for Corporate Governance at the IoDSA The Institute of Directors in Southern Africa (IoDSA) welcomes the proposed guidelines for reforming the country’s state-owned enterprises (SOEs) recently released by government.
Parmi Natesan Executive, Centre for Corporate Governance at the IoDSA comments: “This initiative is most welcome as key parastatals provide the vital enabling environment for economic growth. The IoDSA has in the past noted that many of the challenges currently experienced by SOEs can be traced to inadequate governance.” As highlighted in a recent article, much of the success of Singapore’s public sector is attributed to its adherence to strict governance guidelines. [1] Board performance is strongly linked to organisation performance, which is why both King III and the Companies Act place such emphasis on governance and the function of boards, Natesan points out. Natesan highlights some of the key governance issues for SOEs, as previously highlighted by the IoDSA and that now form part of the government’s reform plan: Maintain the separation of roles Perhaps one the key causes of SOE malfunction is the undue interference of the state in the running of SOEs. This includes short-circuiting the process for board and executive nominations, and issuing instructions to boards that are based on political rather than economic grounds. “If boards are to be accountable for the performance of the SOE, then they have to have the freedom to exercise their collective judgement in its best long-term interests,” she says. “The shareholder must, of course, spell out what the goals of the SOE are, but then it must allow the board and executive management team to do their jobs. The roles for each player need to be better understood and adhered to.” Ensure boards have the right capacity Natesan points out that boards need to have the right mix of knowledge, skills and experience or they cannot perform their strategic and oversight functions adequately. “Making appointments on political grounds alone has been a recipe for underperformance at best, and disaster at worst. SOEs have a unique economic and developmental role, and that must be incorporated into the skills matrix that guides board composition”, she says. Natesan points out that South Africa does have a shortage of professionally qualified and experienced directorial talent. The IoDSA has already put in place a multifaceted plan to grow the talent pool by offering training related to the 20 competencies of its Director Competency Framework. This Framework will enable directors ultimately to achieve the professional Chartered Director (SA) designation. The IoDSA also offers associate membership to allow up-and-coming directors to upskill themselves and build their networks. Board performance must be evaluated regularly Evaluation is the only way for the state, as the shareholder, to assess whether the board is operating optimally, and to identify areas of improvement. Independently facilitated board evaluations provide the board itself, as well as the state as shareholder, with an objective understanding of how well the board is functioning, and what governance areas need to be addressed. “Governance is receiving such attention globally because it improves performance,” Natesan concludes. “South Africa is a leader in this field—let’s hope that government finally benefits from our home-grown expertise to get our SOEs back on track.” ENDS MEDIA CONTACT: Cathlen Fourie, 082 222 9198, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group [1] Greg Mills, “The profit motive: What Singapore can teach Pretoria about business”, Daily Maverick, 15February 2016, available at http://www.dailymaverick.co.za/article/2016-02-15-the-profit-motive-what-singapore-can-teach-pretoria-about-development/#.VsQ9qvJ97ct.  The Institute of Directors in Southern African (IoDSA) in conjunction with the International Finance Corporation (IFC) and sponsored by the Swiss State Secretariat for Economic Affairs (SECO) is looking for case studies that are recent and relevant to the African continent corporate governance environment and landscape.
Case studies must be based on actual corporate governance cases in Africa, within organisation which can be expected to, or choose to, apply the principles contained in the King Code for Governance Principles in South Africa and the King Report on Governance in South Africa ("King III”) or the relevant corporate governance code of the country within which the organisation operates. The IoDSA, the IFC and SECO are offering prizes to the value of R170 000. For more information on criteria, submissions and prizes, please visit http://bit.ly/1gLtsGN ENDS MEDIA CONTACT: Cathlen Fourie, 012 664 2833, cathlen@thatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group  Current news reports relating to the South African Nuclear Energy Corporation (Necsa) indicate once again the damage that poor governance can cause to institutions that are funded by public money and whose influence on society is huge.
Insofar as they can be ascertained, the facts seem to be that the board of Necsa suspended the CEO for disciplinary lapses, apparently with the approval of the Minister of Energy, Tina Joemat-Pettersson. Subsequently, the Minister changed track, instructing the board to reverse the suspension, which it refused to do. The Minister then announced a task team to investigate the board. Allegations of political maneuvering ahead of the proposed deal to build nuclear reactors continue to fly. “The ins and outs of this situation are not really the main issue here. The real casualty here is Necsa itself, and by implication the whole process around the forthcoming nuclear build programme,” says Parmi Natesan, Executive: Centre for Corporate Governance at the Institute of Directors in Southern Africa (IoDSA). “Poor governance practices continue to hamstring our public sector institutions, and we need to understand the issues here so they are not repeated.” Suspension of CEO requires balancing act Natesan says that one important issue is the suspension of the CEO. Such an action causes severe damage to the reputation of the individual concerned, obviously, but also to the institution itself. Accordingly, suspension should be seen as a last resort, and only if the board is certain it has all the facts, and that the executive’s continued presence would harm the organisation or interfere with further investigation of the allegations. Suspension can be seen as showing a board’s commitment to accountability, but it also opens it to accusations of bias and the suspicion of prejudgment. Consider the case of the Pikitup CEO, who was suspended for a long period but who has recently been cleared and reinstated. The lengthy and public suspension has caused severe damage to the reputations of both the individual and the company—something that could have been avoided or minimised. However, it’s also worth mentioning that the board has to have confidence in the executive management of the company, and thus must have full control over who holds the executive positions. An additional complication at Necsa is the fact that the executive committee appears to have come out in support of the CEO and thus in opposition to the board. The spectacle of a board at loggerheads with the executives who are supposed to report to it is extremely damaging to the company, and is typically a result of loyalties being divided. The litmus test, she concludes, must always be the company’s best interest and its long-term, strategic goals. Lack of role clarity A second important issue is the lack of role clarity in the public sector, here shown by the way in which the Minister “instructed” the board to perform certain actions. Shareholders appoint Boards to direct and oversee the company, and thus these Boards must be free to exercise their collective judgement and make their own decisions. A powerful, single shareholder can break down this necessary distance, so that the board merely becomes a rubber stamp for the shareholder, or the two are in constant conflict. Another example of this lack of role clarity between the shareholder and the board in the public sector is the Minister of Communications’ attempts to make the SABC board seek her approval on any rule changes to the SABC’s governance, and her determination to appoint Hlaudi Motsoeneng as COO despite the board’s reservations. “Again, the company’s well-being must be paramount. Boards have to be given the space to take a more deliberate, long-term and objective view of the company’s best interests,” she argues. Improper use of funds A third issue concerns allegations that the CEO improperly diverted company funds to the ANC, with allegations of nepotism continuing to break in the media. The question here is whether the CEO acted within the bounds of the powers delegated to him by the board. Delegation of authority is a vital tool used by boards to retain adequate control while enabling the company to operate effectively and efficiently. These allegations also highlight the need for a strong audit committee to oversee the proper use of public money. Each year, the Auditor-General’s reports show increasing levels of fruitless and wasteful expenditure in the public sector; audit committees have a vital role to play in ensuring that processes are put in place to prevent and detect this waste of public money. “In the end, the CEO role is critical for a company’s success,” says Natesan. “The board must act in the company’s best interest, and must be allowed to do so. The minister, representing the shareholder, should also have the company’s well-being at heart, and should desist from undue interference.” ENDS MEDIA CONTACT: Cathlen Fourie, 082 222 9198, cathlen@thatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group  Parmi Natesan The Institute of Directors in Southern Africa (IoDSA) is adding a governance view to the concern being expressed in recent new articles around proposed changes to the SABC’s Memorandum of Incorporation (MoI) by Minister Faith Muthambi. Parmi Natesan, Executive: Centre for Corporate Governance at the IoDSA, says that some of the reported changes do not align to governance best practice.
One issue raised by Natesan is the fact that the changes to the MoI has the potential to blur the governance roles played by the shareholder (the state) and the SABC board. In the private sector it is very clear that the shareholders hold shares in a company and appoint a board to direct and oversee the company on their behalf. “The board could bear liability if its decisions are wrong, so it’s important that it has the power to make its own decisions,” Natesan explains. “Thus if shareholders interfere too much in the way that the company is run, then governance breaks down. This is unfortunately a common problem that exists in the public sector as boards become rubber stamps for the dominant shareholder—which results in poor board and ultimately poor company performance.” Another adverse result is that these boards find it increasingly difficult to attract directors with the right levels of knowledge and skills. Individuals with governance knowledge would be reluctant to serve on such boards because they realise they will incur great responsibility and liability, whilst their true power to make the right decisions are restricted. The MoI also permits the Minister to appoint the COO as acting CEO when the latter position is vacant, and also gives her the power to extend employment contracts for the CEO, CFO and COO. Natesan points out that there is a danger of sacrificing general principles in order to achieve short-term goals. There’s widespread agreement that boards have to be responsible for executive appointments because executives are responsible and accountable to the board. When executives are appointed by the shareholder, they tend to feel accountable to the Minister, as the representative of the shareholder, and not the board. Again, as the IoDSA’s studies show, this causes significant confusion around role clarity and reporting lines within the governance structure. A more complex, though related, issue is the power given to the Minister to recommend the removal of a board member. Shareholders have always had the power to remove directors but Natesan cautions that the dynamics are complicated when there is a single shareholder represented by a single individual. In the private sector, the fact that there are generally multiple shareholders ensures that alternative viewpoints compete, and the delicate balance between shareholders and board can be maintained. “The fact that public sector corporations have only one shareholder who is politically driven, makes it much harder to strike the right governance balance, and this in turn compromises the board’s ability to do its job,” says Natesan. “If the single shareholder refuses to follow governance best practices in pursuit of short-term, political ends, it will fatally damage the ability of an entity to function effectively. South Africa is a global leader in corporate governance—we should practice what we preach.” ENDS MEDIA CONTACT: Cathlen Fourie, 012 664 2833, cathlen@thatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group  Parmi Natesan’s job requires her to lead a balanced life and have it all. It requires her to attend detailed strategic discussions with clients, and helping her two children with their homework. It demands a focus to detail on complex corporate governance issues, and to apply the same attention to detail when sewing costumes for a school play.
Although this might seem like the perfect life, it requires being “fast-paced and super-organised” according to Parmi, who was recently promoted to Executive: Centre for Corporate Governance at the Institute of Directors of Southern Africa (IoDSA). “I am also very fortunate to work for a company that allows me the flexibility that I need in order to be able to have it all.” As an Indian female with deceivingly youthful features, Parmi has experienced her fair share of discrimination in the workplace, but did not allow it to influence her focus on making valuable contributions during her 12-year career serving a variety of industries. In her new role as part of the leadership team of the IoDSA, Parmi can combine her knowledge, experience and passion to further the IoDSA goals of Better directors, Better boards, Better business. With Bcom (Honours) and Bcom (cum laude) degrees from the former University of Port Elizabeth, Parmi is a Chartered Accountant (South Africa) passionate about the value of corporate governance for South African corporate and private citizens alike. “We should all pay attention to corporate governance, even if we are not we are shareholders or directors of companies, as we are all inevitably stakeholders,” said Parmi in an interview following her appointment. In line with her helpful nature, Parmi has provided a glimpse of her views on the world of work: Q: What do you think about when you are alone in your car? A: What I need to be doing, I am an absolute PLANNER. Always thinking of what is next, organising myself Q: Describe a balanced lifestyle in 5 words or less A: “Having it all” - I don’t believe that having a demanding career means that I cannot be doing other things like taking my kids to the park, watching them play sports, cooking dinner, sewing costumes and doing other projects for school, helping my kids with their homework, organising my household etc. Q: What song best describes your work ethic? A: "Harder, Better, Faster, Stronger" by Daft Punk Q: What is the most common misconception about you? A: That I am younger than what I am. People often get shocked at my appointments to bodies, at the fact that I have two children etc. because they don’t realise my age. When I first joined the IoDSA someone commented (when he heard my actual age) “Oh now your appointment makes more sense”. Some may say I have lucky genes, but from a business perspective I sometimes feel under-estimated at first because of this ... that is until they interact with me and I prove them wrong! Q: What is your view on discrimination in the workplace, irrespective of the apparent reason for discrimination? A: My stance on discrimination in the workplace is that everyone should be given equal opportunity; it’s a fair playing field. It is up to each individual to grab the opportunities available and make something of it. I find that sometimes people use discrimination as an excuse, when they are not willing to put in the time and effort to succeed. Q: Why is a focus on corporate governance important? A: For many reasons! Corporate governance: · increases accountability · increases entity value of companies, it improves share & credit ratings · lowers cost of capital · improves access to capital · improves operational performance · lowers risk of corporate scandals and damage to reputation. · improves decision making · ensures greater boardroom effectiveness · strengthens transparency Q: What would corporate governance look like in a perfect world? A: In a perfect world we wouldn’t need as many rules. So less laws/regulations and more self-governance with ethics and integrity permeating leadership, decision-making and oversight. ENDS _______________________________________________________________________________________________________ MEDIA CONTACT: Cathlen Fourie, 012 664 2833, cathlen@thatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group  Africa’s current shortage of experienced and skilled directors is one of the chief hurdles to the strengthening of its corporate governance capabilities. The African Corporate Governance Network (ACGN) aims to play a positive part by conducting research on and storing information on corporate governance. In this way, it will create a resource for its members to use, particularly when it comes to supporting the ongoing training of a pool of directors.
“The case for corporate governance in Africa is a strong one, but we face significant challenges,” says Jane Valls, chairperson, ACGN. “The continent’s economies are very diverse in terms of economic and political maturity, and there is no continent-wide standard of corporate governance. The ACGN has a critical role to play in lobbying legislators, as well as educating both the private and public sectors about the benefits of corporate governance.” At its last meeting in Dar es Salaam, the ACGN has welcomed the Institute of Corporate Governance Ethiopia and the Institute of Corporate Governance of Tunisia as members, and both the Ethics Institute of South Africa and the Association of Chartered Certified Accountants have become associate members. In all, 11 countries were represented at the meeting (Tanzania, Kenya, South Africa, Mauritius, Uganda, Nigeria, Mozambique, Zimbabwe, Zambia, Ethiopia and Tunisia), while the ACGN has now grown to represent a total of 14 countries, indicating how broad the support for the ACGN initiative is. “The continuing expansion of the ACGN is good news for Africa’s growth prospects,” says Angela Oosthuizen, CEO of the Institute of Directors in Southern Africa. “South Africa is fairly mature in corporate governance terms, having released the first King Code in 1994 and with the fourth revision now underway. We are committed to making our experience available to our colleagues in the ACGN, and hope that King IV will act as a benchmark for African codes of corporate governance.” The ACGN was founded in 2013 to help build capacity in corporate governance across the continent, so building better organisations and corporate citizens across Africa. Its members are united in their belief that strong corporate governance is essential to successful, sustainable companies and thus holds the key to African economic growth. ENDS _______________________________________________________________________________________________________ MEDIA CONTACT: Cathlen Fourie, 012 664 2833, cathlen@thatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: The Institute of Directors in Southern Africa group |
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