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, stephne@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  
 
 

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, stephne@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  

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.
​
“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, stephne@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 

Photo: GCIS
​
The recent announcement of President Ramaphosa’s new cabinet provides a good opportunity to reflect on the critical role of ministers in the governance of the public sector. Parmi Natesan, CEO of the Institute of Directors in Southern Africa (IoDSA), says that the work the IoDSA has done in the public sector over the years reveals some common governance challenges.
 
“We have conducted training and board evaluations, and performed governance advisory functions for public sector entities over many years, and there are common governance challenges that crop up,” she says. “Based on this, we have some constructive advice to the new cabinet, that will hopefully help them avoid these common pitfalls.”
 
The first point to make, Ms Natesan believes, is that ministers should realise the extent of the power they have as representatives of the sole shareholder, enabling them to play a much more active role than shareholders in the private sector. It is thus very important that they understand their role fully, and beware of allowing only political or other considerations to guide their actions.
 
“Boards are only as good as the people who serve on them—therefore one of a minister’s key responsibilities is to appoint effective and ethical individuals to the boards they oversee. This is absolutely critical for the success of these entities,” she explains.
 
Because of their overwhelming power, ministers should be careful not to undercut the boards they appoint and thus rendering them ineffective. A board that cannot set its own course cannot in the end be held truly accountable, she argues. She cites a recent editorial in the Financial Mail saying that the current CEO of Eskom is leaving the job “not because he has failed in his duties, but because the shareholder would not let him and his team do the job for which they were hired.”[1] Governance best practice, as enshrined in the King Codes, is that boards, including those in the public sector, should be in a positon to exercise their judgement independently without undue influence, in the best interests of the organisation, and to the benefit of all stakeholders—not just the shareholder.
 
“This relationship between an all-powerful shareholder and an independent board is a delicate one, and ministers should try to get it right. Only then can they truly hold a board accountable for its decisions and the performance of the organisation--without encroaching on its role,” she says.
 
Another common governance challenge is that the minister often appoints senior executives directly, thus creating a lack of clarity in terms of reporting lines, and making it difficult for boards and management to work constructively together. Management should be accountable to the board. The board should therefore be intimately involved in the nominations and appointment process, even if the minister makes the final decision.
 
“In announcing his new cabinet, President Ramaphosa said that his government will only succeed if the ministerial appointees are ‘capable, efficient and ethical’.[2] The IoDSA salutes him for making the link to ethical and effective leadership as espoused by King IV —it is a very good start to what we hope will be a successful term in office – and we are here to offer our help,” she concludes. “We congratulate the new ministers, and wish them well in the huge task they have before them. Public sector entities have a vital role to play in our country, and getting them back on track will be central to achieving the desired goals. If they make ethics and effectiveness the cornerstone of what they do, the omens look good.”
 
ENDS

 MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

[1] “Why Phakamani Hadebe really threw in the towel”, Financial Mail (30 May 2019), available at https://www.businesslive.co.za/fm/opinion/editorial/2019-05-30-editorial-why-phakamani-hadebe-really-threw-in-the-towel/.
[2] “Cyril Ramaphosa's new cabinet, in his own words”, TimesLive (29 May 2019), available at https://www.timeslive.co.za/politics/2019-05-29-in-full-cyril-ramaphosas-new-cabinet-in-his-own-words/. 

Governing bodies, and the role they play, are under the spotlight like never before. How should members of governing bodies ensure that they are covering all the bases?
 
By Parmi Natesan
 
Thanks to the litany of recent governance failures, and the high-profile scandals in the private and public sectors, governance has shot up the public agenda. One of the common conclusions to be drawn is the truth of the old adage that “the fish rots from the head”. For those in leadership positions, and particularly those on governing bodies, the pressure is mounting as the court of public opinion, as well as the courts themselves, should increasingly hold them accountable for the shortcomings of the organisations they lead.
 
The question this raises, of course, is what issues should governing bodies be considering to ensure that they are on the right side of history?
 
A paper by the Corporate Governance Network, a special interest group of the Institute of Directors in Southern Africa (IODSA) sponsored by PWC, argues that these issues can be grouped into three broad themes: introspection about the governing body itself, understanding the context in which the organisation operates, and realising their organisation’s place within (rather than without) society.
 
The first theme, Looking within, acknowledges that the governing body will not fulfill its corporate governance mandate, or indeed its other roles, if it does not have the proper skills and experience to draw on.
 
The central issue here is the quality and composition of the governing body. Because of its key roles in setting strategy and ensuring governance, the governing body is often seen as one of an organisation’s “most critical strategic assets”, according to Vanguard CEO, William McNabb (Vanguard is a major US investment fund). It’s thus vital that it has the right mix of skills and experience in the light of its current and future needs. Succession planning and the management of talent and skills are vital components of this.
 
Director independence is clearly a critical enabler of an effective governing body. Governing body members have to be able to exercise judgement effectively—and be seen to be able to do so.
 
A final issue within this theme is the need for the governing body to pay more attention to how it oversees corporate culture. It is clear that corporate culture both on the governing body and the organisation as a whole provides the growth medium for certain kinds of behaviour—good and bad.
 
Steering through choppy waters
The second theme that should concern governing bodies relates to the business and socio-political environment in which the organisation operates. As a general observation, it is clear that organisations have to deal with unprecedentedly swift change. Innovation and its flipside, disruption, have become the defining characteristics of the 21st Century. The acronym VUCA—volatile, uncertain, complex and ambiguous—is often used to characterise the modern business environment and its risks.
 
This change frequently comes on the back of technological advances which often have unintended and unanticipated consequences. At present, cybersecurity and privacy threats are among the most serious, but governing bodies must ensure that they are equipped to govern all risk in this shifting context.
 
A related issue is how to define and ensure long-term value creation and sustainability. Risk is one factor, but others include investment in R&D, corporate culture, incentives and skill retention. At the same time, environmental, social and governance (ESG) factors are becoming more important to stakeholders, among them institutional investors.
 
The final theme relates to the rebuilding of trust within the broader context. Governance failures and irresponsible business practices have eroded the trust that stakeholders have in organisations—corporate governance has a critical role to play in rebuilding that trust. Issues that need attention in this context include the governance of ethics, stakeholder communications and crisis management, remuneration, and fostering trust between the governing body and management.
 
While this set of issues is by no means intended to be exhaustive, grouping them into themes will prompt governing bodies in creating their own long-term agendas.
 
Whatever the specific issues that are identified by individual governing bodies, they are bound to present a daunting prospect. A second Corporate Governance Network paper on the importance of mentorship for governing bodies, and how to make it happen, offers part of the solution. By learning to leverage the experience of others, whether governing body colleagues or not, governing bodies can avoid making the same mistakes and benefit from others’ successes.
 
ENDS
 
 MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

Recent reports show that MTN’s share price jumped 2.78% on the JSE when it announced changes to its board. The link between the share-price rise and the news that the board was being strengthened makes an important point that is often missed, says Parmi Natesan, CEO, Institute of Directors in Southern Africa.
 
“Research shows what most shareholders probably instinctively know: that the experience, expertise and ethics of board members directly affects the quality of their investment in the company,” she says. “The MTN case provides an example of how board changes can impact the market. Shareholders should bear this in mind, and ensure that boards not only have the right skills, but also that well-thought-out succession and rotation plans are in place.”
 
One research paper into the correlation between board composition and financial performance of listed companies concludes that “board structure does play an important role in influencing firm performance. The evidence in this study points to that fact that there is a need to monitor and organise the different elements of a corporate board to ensure good corporate governance practises are upheld”.
 
The announcement by MTN that sparked the rise in its share price had several elements, Natesan says. The first was that Mcebisi Jonas, the former deputy finance minister, would take over the chairmanship of the board from Phutuma Nhleko, who is due to step down in December.
 
“There are two important things to notice here: Mr Jonas will have the benefit of more than six months shadowing the highly regarded outgoing chairman. He is also not coming in as a total neophyte, having been appointed as a non-executive director in May 2017. This suggests a board that plans ahead, and understands the prime importance of succession planning for the Chair role.”
 
At the same time, she points out, announcements were made relating to the appointment of a new lead independent director from 15 December 2019, as well as the appointment of two well-respected and experienced individuals from Nigeria and Kenya. The orderly rotation of the lead independent director again suggests an understanding of the important role this individual can play in good governance, while the appointment of directors with strong reputations in their home countries could be seen as a move to reduce the risk of further fines from African governments.
 
“In fact the article quotes a portfolio manager as speculating that MTN might have received such fines because it had weak relationships with key stakeholders in these jurisdictions. Plugging that gap again talks to a reassessment of the balance of skills and experience needed on the board, followed by appropriate action,” she says.
 
“Finally, the same announcement also advised that three directors would step down in December, and a further two in 2020. This is a board responding to changed circumstances, and that has a long-term plan for rotating directors: the phased replacement allows new blood, while balancing the need for continuity and the retention of institutional memory; in contrast to the panicky, wholesale rotation of entire boards we sometimes see.
 
“The conclusion is inescapable: boards play a critical role in a company’s ability to achieve its goals and produce value for shareholders, and there is a link between board composition and financial performance,” she concludes.
                                                                                                     
ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

President Ramaphosa’s State of the Nation speech for 2019 highlighted the key role that small businesses play in stimulating economic activity, and their impact on broad-based empowerment. A key element to building sustainable small and medium businesses (SMEs) is to ensure their governance structures and processes grow alongside their financials, says Parmi Natesan, CEO Elect of the Institute of Directors in Southern Africa (IoDSA).
 
“SMEs are drivers in an economy that is both inclusive and growing, but only if they can sustain their growth and provide stable livelihoods for more and more people. We thus need to pay equal attention to the post-incubation phase,” she argues. “Flexible and effective governance structures have a key role to play in the growth of an entrepreneurial start-up into a corporation.”
 
Recent research by the Small Business Project[1] shows that while SMEs make up 98.5 percent of the South African economy, they only provide 28 percent of jobs. One reason is that 3.3 million of the approximately 5.6 million SMEs are classified as “survivalist”. Such businesses often only employ the owner and seldom show growth.
 
By contrast, the research shows, in OECD countries, over 95 percent of enterprises are SMEs which provide up to 70 percent of all jobs and up to 60 percent of the gross domestic product.
 
“Good corporate governance can help an SME by making its leadership structures more effective and thus better able to support its strategic objectives,” she says.
 
Aside from the development of a more effective leadership structure, SMEs can derive other significant benefits from good corporate governance. These include:

• Added credibility and enhanced reputation.
• Access to capital and loans on better terms.
• The ability to attract talent for employment.
• Improved access to customers and market participants.
• Better positioning to capture business opportunities.
• Better fraud prevention due to improved controls.
• Business continuity arrangements that permit the SME to operate under conditions of volatility, and to withstand and recover from acute shocks.
• Leadership continuity through succession planning.
• Better management of the risk of conflict in family businesses.

 
King IV has been intentionally structured to make these benefits more accessible to SMEs. It does so by not focusing prescriptively on what should be done or what roles or committees are called, but on what the desired outcomes are. Crucially, it introduces the key concept of proportionality, in terms of which organisations can scale the practices they adopt in accordance with their turnover and workforce size, their resources, and the extent and complexity of their activities. King IV also includes a supplement to provide SMEs with specific but flexible guidance for how to adapt the Code to their needs.   King IV thus recognises that governance delivers very desirable outcomes, but that each organisation is unique and must be able to adapt its practices to achieve the principles set out in the Code.
 
“In the spirit of Thuma Mina (Send Me), the IoDSA is soon making an e-learning module on governance for SMEs available to them free,” concludes Natesan.  “By making e-learning on corporate governance available free for SMEs, the IoDSA recognises the financial pressures that they face. We hope this initiative will play a part to help this vital sector of the economy reach its potential, to everybody’s benefit.”

[1] “The alarming truth about the number of small businesses in South Africa”, Business Tech (25 July 2018), available at https://businesstech.co.za/news/business/260797/the-alarming-truth-about-the-number-of-small-businesses-in-south-africa/.                                                                                    

ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  ​

The Institute of Directors in Southern African (IoDSA) has welcomed government’s commitment to improve governance, strengthen leadership and restore stability in strategic state-owned enterprises (SOEs).
 
President Cyril Ramaphosa said in his 2019 State of the Nation Address that government is taking measures where mismanagement and corruption have undermined the effectiveness of these enterprises. This included the appointment of new boards with “credible, appropriately experienced and ethical directors”.
 
Parmi Natesan, CEO Elect of the IoDSA, says they have consistently highlighted the need for appointment of skilled individuals to boards and thorough due diligence on those appointments. “Board appointments in the public sector specifically, should be based on expertise, experience and integrity and not, by implication, on political connections.”
 
Directors need to have the requisite knowledge, skills, experience and personal qualities, and should be appointed through a formal process. This is critical in any organisation, but particularly for SOEs because of their influence on the rest of the country and economy.
 
Independent performance reviews
Good corporate governance is paramount to the success of the SOE itself, and to protect and advance the interests of the country and its citizenry. Governance helps enhance the functioning of leadership structures of an SOE, and provides the arrangements by which the SOE should be governed so that it is able to meet its strategic objectives.
 
Natesan says the value of regular and independent evaluations of board performances, as recommended in King IV, should not be underestimated. Some boards may choose to “self-evaluate” their performance. However, getting an experienced third-party party to facilitate the performance evaluations will ensure franker and more open feedback, she says.
 
The IoDSA has over the years facilitated a number of independent performance evaluations on the request of public sector boards. However, more of these boards could benefit from this annual “litmus test” of their performance. 
 
The buck must stop with the board
“One of the key findings in these board evaluations, that came up during interviews with the board directors, was their concern about interference from the state.” Generally, shareholders appoint the board members, and it is then the board’s responsibility to direct the company – as the board, after all, carries the potential liability.
 
“What we have found with the public sector, is a feeling amongst some of the directors themselves, that they do not really have independent discretion on the decisions they make - they sometimes feel that they have to toe the line.” It is the board’s responsibility to act in the best interest of the organisation, and not the best interest of government or the party that appointed them.
 
Clarity around the role of shareholders (the state) and the role of the board remains critical.
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, says Natesan.
                                                                                                     
ENDS
 
MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  

By Parmi Natesan - IoDSA Executive: Centre for Corporate Governance

The recent news that Maria Ramos would be retiring in February after 10 years as CEO of ABSA should be a reminder to the boards that management succession planning is critical, especially when it comes to crucial positions like that of the CEO, says Parmi Natesan, who herself will soon become the new CEO of the Institute of Directors in Southern Africa (IoDSA).

“The CEO is the keystone of any organisation, and so a board should always have a clear strategy for replacing him/her,” says Ms Natesan. “Ideally, the board should plan well in advance for the exit of a key role player like a CEO, and even have a suitable successor in the pipeline. If the new CEO is an external appointment, it is very possible he/she would not be immediately available, so a strong interim CEO who is fully conversant with the organisation—as seems to be the case with Absa—is probably advisable.”

The IoDSA believes there are some critical issues that boards should consider when it comes to succession planning for the senior management roles they have the responsibility for filling, such as that of the CEO:

Be alert for the signs that a CEO has served long enough. One of the hardest decisions for a board is when a CEO should leave, both for the good of the individual and the organisation. While there are no easy answers to this perpetual conundrum, and every individual and organisation is unique, research does suggest that around five years on average is a good rule of thumb.

“Ms Ramos is at pains to stress her own conviction that CEOs should be systematically replaced to ‘allow for a regular refresh’, and that she only stayed in the post for so long because of the need for continuity and stability during a time of significant change for the organisation,” Ms Natesan notes. “In other words, a leading CEO confirms the view that, all other things being equal, even the best CEOs should not stay too long.”

Give culture/ value fit due weight in the selection process. Given the impact he/she has on an organisation, appointing the CEO is one of the board’s most critical responsibilities. With stakeholder relations and reputation management being core components of a CEOs role, care should be taken not to focus exclusively on the candidate’s ability to take the organisation forward strategically and financially; there should also be a fit in terms of the already established culture and values of the organisation. 

“This is particularly important when one considers the importance of embedding ethics into the organisation, and the fact that an ethical, values-based culture always comes from the top,” she observes.

Support the new CEO and be open to change. The board’s responsibilities do not end when the new CEO takes up his/her post. It needs to provide guidance and support to help the new CEO become effective as quickly as possible but, at the same time, the board should also be open to the inevitable changes that the new incumbent will introduce. The same goes for the rest of the executive team, who should consciously strike a balance between showing “how we do things here” and embracing the changes that the new CEO has, after all, been hired to initiate.

ENDS
 
MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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