Role-players must share responsibility to clean up SOEs—IoDSA

Reacting to the publication of the Zondo Commission’s latest reports on the capture of Eskom,[1] the Institute of Directors in South Africa (IoDSA) says that a concerted effort is necessary to address the ongoing issue of how directors and senior appointments are made in the public sector.

In its reports, the Commission notes that the Department of Public Enterprises has formulated procedures for the proper appointment of directors of state-owned enterprises (Zondo IV (3): 1273) but later it also states, “The way members of Boards of state owned [sic] companies are appointed cannot remain as it has been during all the years which have been covered by the investigation of the Commission. The same applies to the appointment of Chief Executive Officers and Chief Financial Officers of these companies” (Zondo IV (4): 2500).

“Read together, it seems as though the problem is not that guidelines do not exist, but that they are improperly followed. This is an ongoing problem because, even after state capture became big news, governance remains shocking as we can see in the mismanagement of pandemic-related disaster relief funds,” argues IoDSA CEO, Parmi Natesan. “Clearly, if we had appointed the right people for the job in the first place, or at least removed the ineffective ones, we would be in a better place."

“The urgent next step is for us to rectify the situation, and this can be done if key stakeholder groups take shared responsibility for fulfilling their duties.”

Rule-setters. The relevant government department must amend the definition of an individual’s suitability for appointment to include their track record as a director as well as evidence of commitment to being a professional director (such as membership of a directors’ professional body or the achievement of a director designation)

Evaluators. The relevant Ministers charged with evaluating the suitability of individuals for a board appointment must stick rigorously to the rules. Zondo IV (3) at 1562 identifies the way in which the Eskom board departed from the provisions of the company’s own Memorandum of Incorporation when appointing Brian Molefe as CEO. It’s also important that evaluators are themselves experienced board members so they know what directorship competencies to look for.

“Evaluators are entitled to make use of external expert assistance in identifying and evaluating candidates, and should do so,” Ms Natesan says. “They should not be taking the easy option, and they should certainly conduct a rigorous due diligence of all candidates at the outset.”

Directors. Once appointed, directors must proactively educate themselves about what their position entails. A first step is to know the law, especially the Constitution, the Public Finance Management Act and relevant National Treasury regulations, the Companies Act and its regulations, and the entity’s founding legislation and Memorandum of Incorporation. Good knowledge of the Common Law and King IV is also essential.

Directors must be knowledgeable about any existing and applicable guides, handbooks and codes. They must know how to report wrongdoing and, if they come across it, report it immediately. They need to be courageous in doing what is right, and not fall into the trap of going with the crowd.

Overseers. Finally, the relevant Ministers and ultimately Parliament, who are charged with oversight of our SOEs, should measure the board against high standards, not the bare minimum. Specifically, they should understand how to get rid of underperforming or unsuitable directors, and take action promptly to do so.

“Directors are important—just how important the Zondo Reports demonstrate. And yet ensuring that the best, most qualified candidates are appointed is not difficult—this is something we can get right now if we have the will, and we should not delay,” Ms Natesan says.

[1] Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector Including Organs of State IV (3) and (4), The Capture of Eskom, available at https://www.statecapture.org.za/.

ENDS

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