Ashly DhaniNews reports that the minister of public enterprises has rejected the name put forward by the Eskom board to replace André de Ruyter as CEO has once again raised the complex governance issues relating to the appointment of senior management at State-owned enterprises (SOEs).
The reported reason for the minister’s rejection of the board’s nominated candidate is that it was supposed to submit three names as stipulated by the minister in terms of Eskom’s Memorandum of Incorporation.
The minister’s rejection of the board’s nomination, whatever the technicalities, lays bare the governance tangle that continues to affect the governance balance at SOEs.
Shareholder influence
Governance best practice is for the board to appoint the CEO so that that person is accountable to the board.
The challenge is that SOEs have enabling legislation or founding documents which often stipulate that the government (effectively the shareholder) has the power to appoint senior management, as well as the board.
The King IV Code recognises this, and suggests in the SOE supplement that the board be fully involved in the appointment of the CEO and that both parties agree that the CEO is accountable to the board, not the minister, as representative of the shareholder.
If this approach is not followed, CEOs who do not have the board’s confidence may be appointed, and CEOs may see their reporting line leading directly to the minister rather than the board.
Blurred lines
The resulting blurred reporting lines make it difficult for boards and management to work constructively together.
The current state of affairs means that the faith of the board and the minister seems questionable.
The former could be construed as not following the minister’s instructions or rebellious in asserting its preference for appointing the CEO it wants (in line with governance best practice).
Similarly, the latter could be accused of having a hidden agenda, namely that the nomination did not meet with the approval of the political powers.
The Institute of Directors South Africa (IoDSA) has been steadfast in bringing this particular governance issue to the fore, and we once again urge the government and SOEs to follow King IV’s lead.
In a perfect world, though, the appointment of the CEO should be the board’s prerogative. The board would then be able to hold the CEO properly to account and could, in turn, itself be held to account by the shareholder. — Moneyweb
Bongani Ndlovu