According to reports, government is planning to intensify the vetting of non-executive directors and other employees at SOEs to improve the quality of appointments. These moves are long overdue and should be welcomed – but with caution, says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).
“For many years, the IoDSA has been calling for reform in how board appointments are made in order to put SOEs back on track,” she says. “So much so that we provided input to the Department of Public Services and Administration many years back on a guide to the appointment of SOE directors, but we are not aware of it ever being approved or applied.
“The brutal truth is that implementing good governance best practice will require the state to make some hard choices, and we have yet to see whether there is genuine political will to drive through the necessary changes.”
One of the elements highlighted in a recent Business Day report is better vetting via stringent background checks before appointments. However, it must be recognised that this vetting process must be extremely detailed and goes beyond merely performing the standard identification, qualification and criminal checks, but should extend to investigating candidates’ knowledge, skills and experience, as well as other necessary personal characteristics.
The article also indicates that there are no uniform criteria for the recruitment of board members, which is a concern, says Natesan. Directors have a very specific governance role, and need specific skills to discharge it. While there are no legally mandated, uniform criteria for board members, the IoDSA has developed a robust director competency framework that covers the skills that every director needs in order to be able to serve effectively.
“The King Reports make it very clear that directors have a critical role to play, and they need the right skills to do so. Given the importance of the role, and the substantial personal risk that board members carry, the IoDSA believes it’s necessary to professionalise directorship. We have developed two director designations that are approved by the South African Qualifications Authority that will allow directors to gain the right skills and then maintain them via continuous professional development obligations,” she explains.
“Becoming a Chartered or Certified Director (SA) not only means you demonstrably acquire an objectively designed skillset contained in the Director Competency Framework, you also become subject to a professional code of conduct, under which you can be disciplined.” This should be taken into account when appointments are made, Natesan believes.
Another key challenge for the public sector has been a lack of role clarity, again something that the IoDSA has frequently highlighted, most notably in its 2019 paper “Challenges facing public sector boards”. The challenge has always been that SOE founding legislation frequently gives the state, as sole shareholder, the power to appoint both directors and senior executives. By contrast, governance best practice reserves the right of appointing these senior positions to the board. This is logical because it is the board, not the shareholder, which is accountable for the organisation’s performance.
“To implement good governance and improve organisational performance, the state will have to recognise that its criteria for appointing senior roles can no longer be subject to political considerations, and should focus on what the organisation actually requires to fulfil its mandate. The shareholder would be well advised to consult the board throughout the process, and make it clear that appointees answer to the board and have a primary duty to the organisation, not the politicians who appointed them,” Natesan concludes.
“Good governance can help save our SOEs to everybody’s great benefit, but it remains to be seen if Government has the appetite for real reform.”