The Institute of Directors in South Africa (IoDSA) broadly welcomes the recommendation to establish a Standing Appointment and Oversight Committee to strengthen the process of nominating and appointing directors of state-owned enterprises. The recommendation was made in the final volume of the report of the Judicial Commission of Inquiry into State Capture (Zondo Commission).
“We are totally in agreement with the Zondo Commission’s statement that appointments to the boards of state-owned enterprises (SOEs) must be ‘justifiable based on their skills, expertise, experience and knowledge’, and that the state, through the responsible ministers, has signally failed to appoint the ‘right kind of people’ to the boards of SOEs,” says Parmi Natesan, CEO of IoDSA.
“This is an issue that the IoDSA has repeatedly raised, and which is covered in King IV. The notion that board members should be appointed based on the needs of the organisation is revolutionary in the South African context, where political appointments have effectively collapsed the public sector.”
Principle 7 of King IV states that: The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively. This goal is particularly hard to attain for SOEs because the state, as the sole shareholder, has the power to make appointments unilaterally. In the sector supplement for SOEs, King IV advises SOEs and executive authority to collaborate in the nomination process and to make it transparent.
King IV requires the nomination of any board candidate to take into account the needs of the governing body in terms of skills, knowledge and experience, the governing body’s diversity, and whether the candidate meets the “appropriate fit and proper criteria”.
Natesan argues that these criteria should include the IoDSA’s Director Competency Framework.
Given the reality that the state has power that shareholders in the private sector do not, the Zondo Commission’s recommendation that a committee be set up to govern the process of nominating and electing SOE board members is a good one. In fact, in a letter to the Commission in September 2021, the IoDSA recommended the establishment of a consistent and transparent nominations process that included a nominating panel comprising representatives of appropriate stakeholder interests.
“The Commission’s recommendation is actually much stronger because it seemingly envisages that the proposed committee would have the power to control the nomination process even against the wishes of the executive in order to secure the future of the SOE,” says Natesan.
“Our only disappointment is that the list of persons to serve on the oversight committee does not include a representative of the IoDSA, preferably somebody who holds one of our SAQA-registered directorship designations and who would be in a position to provide expert input on the directorship role and the competencies required.”