News reports that Public Enterprises Minister Pravin Gordhan has rejected the name put forward by the Eskom board to replace André de Ruyter as CEO once again raises the complex governance issues relating to the appointment of senior management at state-owned enterprises (SOEs), according to the Institute of Directors in South Africa (IoDSA).
Professor Parmi Natesan, the CEO of the IoDSA, said on Tuesday that the minister’s rejection of the board’s nomination, whatever the technicalities, laid bare the governance tangle that continued to affect the governance balance at SOEs.
“Governance best practice is for the board to appoint the CEO so that he or she 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,” she said.
“(The) King IV (report) 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 was not followed CEOs who did not have the confidence of the board might be appointed, and CEOs might see their reporting line leading directly to the minister rather than the board. The resulting blurred reporting lines made it difficult for boards and management to work constructively together, she said.
“The current state of affairs means that the faith of both the board and the minister seems questionable. The former could be construed to be not following the minister’s instructions, or rebellious in that it is 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,” she said.
The IoDSA had been steadfast in bringing this particular governance issue to the fore, and the organisation once again urged 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,” Natesan said.
De Ruyter announced his resignation as CEO nine months ago.
A candidate put forward by the board was rejected by Public Enterprises Minister Pravin Gordhan, online publication News24 reported on Wednesday.
The reported reason for the Minister’s rejection of the board’s nominated candidate last week is that it was supposed to submit three names as stipulated by the minister in terms of Eskom’s Memorandum of Incorporation.
Bloomberg reported that Eskom said last week it had reviewed 147 “high-calibre” candidates in its global search for a CEO, but the process had failed to “yield a clear-cut set of candidates” as required by the company’s memorandum of incorporation.
The board then “emerged with a single appointable candidate.”
Ghaleb Cachalia MP, the DA Shadow Minister of Public Enterprises, said last week reports that Gordhan, had sent the Eskom Board back to the drawing board on the appointment of a new Eskom CEO created a justifiable suspicion that the ANC cadre deployment committee may once again be trying to hijack the process to appoint a cadre approved by Luthuli House.
Gordhan last week refuted claims that he is stalling the appointment of Eskom CEO, saying that the distortions and lies being peddled over the process were an attempt to subvert his responsibility to ensure it was transparent and lawful.
“The process to appoint the Eskom CEO is a matter that cannot be taken lightly. It requires strict adherence to what is stipulated in Eskom’s Memorandum of Incorporation,” Gordhan said.
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