Almost all stakeholders of state-owned entities (SOEs) in South Africa today agree that promoting good corporate governance is an important part of their agendas to, among others, contribute in the growing of the economy and combating of corruption. But it appears that despite this consensus, ‘good corporate governance’ is still an extremely elusive objective, that is, it appears to mean different things to different organizations and to different role players within these organizations.
Perhaps the SABC serves as an excellent microcosm of what is really happening within South Africa’s SOEs today. In particular the recent activities of the SABC Board of directors interviews conducted by parliament and open to the public, cast a much deep insight into what could arguably be the biggest problem with the appointments of SOEs Board of directors in this country in the first place.
The SABC Board of directors’candidates, including current interim Board members demonstrated a painful lack of understanding of their key oversight and leadership role as Board members. If one was not aware of the purpose of the interviews one would have not being wrong to assume that it was the SABC Board of directors who were interviewing future executive managers for the SABC and not the board members themselves being interviewed by members of parliament. Sadly the interviewers themselves were pathetic in their understanding of what they were looking for in a Board of director for the SABC. A proverbial state of the blind trying so hard to show the blind the way to lead.
At the heart of it all, is this weird notion that all that a prospective Board member for an SOE needed was having some kind of a technical skills or at best experience of some sort in a particular field and that, according to the other blind, is enough to qualify you, as a Board member for an SOE in South Africa. This is hugely problematic.
Conspicuous by its absence throughout the parliamentary interviews process for the SABC board was the pertinent questions on universal good corporate governance, ethical leadership and high-level strategic thinking, conflict resolution, socio-cultural issues, or even questions on the latest King IV report.
Part of the problem, I believe, is that we as a nation have set the bar too low yet we expect the contrary in Board performance of our SOEs. Technical skills and/or operational skills of executive management are often misconstrued for Board leadership skills. This could further explain the adversarial relationship between Board of directors and executive management as the true line of where the Boards’oversight role starts and end is blurred right from the start.
This ominous focus on technical skills over leadership and corporate governance, pertinent issues facing SOEs when appointing Board members, is a poor guide for policy direction or board performance. It is misguided because it is not attuned to issues of good corporate governance practice and historical development of an institution that is charged with transformation agenda such as the SOEs in this country.
In a well-cited quote, former United Nations Secretary-General Kofi Annan noted that, ‘good governance is perhaps the single most important factor in eradicating poverty and promoting development’ (UN 1998).
Yet in South Africa, more than 20 years into democracy, Boards of directors of SOEs are still only required to show-off their technical skills and experience whereas we expect them to lead these institutions to eradicate poverty and help the country achieve its transformative developmental goals.
Thus the use of corporate governance criteria in the selection of Board members is key because a good governance agenda is a worthy goal not only in and of itself, but also as a means through which to impact a variety of other outcomes, particularly economic growth and development.
To me the apparent weakness of a lack of consensus on the understanding of the good corporate governance concept calls into question each of these stakeholders to re-think how we select Board of Directors for SOEs.
It is quite wrong that candidate directors should be selected on the basis of technical knowledge that is deemed relevant to the SOE concerned. The potential directors should be questioned about their understanding of the role of a director, and to the extent that their knowledge is deficient, they should either undergo the necessary training before appointment or be dropped from consideration.
In brief, when a person is appointed to the Board of a company their role can be best summed up in the relevant sections of the most recent UK Companies Act. Briefly, they must recognize that the company is an independent entity and they have duties towards that entity as follows:
- to ensure that the Board acts within the powers specified by the company’s constitution
- to work towards the ultimate success of the company
- to exercise their independent judgement in all their decisions
- to apply reasonable care, skill and diligence in their contribution
- to avoid conflicts of interest
- to avoid accepting any benefits from outside parties which might influence their judgement
- to declare any interest they may have in matters discussed by the Board.
Beyond these fiduciary duties, they ought to have an understanding of how a properly run business works so that they can critically assess the business goals which the Board has to approve and the proposed strategies to achieve those goals. Moreover, in approving the allocation of resources for the organization and operational structures deemed necessary to successfully deliver the strategies, they should have an understanding of how business organizations are appropriately configured, financed and deployed.
Finally, they should understand the critical importance of accountability and transparency towards the key stakeholders, and in the world of the future, how Environment, Social Responsibilities and Governance (ESG) should form a fundamental part both of corporate behaviour and of reporting to the world.
And, of course, they should be familiar with the King IV Report and be able to discuss its five Parts and 17 Principles and suggest how these might impact on the governance of the SOE whose Board they are applying to join.
Future selection criteria on SOE Board of directors therefore would do well to disaggregate the concept of good corporate governance and refocus attention and analysis on its various disaggregated components, as defined here, notably, conflict resolution, socio-cultural issues, ethical leadership and strategic thinking and not focus just on technical skills and compliance matters.
By Botshelo Wa Rakate
Director, Trueline Leadership Consulting
with contribution from
Nigel Kendall
Director, Applied Corporate Governance