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Suspending the CEO is a balancing act says IoDSA

23 April 2014   (1 Comments)
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Recent high-profile suspensions of public-sector CEOs raise several issues that boards need to consider carefully, says the Institute of Directors in Southern Africa (IoDSA).

"The principle that boards should hold management accountable is sound, but boards need to apply judgement so that there are not unnecessary harm done to the organisation and those involved,” says Ansie Ramalho, CEO of the IoDSA. "Like with any other actions and decisions, the board should primarily be concerned with what is in the best interest of the company. Suspension prior to the completion of an investigation for instance, should only be instituted if the board is fairly certain that the CEO’s continued presence would harm the organisation or interfere with the investigation,” adds Ramalho. "The suspension of an organisation’s CEO affects its reputation adversely, something that’s particularly undesirable in the case of a public institution whose health, perceived and otherwise, affects lots of people. Boards should at least have the certainty of an investigation as the basis before such drastic action is taken.”

The other consideration is fairness towards the CEO. To be suspended while an enquiry is ongoing can inflict grave reputational damage on an individual, even if he or she is later found not guilty.

Apart from affecting the reputations of both the organisation and the CEO, boards have also found that suspending the CEO is a double-edged sword. With both the suspensions in the Pikitup and Government Employees Pension Fund cases there has been the suggestion in the media that political manoeuvring could be influencing the decision to suspend these particular CEOs. This kind of speculation places undue pressure on what needs to be an objective and swift execution of a fact finding mission on the findings of which appropriate action is then taken.

A textbook case in how to deal with these sorts of dilemmas was the resignation of the former South African Revenue Service (SARS) Commissioner after a probe into allegations of impropriety. In this instance the Minister of Finance had commissioned an investigation and the Commissioner resigned on receipt of the outcome of this. There were no battles in the public domain and by the time that the news surfaced decisive action had been taken with minimal, if any, reputational damage to SARS as an institution.

Suspension should furthermore be reserved for conduct that would include dishonesty, undue personal advantage to the CEO and gross negligence or incompetence. Mistakes, such as error in judgement or a bona fide oversight probably deserves the forfeiting of a bonus rather than suspension.

"Hindsight always gives perfect vision, and boards must accept that judgement calls are made within a particular context and must be judged as such,” says Ramalho. "If CEOs and other executives feel they are being constantly second-guessed by their boards, they will cease to take the kind of bold but well-considered action that is integral to a successful business operation.”

Comments...

Miller M. Matola says...
Posted 23 April 2014
Indeed this seems to be a plague in the public sector environment. An unfortunate trend which is causing seasoned executives with much needed skills to shun the private sector and thus depriving the economy of critical contributions and value.

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