Board nomination process flagged as concern by public-sector board members

Directors of public-sector companies have flagged the process for appointing board members as a concern. This is the finding of the Institute of Directors in Southern Africa (IoDSA) based on the most recent benchmarking study for all board appraisals conducted by the Institute to date. The IoDSA believes that this problem could be exacerbated by the post-election cabinet reshuffle, which could see new ministers replacing board members—or even entire boards—to support new agendas.

The IoDSA has conducted 118 board appraisals of both public- and private-sector boards since 2009, and its annual benchmark study highlights trends.

"Newly appointed boards that lose experienced members lack institutional knowledge and waste months trying to come to grips with the entity” says Parmi Natesan, senior governance specialist at the IoDSA. "During this period, the board cannot provide the strong direction needed to help the entity achieve its goals.”

To manage this risk, King III recommends staggered rotation so as to enable the board to achieve the balance between retaining valuable skills, maintaining continuity of knowledge and experience on the one hand, and introducing people with new ideas and expertise on the other.

Follow a proper nomination process

Another key concern for the boards of public-sector entities, the IoDSA’s benchmarking survey reveals, is the nomination of board members. According to King III*, shareholders – government in this case – are responsible for ensuring that boards are properly constituted, taking into account skills and representivity.

In the public sector, the Minister plays a major role in appointing the board, and sometimes even the CEO, but such practice is not recommended without thorough consultation with the organisation and its existing board.

"It is important for the ministers to consult with the existing boards to determine the skills and experience needed before making any appointments. Without such consultation, these changes to boards run the risk of being ineffective and perceived as political appointments,” she says.

King III recommends the appointment of an independent nominations committee that will compile a shortlist of potential candidates, having assessed the board’s skills requirement.

"Although the minister is under no obligation to follow the recommendation made by the nomination committee, it would serve the entity well if a board is appointed that meets the needs of the organisation, and whose directors are not suspected to be purely political appointees.”

According to Natesan, some public sector boards think that the decision is out of their hands. "But the truth is that it isn’t,” she says.

"Board members must realise it is up to them to look after the organisation’s best interests. There is nothing stopping them from engaging with the minister on this critical issue.”

* To assist boards and shareholders, the IoDSA has produced a practice note containing useful practical guidance on the selection, nomination and voting for non-executive directors. For more information, please visit www.iodsa.co.za.