New ministers have a critical governance role to play
Thursday, 30 May 2019
The recent announcement of President Ramaphosa’s new cabinet provides a good opportunity to reflect on the critical role of ministers in the governance of the public sector. Parmi Natesan, CEO of the Institute of Directors in Southern Africa (IoDSA), says that the work the IoDSA has done in the public sector over the years reveals some common governance challenges.
“We have conducted training and board evaluations, and performed governance advisory functions for public sector entities over many years, and there are common governance challenges that crop up,” she says. “Based on this, we have some constructive advice to the new cabinet, that will hopefully help them avoid these common pitfalls.”
The first point to make, Ms Natesan believes, is that ministers should realise the extent of the power they have as representatives of the sole shareholder, enabling them to play a much more active role than shareholders in the private sector. It is thus very important that they understand their role fully, and beware of allowing only political or other considerations to guide their actions.
“Boards are only as good as the people who serve on them—therefore one of a minister’s key responsibilities is to appoint effective and ethical individuals to the boards they oversee. This is absolutely critical for the success of these entities,” she explains.
Because of their overwhelming power, ministers should be careful not to undercut the boards they appoint and thus rendering them ineffective. A board that cannot set its own course cannot, in the end, be held truly accountable, she argues. She cites a recent editorial in the Financial Mail saying that the current CEO of Eskom is leaving the job “not because he has failed in his duties, but because the shareholder would not let him and his team do the job for which they were hired.” Governance best practice, as enshrined in the King Codes, is that boards, including those in the public sector, should be in a position to exercise their judgement independently without undue influence, in the best interests of the organisation, and to the benefit of all stakeholders—not just the shareholder.
“This relationship between an all-powerful shareholder and an independent board is a delicate one, and ministers should try to get it right. Only then can they truly hold a board accountable for its decisions and the performance of the organisation—without encroaching on its role,” she says.
Another common governance challenge is that the minister often appoints senior executives directly, thus creating a lack of clarity in terms of reporting lines, and making it difficult for boards and management to work constructively together. Management should be accountable to the board. The board should, therefore, be intimately involved in the nominations and appointment process, even if the minister makes the final decision.
“In announcing his new cabinet, President Ramaphosa said that his government will only succeed if the ministerial appointees are ‘capable, efficient and ethical’. The IoDSA salutes him for making the link to ethical and effective leadership as espoused by King IV —it is a very good start to what we hope will be a successful term in office – and we are here to offer our help,” she concludes. “We congratulate the new ministers and wish them well in the huge task they have before them. Public sector entities have a vital role to play in our country, and getting them back on track will be central to achieving the desired goals. If they make ethics and effectiveness the cornerstone of what they do, the omens look good.”