Mzobe appointment highlights the need for transparency in SOE board appointments, says IoDSA

The recent appointment of former ANC Youth League leader, Magasela Mzobe, to chair the interim board of Umgeni Water has elicited negative comment. Dr Simo Lushaba, Facilitator of Director Development Programs at the Institute of Directors in South Africa (IoDSA), says that more public transparency is needed on these appointments in order to build stakeholder trust and, ultimately, give the appointees the best chance of succeeding in their new positions.

“The appointment of board members and key executives to state-owned enterprises (SOEs) presents a significant governance challenge because these appointments are made by the state as shareholder and not by the accounting authority (board), which would be governance best practice,” Dr Lushaba says.

“King IV’s Sector Supplement for SOEs recommends that ‘The SOE and the executive authority should be transparent regarding the processes followed for the nomination, election and appointment of governing body members.’ If ministers are not transparent about the reasons they appoint people to board or executive positions, the public may jump to the unfortunate conclusion that the appointments are political, especially given what has been going in our SOEs for too long.

“Perception is critical when it comes to building and/ or restoring trust.”

Principle 7 of King IV says that “The governing body [i.e. board] should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.” In its Recommended Practices, the King Report makes it clear that the governing body should ideally have the responsibility for ensuring it has the right composition of members to discharge its duties.

However, SOEs represent a special case because their founding legislation typically gives the government as sole shareholder the power to appoint board members and, often, senior executives. Consequently, in its Sector Supplement for SOEs, King IV makes the recommendation noted above that the governing body/ accounting authority and shareholder should work together and in a transparent way to follow governance best practice as closely as possible.

“If this course is not followed, the board is placed in the untenable position of being held accountable for the organisation’s performance but with little or no control over who sits on the board or in the executive suite,” Dr Lushaba points out. “The IoDSA’s recent paper, ‘Challenges facing public-sector boards’, identifies board composition as a key issue for SOEs and, of course, the position of chair is particularly important. In this instance, the Minister’s spokesperson has said that this appointment was made in line with King IV, but in fact this is questionable. As noted, King IV’s Sector Supplement for SOEs highlights the need for transparency and collaboration between the shareholder and board, and simply saying the Minister took King IV into account is just not good enough.

“I would respectfully remind Ministers that King IV’s principles are framed in terms of outcomes, not boxes to be ticked and that the reaction to this particular appointment shows that the desired outcome of restoring trust and legitimacy may not have been achieved. This is a great opportunity to lead from the front and set the tone for a new and improved approach to SOE governance based on achieving the outcomes set out in King IV.”