Government urged to consider board recommendations when appointing CEOs

By Parmi Natesan, CEO of IoDSA
 
South Africa’s troubled flag carrier SAA is once again making headlines for governance issues. The Institute of Directors in South Africa (IoDSA) notes its concern about allegations of political interference in the airline’s CEO appointment. According to recent media reports, the Transport Minister allegedly recommended the “worst-performing candidate” for the role of airline chief executive – despite the SAA board clearly preferring another candidate.

The article alleges that the ANC deployment committee, chaired by Deputy President Paul Mashatile, went against the board to recommend John Lamola (SAA’s interim CEO since May 2022). The SAA board and an independent headhunting firm reportedly both named Lamola as the least preferable of the final three shortlisted candidates: he allegedly not only scored lowest of the three in evaluations but also was the least experienced in a senior executive position at an airline.

“If the allegations about this appointment are correct, they raise concerns about undue political influence, which can lead to inefficiencies and poor decision-making,” says Parmi Natesan, CEO of IoDSA. This is particularly worrying when considering that one of SAA’s previous apparent political appointments, former chairperson Dudu Myeni, ended up being declared a delinquent director.

“Best practice in governance, as outlined in King IV, states that a board should have the authority to choose and appoint the CEO to ensure proper oversight and accountability,” says Natesan. “A CEO who is chosen by the board ensures alignment with the company’s strategy, culture, and performance expectations and, importantly, creates the trust needed for this relationship.

However, she explains that when a minister (as a representative of the shareholder i.e. government) appoints a CEO contrary to the board’s recommendation, it undermines the board’s ability to govern effectively. While this practice is in line with public sector legislation, it does create a misalignment of accountability, where the CEO may feel more answerable to the minister than to the board.

“If the board is not fully empowered to choose the CEO, it weakens governance structures and can create tension between the board and management. This may lead to board instability, high turnover, or reluctance from qualified professionals to serve on the board,” says Natesan. “A lack of proper governance in CEO appointments has historically contributed to poor performance and even financial distress in SOEs.”

The process of appointing board members and executives was a central pillar of State Capture, according to news reports, as it contributed to undue control of SOEs and ministries.

In addition to that, the public and other stakeholders lose confidence in the SOE’s leadership when appointments appear to be politically motivated rather than merit-based. For all these reasons, Natesan underlines the need for governance reforms to ensure that SOE boards have authority in CEO appointments, in line with good corporate governance principles. She concludes, “At the very least, if things stay the same legally, the minister should really be taking the board’s preference into strong consideration.”