Suspending the CEO is a balancing act says IoDSA
Wednesday, 23 April 2014
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
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.
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.”