For many years the boards of state-owned enterprises (SOEs) felt like they were part of a social experiment, centres of “tyranny, fraud and personal fiefdoms” and even some reality show, gobbling taxpayers’ money while the nation’s bounds of loyalty and logic were being tested
No wonder Deputy President and ANC president Cyril Ramaphosa recently said at the 106th anniversary of the ANC in East London: “We need also to act with urgency and purpose to restore SOEs as drivers of economic growth and development. Several key SOEs are in financial distress, threatening not only their own operations, but the national fiscus
“Corruption in SOEs and other public institutions has undermined the government’s programmes to address poverty and unemployment, weakened key institutions, discouraged investment and contributed to division within the ANC and the alliance.”
So, what are the positive traits which make the difference between an ordinary and a good board?
For me, it is the confluence of qualifications, talent, experience, industry expertise and personality, the board’s relationship with the management team and ultimately shareholders or owner.
Like an engine of a car, a board of directors is the sum of its parts. Directors should have complementary and engine-like humming talents and ooze and demonstrate integrity, ability to think strategically, intuition, vision and capacity to make effective decisions, good interactive skills and ability to handle conflict. What it comes down to is having the appropriate skill sets and strength of character to do the right thing for the SOE, even if it’s not always popular.
Appropriate skill sets and strength of character to do the right thing should then be accompanied by accountability.
Accountability requires an effective evaluation process and a culture of candour. For example, board members should complete an annual review of each other’s performance and ensure the evaluation process has integrity. Here a chairperson with strong leadership skills can help create a culture of honest feedback.
SOEs should require board members to complete continuing education on topics such as corporate governance, fiduciary responsibilities, risk management, ethics, auditing, anti-money laundering and others.
Management should not believe that the board is a rubber-stamp pushover and should be open to ideas and criticism from its board. After all, management runs the company, but in the end the board has the power to replace management.
To thrive, prosper and be profitable, companies and organisations should adhere to good corporate governance. Good governance depends on good relationships between the management and the board.
Indeed, the most prized attribute of a director is his or her adherence to governance procedures, particularly the Public Finance Management Act (PFMA), which provides strict rules and guidelines on how boards should function, and other checks and balances.
Also, companies and organisations should adopt a rotation and specific term policy to avoid deadwood remaining in the board for ever. All in all, board members must act with loyalty toward the company and use their authority in good faith.
It means, among other things, not misusing their corporate position for personal gain or interfering with management and impair their own independence. It also means disclosing personal interests in any proposed company transaction or business opportunity.
So, why are these needs such a challenge for many companies and organisations? Because good governance depends on good relationships.
Of course, boards can be susceptible to a wide range of dysfunctional practices, like when the chief executive sees the board as a necessary evil, a burden on management and thus keeps directors in the dark. These kind of behaviours have led to corporate scandals that eventually collapsed.
Indeed, there could be instances when directors violate norms of boardroom debate by aggressively challenging corporate leadership.
At the same time a board that is beholden to management cannot be effective. This doesn’t mean a board hand-picked by a government department is doomed to failure. But the board, at the same time, cannot be subservient to the department to the detriment of management.
That is why robust nomination to bring in the right board talent is critical, and a nominating committee comprising strong, independent directors can make the difference.
As much as there is the PFMA that governs how boards should be nominated, it is prudent that the government adopts a process whereby the nominations committee of the board recommends names to the shareholder by applying a particular approved process in order to ensure continuity.
Of course, in many cases political interference has been the gravest risk facing members of the board followed closely by the risk of regulatory over-reaction.
It is this interference - including attempts to influence which companies are awarded contracts and the appointment of senior managers - that have seen instability in many public or private companies.
The success or failure of SOE boards of directors has a major impact on South Africa’s economic performance and it’s about time that the boards are held accountable and be given a clear mandate in terms of the law.
Tryphosa Ramano is the chief financial officer of PPC and a former board member of SAA.
The views expressed in this article are not necessarily those of the Independent Group.
- BUSINESS REPORT