Parmi Natesan | CEO | The Institute of Directors in Southern Africa (IoDSA) | mail me |
The news that John Lamola will assume the roles of both Executive Chair and CEO of South African Airways (SAA) suggests that the state has not learned the lessons of the past few years regarding the importance of good governance.
As the Zondo Commission’s reports show, governance lapses in terms of appointments, oversight and accountability are some of the fundamental causes of the implosion of our key state-owned enterprises, among them SAA.
Appointing the right calibre of person
It is disheartening that the state seems to have overlooked governance best practice as espoused by the King Report on Corporate Governance. This departure from governance best practice is all the more surprising in light of the Zondo Commission’s assertion that the way in which board and senior executive appointments were made cannot simply continue.
Appointing the right calibre of person is one element but another, as King IV clearly outlines, is that it is vital to separate the roles that appointees must play in order for the organisation to function optimally.
CEOs and chairs fulfil distinct, complementary roles and combining them is not ideal – especially in the case of the national carrier which has a long road to travel to re-establish its bona fides.
King IV Principle 7 states that The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.
The chair should be an independent non-executive director
Recommended Practice 31 states that the chair should be an independent non-executive director, while Recommended Practice 34 specifically says that the CEO of the organisation should not also chair the governing body.
According to Muhammad Seedat, Chair of the IoDSA Board, there are very good reasons for the clear separation of the roles of chair and CEO advocated by King IV.
They may be summarised as follows:
- Operational and strategic roles are confused. The CEO plays an operational role, overseeing the implementation of strategy while the chair has a strategic oversight role.
- Accountability is reduced. The board, led by the chair, holds the CEO accountable – an executive chair/ CEO cannot be both policeman and policed. If the two roles are merged covering up a lack of performance or questionable activity is easier. King IV also requires the governing body to undertake a formal evaluation of the CEO against agreed performance measures and targets at least annually. This critical process should be led by the chair.
- Delegation of power is short circuited. As the apex body of the organisation, the board sets out which powers it retains, and which it delegates to management. If the chair is also the CEO, it means that he or she is effectively in a position to influence what powers he or she is delegated. In addition, as noted above, the combination of roles could also hamstring any efforts to hold the CEO accountable for the way in which he or she uses those delegated powers.
1. Judicial Commission of Inquiry into State Capture Report: Part IV(4) at 2500, available at https://www.statecapture.org.za/
2. IoDSA, Report on Corporate Governance for South Africa 2016, p 54, 57.