Government interference is bringing havoc to South Africa’s state-owned enterprises, with the chaos surrounding Andre de Ruyter’s replacement putting this issue into the limelight.

Eskom’s search for a new permanent Eskom CEO has faced a significant hurdle after Public Enterprises Minister Pravin Gordhan rejected the embattled utility’s nomination.

As reported by News24, Gordhan said that the rejection was based on the board sending him only one candidate instead of three, which is required by law.

Although City Press reported that Eskom had initially sent three names to Gordhan, the utility later corrected this to only one name.

Several insiders at Eskom and the political sphere said that there was political interference at play as the board, according to City Press, preferred Eskom manager Dan Marokane for CEO and not the politically favoured Central Energy Fund board chair Ayanda Noah.

Leadership hole

Professor Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA), said that Gordhan’s rejection of the board’s nomination revealed the governance issues that affect the running of SOEs.

“Governance best practice is for the board to appoint the CEO so that he or she is accountable to the board,” Natesan said.

“The challenge is that SOEs have enabling legislation or founding documents which often stipulate that the government (effectively the shareholder) has the power to appoint senior management, as well as the board.”

“King IV (a South African corporate governance code) recognises this and suggests in the SOE supplement that the board be fully involved in the appointment of the CEO and that both parties agree that the CEO is accountable to the board, not the Minister, as representative of the shareholder.”

She noted that a CEO without confidence can be appointed if this approach is not followed. This will see the CEO go over the board and report directly to the Minister.

Thus, Boards and management will struggle to work constructively together due to blurred reporting.

In addition, the aims of the board and the Minister seem questionable following the debacle.

The board could be seen as not following the Minister’s instructions or rebellious in naming its preferred candidate for the role.

The Minister, on the other hand, could be seen as having a hidden agenda, with the nomination not meeting the approval of political powers.

“In a perfect world, though, the appointment of the CEO should be the board’s prerogative. The board would then be able to hold the CEO properly to account, and could in turn itself be held to account by the shareholder,” Natesan said.

source:SOE minefield in South Africa – BusinessTech