Political interference complicates Andre de Ruyter replacement process

The process to replace former Eskom CEO Andre de Ruyter has revealed how government interference affects the operations of state-owned enterprises (SOE).

This is according to Institute of Directors in South Africa (IoDSA) CEO Professor Parmi Natesan.

This follows news that behind-the-scenes political battles are delaying the appointment of a new Eskom CEO. 

The Eskom board provided Public Enterprises Minister Pravin Gordhan with a sole recommendation for a new CEO.

However, Gordhan dismissed this recommendation, citing a Memorandum of Incorporation he provided to Eskom, which said he required at least three candidates to be shortlisted. 

This has sparked speculation that a divided cabinet and political infighting are why Gordhan did not appoint the shortlisted candidate.

The protracted search for Eskom’s new CEO has raised tensions between Gordhan and Eskom’s board. 

Eskom said its board’s governance and strategy committee is applying its mind and working towards a speedy resolution.

Natesan said this situation raises the complex governance issues related to appointing senior management at SOEs. 

She said the minister’s rejection of the board’s nomination, “whatever the technicalities, lays bare the governance tangle that continues to affect the governance balance at SOEs”.

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

She explained that King IV recognises this challenge and suggests, in the SOE supplement, that the board be fully involved in appointing the CEO.

In addition, it states that both parties agree that the CEO is accountable to the board, not the minister, as representative of the shareholder.

“If this approach is not followed, CEOs who do not have the confidence of the board may be appointed, and CEOs may see their reporting line leading directly to the minister rather than the board,” said Natesan. 

“The resulting blurred reporting lines make it difficult for boards and management to work constructively together.”

She said the current state of affairs means that the faith of the board and the minister seems questionable. 

The former could be construed as not following the minister’s instructions or being rebellious in asserting its preference for appointing the CEO it wants. 

Similarly, the latter could be accused of having a hidden agenda, namely that the nomination did not meet with the approval of the political powers, she said.

“The IoDSA has been steadfast in bringing this particular governance issue to the fore, and we once again urge the government and SOEs to follow King IV’s lead,” she said.

“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.”