Storm brewing over South Africa’s biggest airline

Prof John Lamola was appointed South African Airways’ (SAA) new CEO despite the board reportedly preferring another candidate. This raises concerns about political interference and governance best practices.

At the end of February, Transport Minister Barbara Creecy announced that Prof John Lamola has been appointed the new Group CEO of the state-owned airline.

Lamola has been acting as the airline’s GCEO since 2022, and Creecy said under his leadership, SAA had three years of “outstanding” audits and made a profit during the 2023 financial year.

She further said under him the carrier had also expanded from flying just domestic routes to again flying regional and international ones.

However, Lamola’s appointment has been scrutinised for allegedly being politically motivated.

The Institute of Directors in South Africa (IoDSA) noted its concern about allegations of political interference in the airline’s chief executive.

According to recent media reports, Creecy allegedly recommended the “worst-performing candidate” for the chief executive role despite the SAA board clearly preferring another candidate.

It was further alleged that the ANC deployment committee, chaired by Deputy President Paul Mashatile, acted against the board’s recommendation.

The SAA board and an independent headhunting firm reportedly named Lamola the least preferable of the final three shortlisted candidates.

According to IoDSA, he allegedly not only scored the lowest of the three in evaluations but was also the least experienced in a senior executive position at an airline.

“If the allegations about this appointment are correct, they raise concerns about undue political influence, which can lead to inefficiencies and poor decision-making,” said Prof Parmi Natesan, CEO of IoDSA.

This is particularly worrying given that one of SAA’s previous apparent political appointments, former chairperson Dudu Myeni, was declared a delinquent director.

“Best practice in governance, as outlined in King IV, states that a board should have the authority to choose and appoint the CEO to ensure proper oversight and accountability.”

“A CEO appointed by the board fosters trust and ensures alignment with the organisation’s strategy, culture, and performance expectations,” Natesan explained to Daily Investor.

“The governance structure is designed so that shareholders appoint the board, the board is accountable to them, and the CEO is accountable to the board.”

“When the board is responsible for the CEO appointment, it enhances clarity, accountability, and leadership confidence.”

However, she explained that when a minister, as a representative of the shareholder i.e. government, appoints a CEO contrary to the board’s recommendation, it undermines the board’s ability to govern effectively.

“If the minister does not follow the board’s recommendation, it can weaken the board’s authority and affect investor and public confidence in the governance of SOEs.”

It could also lead to a situation where the CEO feels accountable towards the minister rather than the board.

“If the board is not fully empowered to choose the CEO, it weakens governance structures and can create tension between the board and management.”

“This may lead to board instability, high turnover, or reluctance from qualified professionals to serve on the board,” said Natesan.

“A lack of proper governance in CEO appointments has historically contributed to poor performance and even financial distress in SOEs.”

According to news reports, the process of appointing board members and executives was a central pillar of State Capture, as it contributed to undue control of SOEs and ministries.

In addition, the public and other stakeholders lose confidence in the SOE’s leadership when appointments appear to be politically motivated rather than merit-based.

That being said, this practice does not violate public sector legislation, and the parties are not bound to follow the King IV Code (‘Code’), a South African corporate governance code.

“While King IV encourages best practice by recommending that boards oversee CEO appointments, it is a voluntary code.”

“Public sector legislation, which grants the minister the authority to make the appointment, takes precedence. This highlights a misalignment between governance best practice and the legal framework rather than a violation of King IV.”

Natesan explained that, in this case, the board reportedly submitted three candidates, indicating that all could perform the role. As a result, it would not be fair to assume the appointee is unsuitable.

“The key consideration is whether the individual will be able to lead effectively and instil confidence in both the board and stakeholders.”

“Governance challenges in CEO appointments can impact SOE stability, operational effectiveness, and financial performance. Strong executive leadership is essential for SOEs to fulfil their mandates efficiently and contribute positively to the economy.”

“Ensuring that board-recommended candidates have the necessary expertise and leadership capability remains crucial for the long-term success of these organisations.”

However, given the impact of appointing a CEO against the board’s recommendation, Natesan stressed the need for governance reforms.

She emphasised that SOE boards should have the authority to appoint CEOs in line with good corporate governance principles.

“At the very least, if things stay the same legally, the minister should really be taking the board’s preference into strong consideration.”