October 22, 2023 In Consultancy

Global S.O.E. Board Appointment Procedures: An Overview

With S.A facing a plethora of board dismissals, SOE failures and corporate leadership crises, a curious mind would want to know how board appointments for SOE’s are dealt with by other countries. Although board appointments and composition on their own cannot be the cause of all the failures, it remains the single most important requirement for steering SOE’s in the right direction. Below is an overview of an international comparative review on the topic. The focus of this article will be mainly on the EU and Canada (the next paper will explore the United States and China).

The nomination of SOE directors is one of the primary responsibilities of the state as an active owner. According to ownership structures (centralised, widely dispersed or dual structures involving different ministries) this may remain with individual ministers or involve the entire cabinet and/or executive powers. In the South African case, we have a unitary board appointed solely by the line Minister. In exercising these powers, ministers need to be mindful of the fact that they are custodians of the public interest rather than the owners of companies.

The process is rules-based and overseen by a governmental ownership function. Insofar as the ownership function has discretionary powers, it is well-advised to exercise them along similar lines and private sector good practices. This could include relying on external recruitment consultants, building databases with pools of directors and engaging the active involvement of the incumbent boards of directors.

Generally, the starting point in nominating boards is to ensure a well-structured and transparent policy framework. However, achieving this in practise is far from uncontroversial. Historically and across multiple jurisdictions, nomination of SOE boards have been one of the more contentious policy challenges in SOE reform. This opinion seeks to establish a global comparative overview of how major jurisdictions deal with this challenge.

European Union

In Europe, politicization of the appointment process (e.g. for patronage or to protect special interests served by the SOE’s operations) in some jurisdictions remain and impediment to a transparent and consistent process. The formal role entities has, have been undermined by interest groups inside and outside the companies. Political interference in the process has in the past led to inefficient outcomes in the long term, resulting in excessive turnover, a lack of desired profiles on the board, or even stagnation due to a lack of fresh faces or innovative persons (Frederick,2011).

Like any private company owner, the State acting in its capacity as shareholder needs to form ideas about who it wants on the board to act in its own and the company’s best interest. Keeping in mind, however, that unlike in private companies, Ministers are not owners but provide oversight on public interest. A good practice would therefore be: A robust nomination and appointment framework that clearly specifies the nominating power in a transparent and consistent manner. An example of this would be where different Ministries e.g. line function Ministers and Treasury appoint members to boards to enhance transparency and representativity in skills etc. Ministries will have to appoint on consensus principles. This methodology of “mixed appointments” by various ministries is mainly used in Sweden.

Furthermore, although the legal responsibility to appoint board members in Europe, generally lies with the Minister, good practise dictates that independent bodies weigh in on the appointment process. This will have a massive impact on depoliticizing board appointments. This will also assist in identifying a wider pool of talent. In practise a key requirement set up by EU countries is to stipulate in law a minimum formal qualification that individuals must possess to be eligible for appointment (no such requirement in SA law, safe for specific skills appointments). Board approvals are therefore made subject to the approval of a special “Appointments Examination Committee” that confirms qualifications and further criteria.

In the UK, advice and recommendations is submitted by the Shareholder Executive following an open competitive process of selection. Appointments are then done by the relevant Minister based on the recommendations. Formal or informal nominations committees are also setup in Sweden, who determines needs and qualifications of boards and thereafter the recruitment process starts. On the other hand, the Finnish use a bidding contest between various recruitment agencies. The take home here is that Europeans mainly support a hybrid board appointment model, which includes either other Ministries, civil society or recruitment agencies in the nominations and recruitment process.

New Zealand

NZ deserves a special mention here as a best example of board nominations practice. NZ has a centralised ownership support unit, the Crown Ownership Monitoring Group (COMU). COMU has adopted a comprehensive approach to board appointments, from soliciting, vetting and recommending candidates through to conducting induction training after appointment. It is responsible for developing and shortlisting candidate lists for consideration by the Minister, conducting due diligence on preferred candidates (including conflict of interest clearance, background checks), managing the cabinet approval process and managing the formal appointment process. The whole process is kickstarted by a self-registration process on COMU. This is a far cry from the SA environment where the appointments of boards are in the sole discretion of the appointing Minister. Note however, that the COMU model is proposed in the S.A. Presidential Review Commission on S.O.E’s Report, which proposes a “Shareholder Unit” that will oversee strategy, board appointments and monitoring of SO.E’S. centrally.

Canada, Denmark, UK & Switzerland

The countries mentioned here have a formal process of involving the existing boards of the SOE’s in the recruitment process. The boards are required to establish and maintain board profiles. When a vacancy arises, the responsible Minister will be guided by the board profile developed by the board of directors to identify potential directors for appointment. In the UK, the Shareholder Executive (the government’s co-ordination entity) and the Chair agree on a mix of skills and experience required on the board. Interview panels will then include the Chair.

The board is therefore involved in the nomination of board members in an advisory capacity. This practise is also common in Finland. A board profile, in short, describes, the skills, experience and attributes that should be possessed by the board as a whole. Denmark also follows a consultative process with its current board Chair. In the case of the UK, an interview panel is setup comprising of, amongst others, the board Chair. In Switzerland, the board has a legal role of proposing the final candidate to the AGM for appointment.

The above overview sheds some light on different practices in various EU countries, whether the practices are good or bad are neither here nor there. It is always more desirable though to have a multiplicity of actors involved in the appointment of boards as this naturally removes the “patronage” perception, as opposed to having a single Minister making appointments in an un-transparent manner. My next article will focus on the Chinese and American processes and may shed some more alternative light on the subject.

Ronny Mkhwanazi, Managing Director at Mkhwanazi Incorporated, expert in Commercial law, Corporate law and International Trade law. Johannesburg, South Africa.


The OECD Framework on board reforms.

Presidential Review Report on S.O.E’s, South Africa.