October 22, 2023 In Consultancy

Weak board leadership – a South African challenge


Recent history has demonstrated that the pre-requisite to the capturing of any organization, is to weaken its leadership. First you ensure that all those who have the capacity to challenge you are intellectually maimed and silenced and then you find the weakest leaders available (since nature does not allow a vacuum, there are aplenty) and place them in various strategic and important positions to pave the road to capture. Once the above is achieved, then you have opened the floodgates of rampant looting, incompetence, patronage,arrogance and a complete corporate governance collapse. This is the state of most SOC’s (and indeed corporates) in South Africa. These national resources are not inherently plagued by these faults but have been intentionally engineered to suit vested personal and commercial interests.

“Best practice” really?

Being involved in training some of the boards and having sat on a few, it is mind-boggling how many of these board members are completely lost insofar as their roles and responsibilities are concerned. Merely a few days ago I was sitting in an Audit & Risk Committee (ARC) meeting where the Chairperson boldly stated that “it is best practise for the Audit Committee to be involved in the recruitment of the CFO”, this was during a discussion on the ARC terms of reference not having such a provision. I mean from my experience, at the very least, the ARC Chair, may be invited to provide inputs in the recruitment process, but that is not a requirement and it is definitely not “best practise” for ARC to recruit a CFO. Let alone drafting the job-specs and being overtly very keen in the process and its outcomes.

Other examples I am exposed to is board members making themselves available to draft company policies and or calling more than 20 “special meetings” in one financial year. Or board members who call the CEO and advise “I am in the vicinity and thought we should have a meeting” (obviously with a view to getting fees). Worse ones are board members who walk into the company and call meetings with Executives and staff without the CEO being aware of these meetings or their purpose. Not to mention the inexperience of most of these board members in understanding the difference between strategy and operations. They mainly use these boards for rent-seeking purposes.

How do we change this?

Now in an attempt to enhance the demands of good corporate governance, below are a few recommendations on enhancing effective board leadership:

  • 1. There should be a heavy majority of purely independent and knowledgeable directors on every board. Not warm-bodies, people who have experience and knowledge in governance of companies and on their role as board members.

  • 2. The board should be engaged in actual governance, and not merely act as advisors to the CEO. This does not mean that the board runs the operations of the company (it should not). It means the board is in control of the strategic direction of the entity.

  • 3. The directors should meet face-to-face frequently throughout the year and spend substantial time on their homework. A norm of at least one hundred hours per year (note that there are 8760 hours per annum) on each board has been suggested and seems reasonable, in my view. Of course, more than the norm may be required in time of crisis, and directors should not become so overcommitted that they cannot deal adequately with crises. The number of board meetings annually is a clear indication of the type of crises and leadership the company has.

  • 4.The directors should limit to a reasonable number the major boards on which they serve. What is a reasonable number depends on the extent to which each director is able to carry out his or her responsibilities to each board in a professional manner. In Germany, the norm is that a person can only sit on 5 boards concurrently at any given time.

  • 5. Independent directors should regularly undergo a performance review of the CEO, and they should meet with each other alone in executive session on a regular basis. The board should have independent Audit & Risk and HR-Remco committees. In most instances, at least the Audit and the Remuneration committees should be independently advised. This is to avoid confusion around, for example, recruitment as per the misguided “best practise” ARC Chair above.

  • 6.The board should establish and monitor legal compliance throughout the company and be the champions of ethics.

  • 7. The board should carefully review disclosure documents for which they have direct responsibility to ensure that all material information reasonably available is disclosed to the relevant audience.

  • 8. The board itself must undergo annual performance reviews, including reviews by fellow board members.

  • 9. The board must also be rigorously vetted and inducted regarding corporate governance as well as the business and operations of the company. The shareholder must therefore design induction programmes that will highlight its priorities, role of the board as well as expected outcomes which must be measurable and tangible.

  • 10. Boards of SOC’s should also undergo “business acumen” training to enhance their grasp of business ethos and understand the business fundamentals, models and profitability. Also to learn how to be enterprising.

I should be clear that these suggestions are purely good practice. We need to rethink the type of board members that we currently recruit as well as the processes. Most details regarding how to reconfigure SOC’s are contained in the Presidential Review Commissions’ report on SOC’s (The Phiyega Commission). The challenges facing our SOC’s, including companies like KPMG and Steinhoff are directly linked to the type of leaders we have been appointing to them, and shareholder should no longer tolerate mediocrity insofar as their assets are concerned.

The aspirations for good corporate governance principles can and should, in my view, be applied universally to achieve the returns on investments that shareholders are aiming for. Keeping in mind that in the case of SOC’s, the population is the shareholder!

Ronny Mkhwanazi is Corporate and Trade Law Attorney practising in South Africa, he specializes, amongst others, in corporate governance, risk management and legal compliance.