SOE boards reckless

15 August 2013 Author  

front Junius soe 16 augBOARD members must be held personally responsible for the compensation of CEOs if their handling of suspensions and dismissals are found to be reckless and unprocedural. This is the view of Junius Mungunda, Deloitte’ Regional Managing Partner, Southern Corridor. Mungunda was commenting on the significant number of suspensions and dismissal of CEOs in the country, especially over the last two years.

 

“We have seen a number of these dismissals ending up with the companies paying the CEOs for unlawful or unprocedural dismissals.

“Often, these dismissals are not supported by robust performance appraisals or lawful disciplinary processes.

“This is an area that should be strengthened in our governance practice so that the directors can act with honesty, diligence and competence knowing that they could be held liable for their reckless behaviour or decisions,” Mungunda said.

The most recent cases were TransNamib and the Namibia Airports Company (NAC) paid out their CEOs after firing them.

In 2012, TransNamib was found to have axed its CEO Titus Haimbili without going through proper disciplinary procedures.

The parastatal was ordered by the Office of the Labour Commissioner to pay N$990,000 to Haimbili for the remainder of his contract.

The NAC reached an out of court settlement with its CEO Ben Biwa and allegedly paid him an exit package of over N$2 million.

The company fired Biwa less than a year into his contract.

TransNamib reportedly also ignored proper procedures in the appointment of Haimbili’s successor, Sara Naanda, who was the deputy chair of the board before her appointment.

According to media reports, the TransNamib board argued that the TransNamib enabling act does not compel them to consult the Minister of Works and Transport, Erkki Nghimtina for approval to appoint a CEO.

The board reportedly held the opinion that since the company was registered as a Pty Ltd, the board holds more power than the line-minister.

Another parastatal CEO also faces the chop after he allegedly refused to buy board members iPads.

Kenandai Tjivikua, the suspended CEO of the Social Security Commission, faces disciplinary action for allegedly refusing to act on an instruction from his Board to purchase upmarket iPads for the directors.

Deloitte Namibia recently released its 2013 Governance report, which observed that boards offer a number of suspended or dismissed CEOs compensation.

This prompts the question as to whether the boards institute formal performance evaluations and performance management processes before these suspensions.

This debate, according to the report, should be viewed against good governance practice as espoused by the Companies Act, 2004.

In Section 235, the Act states that a company must not make payments to any director as compensation for loss of office unless full particulars have been disclosed and the payment has been approved by special resolution of the company.

One of the key issues is whether the people appointed to the Boards of SOEs are adequately skilled.

Mungunda says he does not necessarily think that the SOE boards do not have the appropriate skills as individuals, but rather that a number of the boards lack balance.

“It is important that there is an appropriate blend or mix of skills, experience and competency appropriate for each company. This should be the result of conscious decision-making processes by the appointing authority.

“In particular, the chairperson of the Board should be a person with an independent mind who will apply his or her independent judgement to all issues presented, and should be a person with integrity and accumulated business experience to lead the company to long-term prosperity.

“I believe that successful companies are those that are led by board members with these attributes and who have a positive reputation to guard,” he says.

Succession planning

Another key finding from the Governance report was the lack of succession planning particularly at parastatals.

Only 36 percent of respondents had a CEO succession plan in place, and of these 100 percent were private companies - no public companies had a succession plan in place.

Out of the 36 percent with succession plans, Mungunda says this should be read in conjunction with the finding that 40 percent of the respondents’ board members’ terms are not structured in such a manner so as to overlap, meaning that when the term of the board members expires, a full new board is appointed.

“These two aspects are very worrying for me and explain some of the challenges we see in the country today,” he says.

Succession is a process that needs planning and management by the board very carefully, supported by robust, fair, supportive and constructive performance appraisals of the CEO performance, according to Mungunda.

There is a need to provide for continuity of purpose and strategies and in order to do this, succession should be managed in such a manner that the successor spends time working with the departing CEO at least six months before his or her departure to allow for a smooth and orderly transition.

“How many times have we seen CEOs terms end before a successor is identified? What do you get when this happens; the new CEO comes with new turn-around or restructuring plans, with most of our companies - especially in the SOE sector - in never ending restructuring modes every three or five years whenever a new CEO is appointed,” he says.

Additionally, he believes that to provide for continuity, the terms of the Board members should overlap, so that whenever there are changes to the board, it does not create a completely new board every three years.

“It is of critical importance that there is institutional memory left in the board to explain the rationale to earlier strategies and decisions, whilst at the same time introducing a fresh ‘pair of eyes’ and ideas.

“I believe that this is one of the biggest failings in our current governance practices in the country,” Mungunda states.

Another strong point made is the observation that no respondents indicated that talent was readily available in the country, with over 80 percent indicating a scarcity of talent.

“I believe that talent or skills availability in the country is an area that should be elevated to national importance with a view to identifying the skills shortages that are critical to the country’s economic development with specific actions developed at a national level to deal with the shortages.

“When we talk of skills, people often confuse skills with academic qualifications. An accounting degree for example does not make you an accountant.

“Here we talk about academic qualifications supplemented by practical on-the-job training with the latter part not well co-ordinated at a national level for a number of the professions necessary for the country’s development,” Mungunda says.

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