What SOEs and corporates can learn from Transnet board vacancies

SOEs and corporates can learn from Transnet board vacancies, such as the fact that board committees cannot function properly without the critical skills needed to run the state entity. There is also a lack of succession planning that could have adverse effects on the business in future.

Futuregrowth Asset Management recently raised concerns about the unwarranted time it is taking to fill six vacant positions on the Transnet board. “These concerns are valid and point to governance issues that all boards should seriously consider,” says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).

“The analysis conducted by Futuregrowth shows that the failure to fill six vacancies in a 12-person board has made it less able to tackle the serious challenges the company faces, a matter of considerable concern given its pivotal role in our economy,” she points out.

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“In the best of times, a board needs the right mix of skills to steer the organisation well, but in a tricky economic climate and facing significant challenges, the lack of board skills is existential.”

To begin with, Transnet’s sparsely populated board table means that important board committees, such as the audit, social and ethics and risk committees could be missing critical skills. Natesan says these committees fulfil vital roles in the governance of organisations and particularly in relation to its ability to rise to the challenges it faces.

No spread of skills

“Organisations and board chairs must pay particular attention to the need for the board to have, in the words of King IV, ‘the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively’ according to Principle 7.”

Another, related issue, is the fact that the terms of office of the six remaining non-executive directors will expire in May next year and while the principle of rotating board members in a staggered fashion to ensure that skills are renewed and diversity improved is a good one, it is clearly counterproductive for so many board members to leave at once, Natesan says.

“We see this kind of mass reshuffling of boards particularly in the public sector. The motivation behind rotation is good, but it needs to be handled intelligently to ensure that invaluable institutional memory is not lost. Organisations must focus on striking a balance between continuity and renewal.”

Succession planning is also an important consideration. Natesan says if board members are rotated regularly, as best practice suggests, the organisation must ensure that people with the right skills, including professional directorial skills, are ready to take over.

Therefore, succession planning must happen in parallel with an ongoing skills audit to ensure that the board understands what skills it needs and that the nominated individuals have them.

“Nobody in South Africa doubts the important role that governance and oversight play in ensuring organisational health and effectiveness. The result, that the board must have the right mix of skills to fulfil this vital function, is equally true.”