PRESENTATION TO THE PORTFOLIO COMMITTEE ON ARTS AND CULTURE Appointment of Senior Officials of Public Entities 04 September 2018

PRESENTATION OUTLINE Introduction Public Entity Appointments Inconsistencies in Appointments Institutionalised Recruitment Process PRC Recommendations for the Appointment National Arts Council Legislation Legislative Roles and Responsibilities Legislative Prescript for Acting Appointment of CEO Concluding Remarks

INTRODUCTION The Public Service Commission (PSC) was requested to brief the Portfolio Committee on the appointment of Senior Officials, in particular the Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs), of Public Entities; their roles and responsibilities, and processes followed to reappoint or extend the contracts of the said CEOs and CFOs. Section 196 (4) of the Constitution sets out the powers and functions of the PSC. Read with the PSC Act, 1997, it stipulates that the PSC’s mandate shall apply in respect of the public service, and in particular the administration in the national and provincial spheres of government. The PSC’s mandate does therefore not extend to public entities. Further to this, the PSC has no research or evaluation studies available on this matter.

INTRODUCTION (2) However, work reflected in the presentation was undertaken by a review of the: Report of the Presidential Review Committee on State-Owned Entities (2013); and Department of Public Service and Administration (DPSA) Handbook for the Appointment of persons to boards of state and state controlled institutions (2008).

PUBLIC ENTITY APPOINTMENTS (1) Public entities are required to have enabling legislation (founding legislation) that specifies amongst others the fiduciary (executive) duties, corporate governance structures and public purpose mandate(s). There is no overarching regulation for the appointments of senior officials within public entities. Therefore, the DPSA developed the Handbook for the Appointment of persons to boards of state and state controlled institutions (approved by Cabinet 17 Sept 2008), which provides guidelines on appointment processes based on best practice to promote uniformity. The Handbook represents a stand-alone practical document which is not in any way prescribed in terms of any formal framework, regulation or legislation. However, it makes reference to various policies and legislative frameworks and departments to ensure compliance with these policies and frameworks.

PUBLIC ENTITY APPOINTMENTS (2) Currently a revised National Guide for the Appointment of Persons to Board of State and State Controlled Institutions (2018) is being processed by the DPSA for Cabinet approval. This Guide will include information on the appointment of Chief Executive Officers (CEOs), Chief Financial Officers (CFOs) and Procurement Officers.

INCONSISTENCIES IN APPOINTMENTS According to the Presidential Review Committee on SOEs, the appointment of CEOs of almost all SOEs has to be approved by the executive authority. This is entrenched in founding legislation as well as the PFMA (Uhrig report 2003, chapters 3 and 4). However, the practice and process associated with the recruitment and selection of CEOs is applied inconsistently within the SOE arena. The process depends on the preference of the Minister, who can choose to manage the recruitment process internally or delegate the nominations process to the board of an SOE. Most Ministers choose to delegate that authority to the chairperson who is then able to delegate the management of the process to the Human Resources and Nominations Committee. Depending on the size of the SOE, the common practice would be for the SOE to run the process internally. In the case of significant SOEs, the process is outsourced to a recruitment agent.

INCONSISTENCIES IN APPOINTMENT (2) A shortlist of 3 to 5 candidates is then prepared and forwarded to the Human Resources and Nominations Committee of the board. The committee selects the preferred candidate, whose name gets forwarded to the Minister. The Minister may accept or reject the selected candidate. However, it is rare for the Minister to reject the preferred candidate because it is common practice for the chairperson to keep the Minister informed during the recruitment process. Depending on the significance of the SOE, the name of the selected candidate will then be forwarded to Cabinet for approval, once approved the appointment is gazetted and a contract will then be drafted and signed by the Minister. Most (if not all) SOEs’ founding acts deal with the issue of CEO appointment, which is a power mainly accorded to the policy Minister rather than the board. The PFMA is silent on the issue, and the Municipal Systems Act contradicts most SOE founding acts and accords the power to appoint CEOs to the board of a municipal entity.

INSTITUTIONALISED RECRUITMENT PROCESS The Department of Public Enterprises (DPE) has an institutionalised recruitment process for SOEs under its oversight and has established an database that is well-maintained. The DPE’s recruitment process entails eight elements undertaken as follows: Process Practice 1. Skills review and identification The board members should have the combination of skills necessary to carry out their work. DPE sector teams identify the skills required for each SOE board following a skill review and performance assessment for the previous year alongside an assessment for future skills requirement. The skills based process reinforces the role of shareholders in identifying the requirement for a particular position on an SOE board. Every vacancy creates an opportunity to reassess the needs of a board, and the skills and experience that will best complement the talents of the other board members.

INSTITUTIONALISED RECRUITMENT PROCESS (3) Practice 2. Identifying suitable candidates SOE committees identify suitable well qualified candidates who reflect the demographic diversity of South Africa from the board database. The board performance assessment and skills review provides criteria for each sector team to determine the suitability of candidates. 3. Candidate screening and vetting Candidates are screened through the CIPC or other database to determine the number of board seats the candidates holds as well as other reference, credit and background checks. 4. Selection and vetting From the identified candidates, the SOE teams select and shortlist proposed suitable candidates by matching such candidate’s competencies and skills with the relevant SOE board’s skills requirements and other relevant shareholder requirements.

INSTITUTIONALISED RECRUITMENT PROCESS (3) Practice 5. Interviews SOE teams (with support from ministry and legal and governance) may interview shortlisted candidates to confirm their suitability for the specifically identified board seat. 6. Obtain Minister’s approval SOE teams submit their shortlisted candidates as well as the recommended candidates for the relevant board to Minister for his/her approval. 7. Cabinet approval Once the Minister approves the recommended candidates, the submission is prepared for Cabinet endorsement. 8. Appointment Following the Cabinet approval, the candidate is formally notified of appointment. A board member may be appointed for a 2nd term to ensure stability in board dynamics and to recognise the significant intellectual investment in being a good director. Such reappointment should be subject to the director’s performance and his/her skills continuing to be relevant to the business.

PRC RECOMMENDATIONS The appointment of the CEO should be done by the Minister in concurrence with Cabinet, at the recommendation of the board. The following is the recommended process, the: Board is responsible for the process of recruitment and assessment of the nominated candidates. Board recommends to the executive authority two or three ‘appointable’ candidates for approval. Executive authority confirms the appointment in writing. To manage sustainable development and retention of skills, the PRC recommends longer-term employment contracts. The Board should adopt a structured and intensive performance management system for SOE executive management.

NATIONAL ARTS COUNCIL LEGISLATION As an example, the National Arts Council Act, provides the following in respect of the appointment of the CEO: The Council shall appoint a full-time CEO for the Council. The CEO shall be appointed for such period and subject to such conditions, including conditions relating to the payment of remuneration and allowances, as the Council may determine, and may be reappointed on the expiry of his or her period of office. The Act is silent on the appointment of the CFO. The National Film and Video Foundation Act, echoes the same sentiments as stated above.

LEGISLATIVE ROLES AND RESPONSIBILITIES The mentioned acts define the roles and responsibilities for the CEO as follows: The CEO shall be responsible for the management of the affairs of the Council and shall report on those affairs to the Council as often as may be required by the Council. In addition to the other functions entrusted to the CEO by or under this Act, he or she shall be the accounting officer charged with the responsibility of accounting for all money received and the utilisation thereof and be responsible for the property of the Council.

LEGISLATIVE PRESCRIPT FOR ACTING APPOINTMENT OF CEO The National Film and Video Foundation Act states that: Whenever the CEO is absent for any reason or unable to carry out his or her duties, or whenever there is a vacancy in the office of CEO, the Council may, subject to such conditions and the payment of such remuneration and allowances as it may determine … appoint an employee of the Council to act as CEO during such absence or inability, or until a CEO has been appointed … and that employee shall, whilst so acting, have all the powers and perform all the duties of the chief executive officer.

CONCLUDING REMARKS The inadequacies in the current legislative framework to regulate the functioning of SOEs should be addressed for better accountability which is crucial for delivery and the broader transformation of the state. For the PSC a gap in terms of the recruitment process is where senior officials’ private interests are thoroughly examined before finalisation of the appointment and should be reviewed on an ongoing basis for the duration of the appointment. Oversight departments should take their role and responsibilities seriously to ensure effective and efficient management of SoEs, as most of the entities are self-managing. The PSC appreciates the opportunity to make the input to the Committee.

Thank you Siyabonga PSC Website: www.psc.gov.za National Anti-Corruption Hotline for the Public Service: 0800 701 701 National Anti-Corruption Hotline for the Public Service: 0800 701 701