Edition: Jun - Aug 2014


Held in suspense

Too many senior executives are being suspended too frequently. Ansie Ramalho, Institute of Directors SA chief executive, poses a challenge to boards of companies and pension funds.

"I only work in black and sometimes very, very dark grey", a manly Batman says in The Lego Movie recently released for the school holidays. Considering the ever-growing number of executive managers under suspension, an observer may be forgiven for assuming that this humorous quote depicts the limited set of apparatus seemingly at the disposal of many boards both when they make executive appointments and when they oversee performance.

An incomplete list of suspensions only in recent times includes: CEO of Eastern Cape Development Corporation; CEO of Municipal Demarcation Board; acting CEO of SA Airways; CFO of Telkom; CEO of Armscor; CEO of Limpopo Tourism; MD of Pikitup, and last but not least the principal executive officer of the Government Employees Pension Fund.

The mere number of suspensions raises a serious question about the rigor and diligence employed by boards in the selection of executive management. One also has to challenge these boards' wisdom in using suspension as their tool of preference.

I do not doubt that some of these executives' conduct indeed warranted a suspension. However, I do question its liberal use; especially so where there is a distinct lack of swift follow-through and completion of the disciplinary process. It smacks of boards having lost their way and being unable to provide direction.

Many boards are caught on the back foot when confronted with situations that involve allegations of fraud, impropriety or misconduct by senior management. Often, the mistaken belief is that the exact performance of certain prescribed "best practice" processes in recipe-book fashion will do the trick.

Ansie Ramalho
Romalho . . . call for judgment

The truth is that no rule or recommended practice replaces judgment. In this situation the board should, as always, be guided by the higher purpose of the organisation's best interest.

Accordingly, suspension and its ramifications should be carefully considered before it is seized as the answer. An inevitable consequence of an executive's suspension is that it affects an organisation's reputation adversely. This is particularly undesirable in the case of a public institution whose health, perceived and otherwise, affects a wide stakeholder base.

The other consideration for a board is fairness towards the executive under investigation. Suspension inflicts grave reputational damage on an individual, even if he or she is later exonerated.

Some of the questions the board should ask before deciding whether to suspend an executive are:

  • Do we have all of the facts so that we are able to make an informed decision?
  • Is there a risk that the executive's continued presence would harm the organisation or interfere with the investigation into the matter?
  • How best can we protect the reputation of the organisation whilst holding to account those who are responsible?

Apart from affecting the reputations both of the organisation and the executive, many boards have also found that suspension is a double-edged sword. With both the suspensions in the Pikitup and GEPF there have been suggestions in the media about political maneuvering and advancing of interests other than those of the entities involved. This kind of speculation places undue pressure on what needs to be an objective and swift execution of a fact-finding mission on the strength of which appropriate action can be taken.

A textbook case of how to deal with these situations was the probe into allegations that the then SA Revenue Service commissioner had conducted himself improperly. In this instance the Minister of Finance commissioned an investigation. On being confronted with the outcome, the commissioner resigned.

There were no battles in the public domain. By the time that the news was released, decisive action had been taken with minimal (if any) reputational damage to SARS as an institution.

Accepting oversight as being part of the governance duty of a board introduces the rather messy concept of human behavior. It cannot be reduced to an exact formula. Human error and the many forms that it assumes are integral to all relationships including the one between management and the board.

Mistakes, such as a one-time error in judgment or a bona fide oversight, probably deserve the forfeiting of a bonus or a pay increase rather than suspension. By rights, suspension should be reserved for such conduct as dishonesty, undue personal advantage, gross negligence or incompetence.

The author Scott Fitzgerald famously wrote: "The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function." Fitzgerald might have agreed that Lego Batman, like boards, should consider adding shades of white to black and dark grey.