tshwane...5. process of selecting board members . the following process must be followed to appoint...
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POLICY ON THE
APPOINTMENT OF
DIRECTORS OF COT
MUNICIPAL ENTITY
“PROMOTE GOOD
GOVERNANCE AND
ACTIVE CITIZENRY “
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ANNEXURE: B
POLICY (PROCESS) FOR THE APPOINTMENT OF DIRECTORS FOR MUNICIPAL
ENTITIES.
1. PURPOSE OF THE POLICY
The purpose of the policy is to establish the principles, procedures and processes
applicable towards the appointment of directors of municipal entities and specifically
regulate the selection criteria and process that must be followed as required in terms of
the Local Government: Municipal Systems Act, 2000 (Act 32 of 2000)(Municipal
Systems Act).
2. SCOPE OF THE POLICY
This policy applies in all instances where the City of Tshwane has, in terms of existing
legislation, the authority/obligation to appoint directors to municipal entities established
or acquired by the City. Furthermore this policy replaces all other policies that have been
approved by Council regarding the appointment of executive directors of municipal
entities.
3. OBJECTIVES OF THE POLICY
The objectives of the policy:
i) To ensure that a transparent, fair and open process is introduced to
solicit, evaluate and appoint Board of Directors (BoD) of municipal entities
and that such appointments conform to the relevant legislation.
ii) To ensure that the BoD of municipal entities have the requisite range of
skill and expertise to effectively manage and guide the activities of the
municipal entity in order for the municipal entity to execute its obligations
towards the City of Tshwane.
4. LEGISLATIVE AND REGULATORY FRAMEWORK APPLICABLE TO THE
POLICY
The following regulatory framework governs the appointment of directors of municipal
entities:
Municipal Systems Act - Section 93E - Appointment of Directors
(1) The board of directors of a municipal entity-
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a) Must have the requisite range of expertise to effectively manage and
guide the activities of the municipal entity;
b) Must consist of at least a third non-executive directors; and
c) Must have a non-executive chairperson
(2) The parent municipality of a municipal entity must, before nominating or
appointing a director, establish a process through which-
a) Applications for nomination or appointment are widely solicited;
b) A list of all applicants and any prescribed particulars concerning
applicants be compiled; and
c) The municipal council makes the appointment or nomination from such
list.
Section 93H - Duties of directors
(1) The board of directors of a municipal entity must-
a) provide effective, transparent, accountable and coherent corporate
governance and conduct effective oversight of the affairs of the
municipality;
b) ensure that it and the municipal entity comply with all applicable
legislation and agreements;
c) communicate openly and promptly with the parent municipality of the
municipal entity; and
d) deal with the parent municipality of the municipal entity in good faith
(2) A director must-
a) Disclose to the board of directors and to the representative of the
parent municipality, any direct or indirect personal or business interest
that the director or his or her spouse or partner may have in any
matter before the board, and must withdraw from the proceedings of
the board when that matter is considered, unless the board decides
that the director’s direct or indirect interest in the matter is trivial or
irrelevant; and
b) At all times act in accordance with the Code of Conduct for directors
referred to in Section 93L
King III Report on Corporate Governance
The provisions below are contained in the King III Report that impacts on the
appointment of directors of companies in general, these provisions shall be
applicable to the Board of Directors of municipal entities of the CoT.
Paragraph 2.18 - The board should comprise a balance of power, with a majority
of non-executive directors. The majority of non-executive directors should be
independent
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2.18.1 The majority of board members should be non-executive directors;
2.18.2 The majority of the non-executive directors should be independent;
2.18.3 When determining the number of directors serving on the board, the
knowledge, skills and resources required for conducting the business
of the board should be considered;
2.18.4 Every board should consider whether its size, diversity and
demographics make it effective;
2.18.5 Every board should have a minimum of two executive directors of
which one should be the CEO and the other the director responsible
for finance;
2.18.6 At least one third of the non-executive director should rotate every
year;
2.18.7 The board, through its nomination committee, should recommend the
eligibility of prospective directors;
2.18.8 Any independent non-executive directors serving more than 9 years
should be subjected to a rigorous review of his independence and
performance by the board;
2.18.9 The board should include a statement in the integrated report
regarding the assessment of the independence of the independent
non-executive directors;
2.18.10 The board should be permitted to remove any director without
shareholder approval;
Paragraph 2.19 - Directors should be appointed through a normal process
2.19.1 A nomination committee should assist with the process of identifying
suitable members of the board;
2.19.2 Background and reference checks should be performed before the
nomination and appointment of directors;
2.19.3 The appointment of non-executive directors should be formalised
through a letter of appointment; and
2.19.4 The board should make full disclosure regarding individual directors to
enable shareholders to make their own assessment of directors.
Paragraph 2.20 - The induction of, and the on-going training and development of
directors should be conducted through formal processes
The board should ensure that:
2.20.1 A formal induction programme is established for new directors;
2.20.2 Inexperienced directors are developed through mentorship
programmes;
2.20.3 Continuing professional development programmes are implemented;
and
2.20.4 Directors receive regular briefings on changes in risks, laws and the
environment.
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The new Companies Act, 2008 (Act 71 of 2008)
The new Companies Act came into operation on the 1st May 2011.
Section 66 of the new Companies Act regulates the appointment of BoD whilst
section 69 of the Act prescribes the disqualification criteria for directors of
companies. The appointment criteria and disqualifications are in essence similar
in nature to the criteria mentioned in this policy document.
5. PROCESS OF SELECTING BOARD MEMBERS
The following process must be followed to appoint directors of municipal entities:
a. Placement of advertisements
As soon as a vacancy arise on a board of directors of a municipal entity or,
the Council has established a new municipal entity, the Executive Mayor or
his nominee must place an advertisement soliciting applications or
nominations for candidates to serve on the BoD of the municipal entity.
The advertisement must:
Invite applications/nominations through advertising in the print media
by placement in at least three (3) local newspapers circulated in the
City of Tshwane area (national or local newspapers);
Be published on the municipality’s official website;
Indicate the relevant closing date for nominations/applications;
State that applications/nominations are open for a minimum period of
ten (10)working days;
Make mention of the selection criteria that will be applied in the
evaluation process;
Include details of where the applications must be submitted;
Include contact details in instances where further information is
required;
State the general purpose of the municipal entity;
State the required skills necessary for consideration;
State the duties of the directors and the term of office;
Make mention of the legislation and policy documents regulating the
process of appointment;
State that the applicants/nominees must submit certified copies of all
relevant qualifications and that reference checks will be done;
b Evaluation Criteria
Prospective directors must meet the following requirements in order to be
considered for appointment:
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Be eligible to be appointed as a director of a municipal entity
as required in terms of S93E(1)(a);
Must have the highest level of integrity;
Must conform to demographic representation of the City of
Tshwane;
Must have reasonable experience and expertise;
Must represent the youth, race and/or disability;
Preference should be given to previously disadvantaged
individuals;
Candidates must be up to date on their municipal rates and
taxes and/or income tax;
Must have a reasonable local, national and/or international
profile;
At least fifty percent (50%) of the board members must be
female;
Care should be taken to ensure that the board of directors
collectively possess the required experience and expertise in
as far as it relates to the achievement of the business
objectives of the municipal entity, including finances, human
resources, corporate governance, law, audit, etc, in order to
enable them to take decisions and to monitor the affairs of the
municipal entity effectively;
The board of directors shall be appointed on merit;
The composition of the board of directors must be done in
such a manner to ensure that there is an appropriate balance
of power and authority on the board and that an individual or
block/group of individuals cannot dominate the board’s
decision making processes;
The board of directors must be appointed in accordance with
the relevant legislation and specifically the provisions of the
Systems Act, 2000.
c Evaluation of Applications
After the closure of the period for the submission of
applications/nominations as stated in the advertisement, the
Shareholder Unit must compile a report to the Executive Mayor
containing the names and a summary of the curriculum vitae of all the
applicants.
The report must further include the following:
Technical and legal disqualification of any applicant/nominee
including reasons for any such disqualifications
A list of all applicants/nominees who meet requirements
An assessment of each application/nomination received
Any appointment as a director of a municipal entity must be
made from such a list
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On receipt of the report, the Executive Mayor must:
Refer the report to the Mayoral Committee in order for the
Mayoral Committee to short list and conduct interviews with
candidates that meet the evaluation criteria; or
Appoint a Selection Committee consisting of at least five (5)
members nominated from the ranks of Members of the
Mayoral Committee and/or senior managers and refer the
report to such Selection Committee in order for the committee
to shortlist, conduct interviews and recommend suitable
candidates to the Mayoral Committee.
The Mayoral Committee must consider the report and make
recommendations to Council listing the names of the candidates
recommended for appointment.
d Public Comments
An advertisement must be placed by the Shareholder Unit, requesting
comments, objections and/or representations from the public on the
proposed list of recommended directors. The period for submission of
comments, objections and/or representations from the public must be
at ten (10) days.
The Mayoral Committee must consider any input received as a result
of the advertisement and thereafter forward such input to Council for
consideration.
e Formal Appointment
As soon as the Council has appointed the directors, each director
should be given a written outline of his/her role, function,
responsibilities and duties, formally recorded in the form of a board
policy document, as well as to sign the required statutory
documentation.
f Announcement of the Board of Directors
The Executive Mayor shall publicly announce the board of directors
soon after approval by Council and acceptance of the letters of
appointment by the directors by placing the announcement in three
local newspapers.
g Removal or Recall of Directors
Section 93G of the Municipal Systems Act provided that
The parent municipality of a municipal entity may remove or recall a
Director appointed or nominated by that municipality –
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(a) If the performance of the director is unsatisfactory;
(b) If the director, either through illness or for any other reason, is
unable to perform the functions of office effectively; or
(c) If the director, whilst holding office –
(i) Is convicted of fraud or theft or any other offence involving
fraudulent conduct; or
(ii) Has failed to comply with or breached any legislation
regulating the conduct of directors, including any applicable
code of conduct.
It should therefore be noted that the duties outlined in section 93G of
the Municipal System Act have been delegated to the Executive
Mayor in terms of the approved Corporate System of Delegations.
TERM OF OFFICE/ RENEWAL / REMOVAL / ROTATION / RESIGNATION
NEDs are appointed for a term of one year, which term is renewable at the discretion of the Shareholder;
The term of office of NEDs may be renewed up to four times (i.e. serving a total term of five years);
Further renewal (beyond five years) may occur for good cause (e.g. scarce skills) but may not exceed a total term of office of more than eight years;
Effectiveness of NEDs (including meeting attendance and contribution at meetings) should inform the renewal of the term of office of any NED;
NEDs may be removed from office for non-attendance of meetings or any other reason as provided for in legislation or the Memorandum of Incorporation of the ME;
NEDs may be rotated to another ME Board instead of renewal of the term of office at the same ME, based on the skills requirements of the various ME Boards;
Notice of resignation of NEDs should be delivered to the company secretary of the relevant ME and should be copied to the Shareholder Operations Unit and the Executive Mayor;
6. BOARD ADMINISTRATION
6.1 ADMINISTRATION
6.1.1 The Shareholder Unit shall be responsible for the administrative aspects relating to Board nominations, interviews, appointments, rotations, resignations and the database of candidates.
6.1.2 The administrative aspects referred to above, does not include the
formal appointment process through the Companies and Intellectual
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Property Commission, which shall be the responsibility of the company secretary of the relevant ME.
6.2 DATABASE OF CANDIDATES
6.2.1 The Shareholder Unit shall keep and maintain a database of
candidates who have been nominated and interviewed and who have been deemed appropriate to be appointed as NEDs to any of the MEs of the COT.
6.2.2 The Shareholder Operations Unit shall annually, or as the need arises
from time to time, consult with the Chairperson of the Board of each ME, the member of the Mayoral Committee responsible for the ME, the CEO of the ME as well as the Company Secretary of each ME to determine the capacitation requirements with regards to the Board of each ME.
6.2.3 The Shareholder Operations Unit shall, after consultation as referred
to above, determine capacitation requirements of each ME and determine whether suitable candidates are available on the database of candidates for appointment to the Board of the ME.
6.2.4 NEDs who cease to be members of the Board of MEs due to
retirement and/or resignation may be placed on the database of candidates for future appointment to ME Boards.
7. HEADHUNTING
If a vacancy arises on any COT ME Board of Directors for which a suitable candidate cannot be appointed from the database of eligible candidates, the Shareholder Operations Unit may engage upon a process of executive recruitment to identify a suitable candidate, for which process it shall not be necessary to invite all interested individuals by way of an advertisement as set out above. This allows for the shareholder to also conduct the headhunting process of eminent directors in the boards of the ME’s.
8. EMPLOYMENT OF EXECUTIVE DIRECTORS
8.1 Procedures for the appointment of CEO and/or CFOs of MEs should be activated when the position of CEO and/or CFO of an ME are to be filled on a permanent basis (including a fixed term contract appointment, excluding acting appointments).
8.2 PROCEDURE FOR THE APPOINTMENT OF CEOs and or CFOs
8.2.1 The Board of Directors of the MEs may establish an appropriate
committee of the board for the purposes of recruiting a CEO or CFO of the municipal entity.
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8.2.2 The Board of Directors of the ME may select a recruitment agency, if it
so requires, in line with the ME‟s supply chain management policy and process to assist it in the recruitment process.
8.2.3 The position must be advertised in at least one newspaper with a
national circulation to ensure that applications are widely solicited. 8.2.4 The Board of Directors will be obliged to ascertain whether candidates
for the position are fit and proper persons and whether they are not disqualified from being directors in terms of section 93E of the MSA or in terms of the Companies Act.
8.2.5 The Board of Directors must assess the applications received in
response to the advertisement for the position and must propose a shortlist of not more than four candidates for a final interview process.
8.2.6 The final interview process must be conducted by an interview panel
of which at least half of the members should be directors on the Board of Directors and the remainder of the panel should be representatives of the Shareholder, as nominated by the Shareholder.
8.2.7 The representatives of the Shareholder must include at least one of
the following
Executive Mayor or his/her nominee;
A Member of the Mayoral Committee or his/her nominee;
The City Manager or his/her nominee.
The Deputy City Manager;
The City representatives of the Shareholder. 8.2.8 Interview panels should, in as far as is possible, include independent
members who are not directors on the Board of Directors and who are not employed by the ME. Independent members of the interview panel should ideally have appropriate skills, background and/or experience to assist the interview panel in arriving at an objective assessment of candidates.
8.2.9 The interview panel will interview the shortlisted candidates and
recommend a candidate for appointment by the Board. 8.2.10 The panel’s recommendation must be reported to the Mayoral
Committee and upon approval of the recommendation by the Mayoral Committee the Board of Directors of the ME shall appoint the recommended candidate on such terms and conditions as the Board of Directors have determined, guided as it should be by relevant legislation and good corporate governance practices (as per King III, amongst others) as well as any appropriate group or company policy.
8.2.11 The Mayoral Committee shall consider and may approve the
appointment of the recommended candidate as an executive director on the Board of Directors of the ME.
8.2.12 The Board of Directors of the ME must advise the Shareholder
Operations Unit (“SHU”) of the recruitment process throughout in
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order to allow the SHU to report on matters concerning the recruitment process and for the SHU to facilitate the nominations of the Shareholder’s representative on the final interview panel.
9. LABOUR MATTERS 9.1. Collective Bargaining While it is acknowledged that each ME is a separate employer, it is also acknowledged that the COT and its MEs participate in the same labour environment with the same unions who represent labour in the MEs and the COT Core. The general principle should therefore be that Boards of Directors should be cautious not to negotiate matters with labour that should be negotiated on a collective bargaining level. 9.2. Suspension / Dismissal of CEOs and CFOs;
9.2.1 The COT has an interest in the appointment of CEO and CFO as these are employees who are generally appointed as executive directors on the Boards of MEs.
9.2.2 The dismissal of CEO and CFO will automatically result in their
removal as directors of the ME; 9.2.3 As the removal of directors is generally a shareholder prerogative, it
is important that the COT be recognised in the process of suspension and/or dismissal of CEO’s and CFOs.
9.2.4 A report advising the Mayoral Committee of the Board’s decision
must be tabled at a meeting of the Mayoral Committee in the following instances:
9.2.4.1. Prior to proceeding with a forensic investigation involving the
CEO or CFO; 9.2.4.2. Prior to the implementation of a decision by the Board of
Directors to suspend the CEO or CFO of the ME; 9.2.4.3. Prior to the implementation of a decision by the Board of
Directors to dismiss the CEO or CFO of the ME;
9.2.5 Reports as anticipated in 9.2.4 above should be channeled through the Shareholder Operations Unit and will be considered by the Mayoral Committee in confidence during an in-committee session.
10. MUNICIPAL REPRESENTATIVES AND REPORTING
Section 93D of the Municipal Systems Act provides for that:
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(1) The council of a parent municipality must designate a councillor or an official
of the parent municipality, or both, as the representative or representatives of
the parent municipality –
a) To represent the parent municipality as a non-participating observer at
meetings of the board of directors of the municipal entity concerned; and
b) To attend shareholder meetings and to exercise the parent municipality’s
rights and responsibilities as a shareholder, together with such other
councillors or officials that the council may designate a representative.
(2)(a) The official lines of communications between a municipal entity and the
parent municipality exist between the chairperson of the board of directors
of the municipal entity and the mayor or executive mayor, as the case
may be, of the parent municipality.
(b) The mayor or executive mayor, as the case may be, of a parent
municipality may at any time call or convene any meeting of shareholders
or other general meeting comprising of the board of directors of the
municipal entity concerned and the representatives of the parent
municipality, in order for the board of directors to give account for actions
taken by it.
(c) The council of a parent municipality may determine the reporting
responsibilities of a municipal representative referred to in subsection
(1)(a) or (b).
(3)(a) A municipal representative referred to in subsection (1)(b), must represent
the parent municipality faithfully at shareholder meetings without
consideration of personal interest or gain, and must keep the council
informed of –
(i) how voting rights were exercised; and
(ii) all relevant actions taken on behalf of the municipality by the
representative.
(b) A municipal representative referred to in subsection (1)(a) or (b) –
(i) must act in accordance with the instructions of the council; and
(ii) may be reimbursed for expenses in connection with his or her duties
as a municipal representative, but may not receive any additional
compensation or salary for such duties.
In compliance with the above provision, the Member of the Mayoral Committee
(MMC) and the Strategic Executive Director responsible for the parent department
must represent the municipality in terms of S93D(1)(a) and (b) above.
Furthermore, in compliance with subsection 2(a), the Executive Mayor may convene
quarterly meetings with the Board of Directors of the Municipal Entities to, amongst
other matters, receive reports pertaining to the quarterly and/or mid-year
performance (financial and non-financial) of the municipal entity, to conduct
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performance assessments of the BoD, to monitor the implementation of action plans
submitted in response to matters raised by the Auditor General.
11. MONITORING OF PERFORMANCE OF DIRECTORS OF MUNICIPAL
ENTITIES
The Executive Mayor must ensure that the performance assessment of the directors
of municipal entities are conducted annually by the Mayoral Committee and their
performance assessments be submitted simultaneously with the submission of the
performance reports of the municipal entity as required by legislation. However, the
latter provision does not prevent the Executive Mayor from conducting performance
assessments as and when necessary to invoke section 93G (a) of the Municipal
Systems Act where necessary.