Introduction
The rapidly changing business environment presents new and
increasingly complex corporate governance challenges. It is
therefore critical, that an organisation’s governance processes
and practices are reviewed on a regular basis to ensure that they
are in line with best practices.
Eskom views good corporate governance practices as integral
to good performance. It is therefore essential for Eskom to fulfil
its mandate in a manner that is in keeping with governance
best practices and, in particular, with regard to accountability,
transparency, fairness and responsibility.
We have adhered to the statutory duties and responsibilities
imposed by the Companies Act as augmented by the Public
Finance Management Act (PFMA). Eskom’s systems and processes
are regularly reviewed to ensure that compliance is monitored
in this regard. In addition, Eskom is also guided on best practices
by international developments as well as the King Report on
Corporate Governance for South Africa – 2002 (King II) and the
Protocol on Corporate Governance in the Public Sector – 2002.
The year has been a particularly challenging one for Eskom
because of the capacity challenge and it was necessary that the
governance processes, systems and structures were able to deal
with a number of issues in a coherent and effective manner.
More frequent meetings of the board of directors and the
executive management committee were required. In addition,
Eskom had to engage with various stakeholders with regard
to the capacity issues. There was a need for alignment with
government as shareholder and more intensive communication
and interaction with customers and the National Energy Regulator
of South Africa (Nersa). At the same time Eskom had to focus
on the capacity expansion programme and on the operations of
the business and there was a need for quick decision-making on
a number of issues.
In addition, the need for more intensive engagement with
stakeholders resulted in a number of meetings between Eskom,
government and customers, including the key industrial customers
and major metros. A number of joint task teams were also
established to assist with the resolution of some of the problems.
Admittedly, there were some weaknesses in the processes. The
stakeholder communication and engagement could have been
more effective and Eskom has acknowledged the criticism in
this regard. However, in other respects, the integrity of Eskom’s
governance processes and structures was maintained and they
functioned effectively. The current challenges and need at times
for urgent decision-making did not lead to a deterioration of
the high standards of corporate governance. The governance
processes were adhered to and duties were fulfilled in a proper
manner.
Eskom’s massive capacity expansion programme in itself presents
particular challenges for the governance processes. Eskom needs
to ensure that there are adequate resources and expertise,
and that our processes are beyond reproach. Consequently, a
number of initiatives were implemented last year to strengthen
our resources in this regard.
The regular review of governance practices was also carried out
based on the conclusions of the last board evaluation. This included
a review of the committees, the agendas, documentation tabled
at board meetings and ongoing director training. In particular, the
review of the delegation of authority was completed, with a special
focus on procurement processes. The performance of the board
committees was considered and areas for improvement were
identified. Special information sessions have been introduced
prior to scheduled board meetings to allow an opportunity for
more detailed information on particular topics to be shared with
directors.
An independent board evaluation for the period under review is
being conducted.
Shareholding and shareholder’s compact
The government of the Republic of South Africa is Eskom’s sole
shareholder. The shareholder representative is the Minister of
Public Enterprises.
Each year, Eskom, in consultation with the Minister of Public
Enterprises, agrees its performance objectives, measures and
indicators in line with treasury regulations under the PFMA.
The annual targets are annexed to a list of principles agreed
between Eskom and its shareholder (the shareholder compact).
The performance of the organisation against the performance
objectives is indicated here.
The compact does not interfere with the normal principles of
company law. The relationship between the shareholder and
board is preserved. The board ensures that proper internal
controls are in place and that Eskom is effectively managed. The
compact promotes good governance by helping to clarify the
board and shareholder roles and responsibilities and ensures
consensus on Eskom’s mandate and key objectives.
Governing bodies
Composition of the board
The details of the directors appear here.
Eskom has a unitary board structure with 13 non-executive
directors and two executive directors. All of the non-executive
directors are independent directors, appointed by the shareholder,
are drawn from diverse backgrounds (local and international)
and reflect South Africa’s demographics. They bring a wide range
of experience and professional skills to the board. In addition, a
number of respected external people have been appointed to a
number of the board committees, bringing additional experience
to the table.
Eskom’s articles of association stipulate that the shareholder will,
after consulting the board, appoint a chairman, chief executive and
non-executive directors. The remaining executive directors are
appointed by the board after obtaining shareholder approval.
Good corporate governance requires that the composition of the
board be reviewed on a regular basis. The rotation of directors
at regular intervals is accepted as good practice as it ensures
that a board remains dynamic and does not become stagnant
in terms of its thinking and abilities. However, it is important that
it is managed in such a way that the rotation of directors does
not lead to a disruption in the operations of the business and
that the board is well balanced in terms of skills, expertise and
demographics (race, gender and people with disabilities).
The term of office of non-executive directors is a maximum of
three years, which will expire at the annual general meeting in July
2008. The terms of these directors will accordingly be reviewed
and they are eligible for re-appointment.
Executive directors are full-time employees and as such
are subject to Eskom’s conditions of service.
Board meetings are scheduled annually in advance.
Special meetings are convened as necessary to address
specific issues. Directors or committee members unable
to attend meetings may use teleconferencing facilities.
The attendance of members at the 10 board meetings
during the reporting period is reflected here.
Delegation of authority
The board has the authority to lead, control, manage and
conduct the business of Eskom, including the authority
to delegate. Its aim is to ensure that Eskom remains a
sustainable and viable business of global stature. Its
responsibilities are facilitated by a well-developed
governance structure through board committees,
including the executive management committee (Exco),
as well as subcommittees of Exco and a comprehensive
delegation-of-authority framework. This framework assists
decision-making without diluting director accountability
and responsibility. The board reviews the framework
regularly. It was last reviewed in December 2007.
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