The ACA recommends transparent selection processes for supervisory board members
The ACA perceives the appointment of supervisory board members in associate companies in the period of 2016 to 2020 as partly “deficient”, namely as regards the Federal Ministry for Digital and Economic Affairs, the Federal Ministry of Finance as well as the then Federal Ministry of Transport or the now Federal Ministry for Climate Action. In concrete terms, the ascertainment of the professional and personal suitability of the candidates was carried out in an insufficient manner. Substantial deficiencies were also detected in all of the above-mentioned ministries as regards the assessment of possible conflicts of interest and role. Furthermore, selection decisions were not or insufficiently documented.
These and other deficits were revealed by the ACA in its report published today on "Supervisory Boards: Selection Processes in Ministries“. The audit focused on the question of whether legal provisions and compliance regulations were adhered to in the selection of persons for supervisory boards in selected associate companies. The audit showed a considerable potential for improvement, for example as regards the prevention of incompatibilities. A public register in which competences and decision-making reasons for the selection of supervisory board members are entered would increase transparency. The ACA audited 166 supervisory board appointments in 20 federal companies from 2016 to September 2020. The selected companies were wholly or majority owned by the federal government.
Selection lacked transparency
Supervisory board members who are professionally and personally suitable are of great importance to the responsible ministries for the safeguarding of economic interests. The task of supervisory boards is to monitor, control and advise the executive board or the management. The selection and appointment should follow an objective, transparent and comprehensible process. However, no such process was in place in the three assessed ministries. In most cases, the personal and professional requirements that supervisory board members should meet were not specified in advance.
The grounds why certain candidates were elected to the supervisory board were not documented in the files of the Federal Ministry for Digital and Economic Affairs in any of the cases assessed, and in the Federal Ministry of Finance and the Federal Ministry of Transport/for Climate Protection in only a quarter of the cases. In general, the appointment process was recorded in the files only after a person had been appointed to a supervisory board function by the management of the competent ministry. The ACA found that the selection process lacked plausibility.
The ACA recommends to implement objective, transparent, comprehensible and defined processes for the selection of persons for supervisory board functions in public companies, including a documentation of the grounds for decision. Prior to the selection of suitable persons, the required competences should be defined and a requirements profile based on this should be drawn up and documented.
Preventing conflicts of interest and role
The ACA criticizes the fact that none of the assessed ministries documented the extent to which conflicts of interest were taken into account in the appointment file. In the audited period, between 22 per cent and 44 per cent of the supervisory board functions were filled with staff members of the ministries. However, conflicts of interest and role cannot be ruled out when staff members of the ministries perform board functions in associate companies of the federal government. In this context, the ACA points to the following:
- At the Federal Ministry for Digital and Economic Affairs, one person was a supervisory board member in an associate company for which she was responsible in the ministry as head of department, namely for matters related to owner administration. In another case, a director general with technical responsibility and a head of department who had to follow instructions issued by him in ministry-related matters were appointed as supervisory board members in the same associate company
- At the Federal Ministry of Finance, the head of the organizational unit responsible for equity interest management was a member of the supervisory board in eight of the ministry’s associate companies. In one case, she acted as the Federal Government’s representative in the general meeting in which she was elected as a supervisory board member
- At the Federal Ministry of Transport/for Climate Protection, a staff member of the department for equity interest management was a supervisory board member in one of the ministry’s associate companies. In one associate company, the director general and a head of department who had to follow instructions issued by him were members of the supervisory board.
The ACA recommends to provide for appropriate measures to assess conflicts of interest in order to prevent such conflicts and to ensure the independence and objectivity of all members of the supervisory board.
ÖBAG: reduction of the Ministry of Finance’s opportunities for participation
In early 2019, the Austrian industry holding company ÖBIB (Österreichische Bundes- und Industriebeteiligungen GmbH) was transformed into the public holding company ÖBAG (Österreichische Beteiligungs AG). During this process, a supervisory board was established. The ACA found that the transformation reduced the Ministry of Finance’s opportunities for participation in state-owned subsidiaries under company law. The proposal and election of supervisory board members required the approval of the executive committee of ÖBAG’s supervisory board. Consequently, the appointment of ÖBAG’s governing bodies (supervisory board, executive board) took on special significance.
The ACA criticizes the fact that the department responsible for associate companies at the Federal Ministry of Finance was not involved in the process of recruiting and selecting candidates for the supervisory board of ÖBAG (six supervisory board functions). The specialist department was unable to provide the auditors with any information on the decision-making process of the ministry’s management.
The newly constituted supervisory board subsequently appointed the chief executive officer of ÖBAG. The latter had previously been head of cabinet and secretary general at the Federal Ministry of Finance. No documentation was made as to whether precautions had been taken to avoid a potential conflict of interest of the then head of cabinet and secretary general. In the ACA’s point of view, a potential conflict of interest could arise from the fact that a person in this position could influence the selection process of supervisory board members who, shortly after their election and the constitution of the supervisory board, decided on the appointment the same person as the chief executive officer of a company.
Public register and cooling-off period
There is considerable potential for improvement in the appointment of supervisory boards. This is revealed by the ACA’s auditors in their report. Among others, they suggest a public register and a cooling-off period. A public register, in which the relevant competences of the appointed supervisory board members as well as the reasons for their selection would be entered, could increase transparency. With such a register, the European Commission’s recommendation on the disclosure of competences for listed companies would be implemented. Furthermore, a cooling-off period would have to be introduced for those persons who are in a position to influence the selection and appointment of supervisory board members within the scope of their function upon assuming a management function in the company concerned.
ACA commends the “tendency to promote women”
In 2019, nine of 20 companies met the federal requirement of ensuring a share of women of 35 per cent. The remaining eleven companies met the statutory requirement of 30 per cent in end-2019. The ACA acknowledges the tendency towards the promotion of women in all three ministries. At the same time, it negatively highlighted the decrease in the share of female supervisory board members at three companies compared to 2016. The ACA recommends to the audited ministries to take greater account of the share of women when appointing supervisory board members and to adhere to the relevant requirements.
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Report: Supervisory Boards: Selection Processes in Ministries (in German)
The ACA audited the selection of candidates to supervisory boards at the Federal Ministry for Digital and Economic Affairs, the Federal Ministry of Finance as well as the then Federal Ministry of Transport or the now Federal Ministry for Climate Action. The audit aimed at assessing the compliance with statutory and other provisions in the course of the selection of persons for supervisory board functions at 20 selected direct and two indirect associate companies within the scope of influence of the three ministries. The audit was not aimed at assessing the candidates’ qualifications or the work of the supervisory board.