In turning around an SOE, transparency is vital to regaining trust
The state of our state-owned enterprises is the result of a leadership and resource crisis
Eskom, Denel, the SABC, SAA — state-owned enterprises (SOEs) have made headlines repeatedly in the previous years, with few South Africans seeing much light at the end of the proverbial tunnel — or any light at all really, thanks to scheduled load-shedding.
Arguably, however, there are reasons to be optimistic. The period before the elections provides the ideal time for good governance to start to turn various dire SOE situations around, and we are already seeing evidence of this.
Think of why the auditor-general requested greater powers to deal with the reluctance of many SOEs to rectify the recommendations of the auditor-general. These include irregular and unjustified spending eroding the budgets of SOEs and SOCs. With irregular spending hitting the R51bn mark, auditor-general Kimi Makwetu is putting clear principles behind processes to curb the “flow’” with President Cyril Ramaphosa’s backing.
The signing of these new law amendments to the Public Audit Act shows a shift: the fog is lifting, systems are changing, and corruption will no longer be tolerated. As public enterprises minister Pravin Gordhan has warned, the “kickbacks” and resistance from corrupt parties will have to be dealt with.
The state of our SOEs is the result of a leadership and resource crisis.
As a young democracy, there’s been a strong effort to administer good governance, especially as we’ve found ourselves competing in a tough global market. However, there has also been — particularly in recent times — sustained fractious undermining of these efforts, culminating in state capture.
This has been a severe setback. In “Has SA lost R700bn to corruption since 94?”, Sintha Chuimi and Anim van Wyk (Africa Check, February 2018) have indicated that it is difficult to assess the real figure. However, it is possible that considerably more has been lost because of loss of opportunity and money going out the country. It has also created a web of misinformation, blame games, propaganda and intimidation and loss of productivity that is difficult to quantify.
It’s only now that we have the benefit of hindsight that we can begin to fully appreciate the extent of it. The financial and human costs are huge. SA needs to regain its soul. To do this we need a complete change of mind-set.
The 2016, 2017 and 2018 reports by the auditor-general show that the state of SOEs has deteriorated in the last four years. Wasteful expenditure increased by 200%. Irregular expenditure continued, with R33.5bn not accounted for in people’s budgets. The auditor-general report of 2017-2018 lists multiple reasons for the deterioration, including poor decision-making, neglect and inefficiencies.
But there is good news. It’s possible to improve the situation if there is the collective will to do so.
Here are some of the ways to turn SOEs around in terms of leadership, including some suggestions outlined by the auditor-general:
1. Leaders need to be open about their choices. Transparency is essential to re-earn trust.
2. We need to improve human turnaround. Constantly retraining people for critical positions is costly, breaks continuity, and can cause damaging knowledge gaps.
3. Leaders need to conduct themselves in the manner expected of them. If they don’t, there must be enforced consequences. The auditor-general’s new powers to punish poor performance and transgressions is a positive step towards this. Good administrative structures are often the best barriers against corruption.
4. Communication systems and processes must also be improved with the value of continuous feedback loops emphasised. There needs to be an ongoing dialogue between all levels from the ground up. Open communication helps foster trust.
5. We need to provide ongoing high-level training to enable leaders to oversee all facets of SOEs.
6. We need to improve the quality — and regularity — of reporting to improve transparency.
7. The lack of infrastructure in SA is setting us back competitively against Africa and the world. Public-private partnerships are essential to address this.
8. We need to hire competent, good-quality leaders through a stringent and fair evaluation process. Track records must be checked, and integrity, as well as competence, should be assessed. The election of the board is pivotal, and there needs to be a rigorous induction and succession process.
9. If boards don’t have certain competencies, they need to bring in those missing skills.
10. We must positively motivate people through affirmation. If we can collectively inspire people to perform at a higher level then the results can be staggering. Excellence should be incentivised. Poor performance should not be rewarded
To turn around the effects of poor boards/governance bodies the first step would be to ensure that the board/governing body becomes a powerful, cohesive leadership group capable of turning around the “state capture” mindset and fostering resilience. Each board must be committed to, and be seen to uphold, the same principles and values and be governed by the same rules.
Rules and expectations need to be clear, simple and enforced. The board then needs to systematically monitor progress, advise the executive and only intervene in cases where the organisation is at risk before the crisis happens.
Although each SOE must be considered case by case, the government must have clearly spelt-out feasible policies and ethics that apply to all of the entities it owns and governs. The simpler and easier to enforce, the better.
• McGregor is a senior fellow at the Centre for Corporate Governance at the University of Stellenbosch, and senior partner at Convivium.