ANSIE RAMALHO and PARMI NATESAN: SOE failures point to lack of a leadership imperative

A major conclusion from the Zondo state capture commission’s reports is that ineffectual leadership lies at the root of the capture of SA’s state-owned enterprises (SOEs). But instead of taking the lessons from Zondo to heart, inaction characterises the government’s leadership. This lack of leadership can be seen at all levels of authority, and includes the executive branch of the government (the president and his ministers), and the boards of the SOEs themselves.

Not so long ago, the Institute of Directors of SA and others expressed concerns about the inordinate time taken to fill a number of vacancies on the Transnet board. Similarly, Eskom’s board operated for nearly three years with more than half of its 13 board positions vacant and with no engineering expertise, before the public enterprises minister appointed the current board. The SABC was another casualty, limping along without a board for six months before the president made the appointments only in April 2023.

This leadership crisis made our SOEs vulnerable to corruption and maladministration, and a sustained and politically painful process will be needed to turn things around. However, given that we have entered the run-up to the 2024 elections there is a real danger that efforts to apply quick fixes to the challenges facing most SOEs will be substituted for such processes.

SOE boards bear ultimate responsibility for ensuring that effective governance structures are in place and are delivering the desired results. For that reason, the appointment of board members with the right level of professional directorial skills and impeccable character is key to the success or failure of any organisation.

The appointment process for SOEs is somewhat complicated because their single shareholder — the government, as represented by the shareholder minister — opens the door for best practice in board appointments to be circumvented. However, the King IV corporate governance code’s supplement for SOEs clearly outlines how its principles should be applied. It is all too obvious that this guidance is recognised in the breach rather than in its observance.

The institute and King committee specifically would like to see the president tackle these key leadership issues to set in train the process of restoring our SOEs to financial and operational health:

• Holding shareholder ministers accountable. Since ministers represent the government as shareholders of SOEs, and they appoint and oversee the board, they should accept the major responsibility for the dysfunction of the organisation. A framework must be put in place for holding shareholder ministers accountable for following a fair and transparent process when they make board appointments, as outlined in the King IV supplement for SOEs. The framework should make it clear that arbitrary decisions, protected from public scrutiny, have no place in a democracy. In addition, it should be recognised as a serious dereliction of duty when a shareholder minister’s inaction causes an entity to operate without a full board for extended periods. 
• Having a policy relating to criteria for board appointments. A related and long-standing recommendation is clear policy relating to the criteria for board appointments to be set out. Board appointments made on improper grounds, including political affiliation, ideology or to confer patronage, enrich an elite few at the expense of the country as a whole. They should be made based on the needs of the SOE to fulfil its mandate. In this context, it should be noted that the institute worked with the department of public service & administration to create a guide for the appointment of SOE boards, but it appears this project was rejected at cabinet level — perhaps because it interfered with cadre deployment.
• Strengthening parliamentary oversight. The Zondo commission uncovered prima facie evidence that shareholder ministers either did not understand their role or intentionally breached it. Breaches included interfering in operational matters and ignoring valid complaints from SOE board members and executives. The commission called for parliament’s oversight role to be strengthened to ensure that errant ministers can be held to account.
• Appointing shareholder ministers of integrity and competence. The appointment of ministers is a key presidential function. Ensuring that ministerial positions are held by individuals with impeccable character and the right level of competence is arguably the single intervention that will make the biggest difference.

One of the governance challenges of SOEs is the outsize power of the single shareholder to affect the SOE’s success or failure. It would be highly appropriate if that same governmental power, wielded by the president, could be used to put the solution in place. 

• Ramalho chairs the King Committee on Corporate Governance. Prof Natesan is CEO of the Institute of Directors in SA.