By Thabile Wonci
JOHANNESBURG – The management and governance of South Africa’s state-owned enterprises (SOEs) have all the hallmarks of a puzzling irony. One would expect the State to be a vigilant shareholder given the inherent inefficiencies in SOEs.
Our SOEs are generally not known for positive operational performance and good governance mechanisms. Instead, they have become inefficient quasi-government departments that make no meaningful contribution to the state. Most of our SOEs are bleeding financially and are on the verge of extinction. SOEs need to appreciate and embrace principles of good corporate governance if we are to build a market-driven economy. The failure of the major and strategic SOEs, coupled with lacklustre economic growth, has forced us to ponder deeply on the future of our SOEs.
The erosion of shareholder value in SOEs has been vigorously debated without those in charge, including our political masters, taking meaningful action.
I hope that the appointment of the Presidential SOE Council (PSEC) is a step in the right direction. Perhaps we need to ponder deeply on the terms of reference of this council in order to avoid any potential clashes with existing board structures and shareholder representatives. Also, but how different is the Presidential SOE CouncilPSEC from the Presidential Review Committee on SOEs, which was appointed in 2010 by President Cyril Ramaphosa’s predecessor? Furthermore, what happened to the Presidential SOE Coordinating Council, which was established in 2016? Creating another governance layer with no political and regulatory mandate to effect the necessary changes is not a watershed reform.
The temptation of leading through commissions and councils needs to be avoided. Instead, there needs to be a concerted focus on the fundamental principles of good corporate governance. We cannot flout important drivers of business success and wish that a council will steer SOEs back to profitability and ethical corporate governance. That is not effective business leadership but senior leadership abdicating their primary responsibility.
An evaluation of the problems that have ruined our SOEs presents an agonising case of a total disregard of corporate governance systems. If we have failed, and are still failing, to hold those in charge to account for the plunder over which they presided, dismal operating performance and destruction of shareholder value, do we trust them with big-ticket items such as capital allocation and organisational restructuring decisions?
We need to find a system of governance at our SOEs that fits the country’s economic and political environment while upholding basic business principles. Our economic management abilities and social policies must propel an economic revival that will be driven by SOEs.
The ruling elite finds itself in such a precarious position and is trying to strengthen its political position while grappling with economic management. This to some extent explains why good corporate governance principles are often poorly implemented within SOEs.
Is state ownership of the SOEs in direct conflict with good corporate governance principles? And must the government retain its role as a sole shareholder and direct player in the economy? The state’s ownership of SOEs has to achieve three objectives: to grow and sustain key sectors of the economy, to grow the economy, and to ensure SOEs’ contribution to fiscal accounts. One of the most difficult tasks that we have had to grapple with is to balance the SOE’s public welfare objectives with its market-oriented goals.
A precarious and often conflicting role that the government plays with regards to SOEs is being both the shareholder and the lawmaker. This renders the State accountable to its citizens and in turn, carry carries the mammoth task of ensuring that it realises economic value from its investments in the SOEs.
This dual role is often conflicting for our government. This conflict is also exacerbated by ineffective strategic oversight and board instruments. The end result is weakened governance, maladministration, destruction of value and organisational paralysis.
The State, as the sole shareholder in the SOEs, must ensure that there are proper management teams and well capacitated and independent boards of directors whose duty will be motivated by nothing other than good corporate governance principles wherewith high ethical and moral standards are maintained.
Achieving this will guarantee long-term interest for the state instead of watching SOEs becoming trapped in the short-termism of value destruction, cadre deployment, inept governance and corruption. Creating another layer of oversight in a form of an ad-hoc council is not an effective foundation to protect the State’s interests in SOEs.
The economic, social and political conditions in the country require us to shape SOEs for a much broader role. Effective corporate governance systems will be instrumental in corporatising our SOEs and setting them on a path towards sustainability. It is the role of the state, as the sole shareholder working with the respective SOE boards, to ensure that healthy organisational environments are created in SOEs from which to drive business performance.
Although I appreciate the appointment of the Presidential SOE Council, I challenge the State to eradicate its predisposition of exerting excessive political control over SOEs, which, time and again, has proved to be one of the biggest hurdles in getting our SOEs to work. If we had embraced ethical corporate governance principles in our SOEs, with effective management structures and well-capacitated board instruments, there would not be a need for an oversight layer that has no real political and regulatory mandate.
Thabile Wonci is the chief executive of Kogae Rainbow Investment Holdings and a senior partner at Kogae Advisory Partners.
