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IoDSA welcomes proposals to reform state-owned enterprises

22 February 2016   (3 Comments)
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The Institute of Directors in Southern Africa (IoDSA) welcomes the proposed guidelines for reforming the country’s state-owned enterprises (SOEs) recently released by government.

 

Parmi Natesan Executive, Centre for Corporate Governance at the IoDSA, comments: “This initiative is most welcome as key parastatals provide the vital enabling environment for economic growth. The IoDSA has in the past noted that many of the challenges currently experienced by SOEs can be traced to inadequate governance.”

 

As highlighted in a recent article, much of the success of Singapore’s public sector is attributed to its adherence to strict governance guidelines. [1]

 

Board performance is strongly linked to organisation performance, which is why both King III and the Companies Act place such emphasis on governance and the function of boards, Natesan points out.

 

Natesan highlights some of the key governance issues for SOEs, as previously highlighted by the IoDSA and that now form part of the government’s reform plan:

 

Maintain the separation of roles

Perhaps one the key causes of SOE malfunction is the undue interference of the state in the running of SOEs. This includes short-circuiting the process for board and executive nominations, and issuing instructions to boards that are based on political rather than economic grounds. “If boards are to be accountable for the performance of the SOE, then they have to have the freedom to exercise their collective judgement in its best long-term interests,” she says. “The shareholder must, of course, spell out what the goals of the SOE are, but then it must allow the board and executive management team to do their jobs. The roles for each player need to be better understood and adhered to.”

 

Ensure boards have the right capacity

Natesan points out that boards need to have the right mix of knowledge, skills and experience or they cannot perform their strategic and oversight functions adequately. “Making appointments on political grounds alone has been a recipe for underperformance at best, and disaster at worst. SOEs have a unique economic and developmental role, and that must be incorporated into the skills matrix that guides board composition”, she says.

 

Natesan points out that South Africa does have a shortage of professionally qualified and experienced directorial talent. The IoDSA has already put in place a multifaceted plan to grow the talent pool by offering training related to the 20 competencies of its Director Competency Framework. This Framework will enable directors ultimately to achieve the professional Chartered Director (SA) designation. The IoDSA also offers associate membership to allow up-and-coming directors to upskill themselves and build their networks.

 

Board performance must be evaluated regularly

Evaluation is the only way for the state, as the shareholder, to assess whether the board is operating optimally, and to identify areas of improvement. Independently facilitated board evaluations  provide the board itself, as well as the state as shareholder, with an objective understanding of how well the board is functioning, and what governance areas need to be addressed.

 

“Governance is receiving such attention globally because it improves performance,” Natesan concludes. “South Africa is a leader in this field—let’s hope that government finally benefits from our home-grown expertise to get our SOEs back on track.”



[1] Greg Mills, “The profit motive: What Singapore can teach Pretoria about business”, Daily Maverick, 15February 2016, available at http://www.dailymaverick.co.za/article/2016-02-15-the-profit-motive-what-singapore-can-teach-pretoria-about-development/#.VsQ9qvJ97ct.

Comments...

Sipho G. Mhlambi Mr says...
Posted 17 March 2016
SA, like any other country is not without its flaws, but in my experience looking at 11 board structures and associated sub-committees, I would tend to agree that we are definitely up there. And this is in light of the fact the prescripts used to measure the performance of boards are not tailored to the needs of the public sector. The demands of SOE tend to differ from private/listed companies. Municipalities for example, are service delivery-orientated and have a particular focus on transformation. The boards subsequently need to respond to that mandate while not undermining the oversight and fiduciary responsibilities of directors. The "right mix" of skills goes without say, but in that mix, the shareholder must ensure that directors are cognizant of the unique needs/mandates of SOE and the mix should be representative of those needs which are typically not part of the private sector. Ultimately, SOE server the public's interest and boards need to respond accordingly.
Afzal Rawjee says...
Posted 10 March 2016
If SA is the leader in Governance, why have SOE's NOT adhered or complied??? BECAUSE there is NO ACCOUNTABILITY. Consequently, the hiring process is flawed.
Guy Whitcroft says...
Posted 25 February 2016
I agree, Parmi, that this is a very welcome initiative, although the proverbial 'proof of the pudding will be in the eating.' I strongly believe that SOEs should, like listed companies, have a majority of independent NEDs and that this independence should be clear from the lack of party allegiances (possibly even membership), and from personal allegiances within government/political circles (e.g. serving on the boards of foundations of political leaders). Arguably, the best place to find such NEDs is among the ranks of current and previous directors in the business community, where they have demonstrated their ability to run sound and ethical businesses successfully. I'm not sure that we have a shortage of experienced directorial talent in South Africa as I know of many (semi-)retired directors with successful careers behind them who I imagine would be happy to assist, if approached, to put SA back on a sound footing with its SOEs.

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