Government must show leadership in appointing and overseeing SOE boards

Authored by: Ansie Ramalho, Chair of the King Committee and Professor Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA)

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

Not so long ago, the IoDSA 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 thirteen board positions vacant and with no engineering expertise, before the Minister of Public Enterprises appointed the current board. The SABC was another casualty, limping along without a board for six months before the President made the appointment only in April of this year.

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 the fact that we have entered the run-up to the 2024 elections, there is a very real danger that efforts to apply quick fixes to the challenges facing most SOEs will be substituted.

SOE boards bear the 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 the best practice in making board appointments to be circumvented. However, King IV’s supplement for SOEs clearly outlines how the Code’s principles should also be applied in the case of SOEs. It is all too obvious that this guidance is recognised in the breach rather than in its observance.

The IoDSA and the King Committee specifically would like to see the President address certain 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 for a 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 IoDSA worked with the Department of Public Service and 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 in order to ensure that errant ministers can be held to account.

Appointing of 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 characters 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 outsized 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.

Prof Parmi Natesan		Ansie Ramalho