2.7 Corporate Governance
2.7.3 Corporate Governance challenges in SOEs in South Africa
25
The King 4 Report on Corporate Governance (2016: 3) highlights the societal elements that dominate social behaviour as some of the key reasons for the improvement and release of the King 4 Report on Corporate Governance. These elements include social media platforms that continuously creates societal threats of radical transparency (it is no longer easy for companies to conceal their secrets); technology while producing vast volumes of information (refined analytics is transforming data into a deep understanding of human behaviour and their organisations); and disruptions to technology continuing amidst improvements in, for example, robotics, artificial intelligence, and biotechnology, which excels and renders the conversion of production and supply chains premature. This compels professionals in, for example, law and accounting fields to explore new or alternative ways to sustain themselves (King report on Corporate Governance, 2016:3).
According to McGregor (2014:2), the main components for good CG include structures, systems, and processes that are in place; the right mix of intelligence, knowledge, experience, and expertise; a regulatory environment; and an understanding of the principles and practices of sound CG. The Companies Act (Act 71 of 2008) emphasises that the key to sound CG as transparency, accountability, efficiency, sound business judgement, and regulatory certainty. These elements represent conformance to regulations or good reasons for deviating (CIPC website, 2018).
26
These challenges result in inadequate administrative practices, lack of integration, poor timing and synchronicity between different government departments; lack of morals/values resulting in corrupt practices because the changeover from a struggle movement to running a government often means that former idealists erroneously take for granted that the population has inherited the same values and commitment to following the principles of democracy and human rights as enshrined in the constitution; governments do not outline representative, time-bound and measurable conclusions to better guide and appraise SOE performance; and irregular monitoring processes are in place to evaluate SOEs and its key deliverables to ensure optimal delivery of its output required.
Balkaran (2008:4) identifies some of the reasons for SOE challenges, which includes SOEs rendering goods and services to the public at prices that are below cost price; SOEs share the responsibility of creating employment; SOE traders are state-sanctioned; and locations of SOEs are politically demarcated rather than being in public areas where it is easily accessible. Furthermore, Matsiliza (2017:36) highlights another challenge, being the transformation challenges with which SOEs are dealing, failing to comply with the principles of CG while the cost of operations continues to escalate. According to Bruton et al.
(2015:97), the public and private sectors continue to question SOEs’ failure to act transparently, and their inability to exercise self-governing control. SOEs are also criticised for being more financially focussed rather than public service-orientated.
Most SOEs in SA operate as private companies and depend on international markets for funding (Adam, 2013:166). According to Jahed et al. (2015:ii), governance is valuable in the operational and financial performance of SOEs and warrants uniformity between SOE conduct and the government’s planned intentions. Grossi et al. (2015:274) state, as SOEs increase, given the demand for utility services and economic development, the importance of SOEs must be prioritised. The government should intensify and optimise governance processes within SOEs, as negative events such as fraud, corruption, mismanagement, and mal-functions in services provision continue to exist (McGregor, 2014:2).
Bruton et al. (2015:94), and Florio (2014:204) state that a few studies of significant value on CG in SOEs have been conducted and are available, regardless of the importance of SOEs.
Grossi et al. (2015:276) state that the availability of information on CG within SOEs is limited.
This lack of available information negatively affects academia, as limited comprehension on the evolvement and development of SOEs is derived while gaps in CG within SOEs still must be addressed.
27
Jahed et al. (2015:i) revisited the 2014 Medium-Term Budget Policy Statement (MTBPS) that informs about SOEs facing financial difficulties due to the recession that resulted in a failing economy and regressive revenue collection by the South African Revenue Services. Two of SA’s biggest SOEs, Eskom and South African Airways, fell victim because of falling economic growth.
Gwanyanya (2015:3106) emphasises the great need for corporate social responsibility to exist as a responsibility to an organisation, as states are no longer the only danger to social rights of citizens, but corporations are too (companies support political parties to gain unfair advantages). The economic power of companies has battered the supremacy of states to protect their citizens in emerging countries. A strong link exists between corporations and affected citizens and ignoring these links could lead to unsavoury effects. Matsiliza (2017:36) states, although SA is a developing state, there remains an inefficient relationship between the economy and the state.
In SA, the principles prescribed by the King 4 Report on Corporate Governance are considered as the guideline on proper governance practices. These principles stipulate how CG practices in SOEs should be, and importantly highlight the need for the presence of a risk-based IAF (King report on Corporate Governance, 2016:31). Despite the existence of the IAF within SOEs, the following examples of CG mal-practices, however, have been reported in various media publications, both online and in the newspapers:
Case 12
Zwelakhe Ntsephe, Denel’s CEO has resigned with immediate effect on 15 May 2018, following his role in awarding a bursary worth R1m to the son of the North West Premier, Supra Mahumapelo. Mr Ntsephe has been with the company for 20 years and was appointed to the position in 2017, after he was acting CEO of Denel for two years. His resignation follows after new Public Enterprises Minister, Pravin Gordhan, replaced the board of Denel early in 2018.
Case 23
2Denel CEO Zwelakhe Ntshepe quits as questions swirl over bursary to Supra’s son. Reported by GARETH VAN ZYL on the Leadership website on 15 MAY 2018.
28
The South African Broadcasting Corporation (SABC) is awaiting the outcome of a special investigating unit’s investigation into the awarding of an R185m security tender to Mafoko Security. A losing bidder is challenging the process of awarding the tender and claims that the tender was corruptly awarded to Mafoko Security. The scandal involves former SABC interim board chairperson and individuals employed at the SABC.
Case 34
A new corruption scandal has been exposed at Eskom involving CFO Anoj Singh, who is being accused of signing a dodgy deal with a Chinese company amounting to R400m as a commission for getting a loan for Eskom in China. Anoj Singh signed the contract in March of 2017, committing a cash strapped Eskom to pay the Chinese Company to procure Eskom an R2bn loan in China.
Some of the latest reports on CG within various online tabloids about SOEs include:
Nersa likely to investigate Eskom governance issues – Friday, March 8, 2019. South African Government News Agency (www.sanews.gov.za)
SAA marred by lack of good governance says analyst – 3 July 2017, 6:09 PM. 702 late night talk online.
ACSA down to 3-member board as CG plagues SOE – June 01, 2018. 11:41 AM. Lameez Omarjee. Fin24
Denel Asia venture cost Denel R3 billion. Written by Guy Martin – 14 Feb 2019. defenceWeb – Africa’s leading defence news portal
“Kickback” scandal engulfs Transnet. AmaBhungane Reporters – 31 Jul 2015, 00:00. Mail &
Gaurdian – Africa’s Best Read.
Poor governance at SABC started 5 years ago: Tseisi – 6 March 2019, 10:29 PM |SABC |
@SABCNewsOnline
3 SABC says it awaits probe outcome on R185m tender scandal. Reported by GETRUDE MAKHAFOL on the African News Agency/ANA website, on 26 March 2018.
4Eskom mired in new corruption scandal. Reported by SABC News online on 19 January 2018.
29