Pathological Corporate Governance Deficiencies in South Africa's State-Owned Companies: A Critical Reflection

Keywords: S tate - owned companies, Corporate governance, Deficiencies, South Africa, SAA, SABC, Eskom

Abstract

Globally, states use state-owned companies (SOCs) or public corporations to provide public goods, limit private and foreign control of the domestic economy, generate public funds for the fiscus, increase service delivery and encourage economic development and industrialisation. Particularly given its unique socio-political and economic dynamics, a country such as South Africa clearly needs this type of strategic enterprise. Yet, that does not mean that everything at our SOCs is as it should be. The beleaguered South African Broadcasting Corporation (SABC) has recently seen the resignation of board members, shareholder interference in its operational affairs, and a high turnover of chief accounting officers and other executive management members. Due to non-performance, it has also received several cash injections from its shareholder to enable it to continue to deliver its services. In addition, the shareholder minister took it upon herself to amend the SABC's memorandum of incorporation, conferring upon herself the authority to appoint, suspend or even dismiss key executive members. South African Airways (SAA), in turn, has had seven CEOs in less than four years, has had to be bailed out at a cost of R550 million, and has in addition been granted a R5 billion guarantee by the shareholder for a restructuring exercise. Other SOCs such as Eskom, the Post Office and Telkom have also experienced high board and executive management turnover, perennial underperformance necessitating regular bailouts, and challenges regarding the division of power between their boards and the various shareholder ministers. Another issue that seems to plague South Africa's SOCs is the appointment of board members and executive officials with questionable qualifications. By critically examining the corporate governance challenges besetting the SABC, SAA and Eskom in particular, this article seeks to explore the root causes of the corporate governance deficiencies of SOCs, and how their corporate governance can be enhanced. It is concluded that the challenges faced by the country's SOCs are twofold: firstly, the SOCs boards' lack of appreciation of the cardinal corporate governance rules, and secondly, the role of government as a single or dominant shareholder, which results in substantial political interference in the running of the SOCs. This dual problem requires a dual solution. To arrest the problem of poor corporate governance in SOCs, government as the shareholder should firstly appoint fit and proper directors, having followed a sound due-diligence process. Once it has established such properly skilled and competent boards, however, government should adopt an arm's-length approach to the affairs of the SOCs as a way of insulating these corporations from political interference

Google_Scholar.png ScienceOpen_Log034310.png

Author Biographies

Tebello Thabane, University of Cape Town

Lecturer, Faculty of Law, University of Cape Town

Elizabeth Snyman-Van Deventer, University of the Free State

Department of Mercantile Law, University of the Free State. Professor

References

Afeikhena J 2004 Privatisation and regulation in South Africa: An evaluation paper presented at the 3rd International Conference on Pro-Poor Regulation and Competition: Issues, Policies and Practices http://www.niep.org.za accessed 10 October 2015

Ahunwan B Globalisation and corporate governance in developing countries: A micro analysis of global corporate interconnection between African countries and developed countries (Transnational Publishers Ardsley NY 2003)

Brümmer S and Sole S “Moosa in R38-billion tender conflict” Mail & Guardian (8 February 2008)

Cadbury A Report of the Committee on the Financial Aspects of Corporate Governance (Gee London 1992)

Chang H State-owned enterprises reform (United Nations Department for Social and Economic Affairs 2007)

Chiu B and Lewis M Reforming China's state-owned enterprises and banks (Edward Elgar Publishing 2006)

Clarke D 2007 “Three concepts of the independent director” 2007 Del J Corp L 73-111

Department of Public Enterprises Protocol on Corporate Governance in the Public Sector (Department of Public Enterprises Pretoria 2002)

Donaldson L and Davis JH 1991 “Stewardship theory or agency theory: CEO governance and shareholder returns” 1991 Aust J Manag 49-64.

Du Plessis JJ, Hargovan A and Bagaric M Principles of contemporary corporate governance 2nd ed (Cambridge University Press Australia 2011)

Eric M et al 2007 “Strangers in the house: rethinking Sarbanes-Oxley and the independent board of directors” 2007 Del J Corp L 33-72

Gumede W South African state-owned enterprises: Boards, executives and recruitment Report to the South African Presidential Review Committee on State-Owned Enterprises (University of the Witwatersrand Johannesburg 2012)

Howard C and Seith-Purdie R 2005 “Governance issues for public sector boards” 2005 Aust J Publ Adm 56-68

Institute of Directors in Southern Africa (IoDSA) King Report on Corporate Governance and the King Code of Corporate Governance (IoDSA 1994)

Institute of Directors in Southern Africa (IoDSA) King Report on Corporate Governance and the King Code of Corporate Governance (IoDSA 2009)

Jordan C Cadbury twenty years on (Centre for Transnational Legal Studies 2012)

Afeikhena J 2004 Privatisation and regulation in South Africa: An evaluation paper presented at the 3rd International Conference on Pro-Poor Regulation and Competition: Issues, Policies and Practices http://www.niep.org.za accessed 10 October 2015

Ahunwan B Globalisation and corporate governance in developing countries: A micro analysis of global corporate interconnection between African countries and developed countries (Transnational Publishers Ardsley NY 2003)

Brümmer S and Sole S “Moosa in R38-billion tender conflict” Mail & Guardian (8 February 2008)

Cadbury A Report of the Committee on the Financial Aspects of Corporate Governance (Gee London 1992)

Chang H State-owned enterprises reform (United Nations Department for Social and Economic Affairs 2007)

Chiu B and Lewis M Reforming China's state-owned enterprises and banks (Edward Elgar Publishing 2006)

Clarke D 2007 “Three concepts of the independent director” 2007 Del J Corp L 73-111

Department of Public Enterprises Protocol on Corporate Governance in the Public Sector (Department of Public Enterprises Pretoria 2002)

Donaldson L and Davis JH “Stewardship theory or agency theory: CEO governance and shareholder returns” 1991 Aust J Manag 49-64.

Du Plessis JJ, Hargovan A and Bagaric M Principles of contemporary corporate governance 2nd ed (Cambridge University Press Australia 2011)

Eric M et al “Strangers in the house: rethinking Sarbanes-Oxley and the independent board of directors” 2007 Del J Corp L 33-72

Gumede W South African state-owned enterprises: Boards, executives and recruitment Report to the South African Presidential Review Committee on State-Owned Enterprises (University of the Witwatersrand Johannesburg 2012)

Howard C and Seith-Purdie R “Governance issues for public sector boards” 2005 Aust J Publ Adm 56-68

Koma S “Conceptualisation and contextualisation of corporate governance in the South African public sector: Issues, trends and prospects” 2009 J Publ Adm 451-459

Lin S “Double agency costs in China: A legal perspective” The 2012 Asian Business Lawyer 115-135

Lipton M and Lorsch W “A modest proposal for improved corporate governance” 1992 Bus Law 59-77

Makinana A “Parliament launches inquiry into Tshabalala qualifications” Mail & Guardian (9 September 2014)

Makuta E “Towards good corporate governance in state-owned industries: The accountability of directors” 2009 Malawi LJ 55-60

Maqutu A “SAA governance: Stormy weather on board” Financial Mail (20 March 2015)

McGregor L “Are state-owned companies in Africa a lost cause?” 2015 The Thinker 66-70

Menozzi A and Gutiérrez M 2008 Board composition and performance in state-owned enterprises: evidence from the Italian public utilities sector http://www.webssa.net accessed 5 November 2015

Nancy B et al Enron and other corporate fiascos: The corporate scandal reader (Foundation Press 2009)

Organisation for Economic Cooperation and Development (OECD) OECD comparative report on corporate governance of state-owned enterprises (OECD Publishing 2005)

OECD Ownership oversight and board practices for Latin American state-owned enterprises (OECD Corporate Affairs Division 2013)

Office of the Public Protector When governance and ethics fail http://www.gov.za accessed 15 December 2015

PRC 2010 The role of state-owned enterprises

Presidential Review Commission (PRC) The role of state-owned enterprises in the developmental state http://www.thepresidency.gov.za accessed 5 November 2015

PwC 2012 State-owned companies: The new Companies Act

PricewaterhouseCoopers (PWC) State-owned companies: The new Companies Act, PFMA and King III in perspective http://www.pwc.co.za/companies-act accessed 5 December 2015

PwC State-owned enterprises catalysts for public value creation? http://www.psrc.pwc.com accessed 10 November 2015

Redelinghuys J “High CEO turnover and the role of the chairman” Daily Maverick (1 February 2012)

South African Broadcasting Corporation (SABC) Annual Financial Statements http://www.sabc.co.za accessed 7 November 2015

Standard & Poor’s Research update: South African power utility ESKOM Holdings SOC downgraded to 'BB+' following management suspensions; outlook negative http://www.biznews.com accessed 5 November 2015

Tricker B Corporate governance: principles, policies and practices (Oxford University Press 2012)

Victor B “Corporate governance, agency costs, and the rhetoric of contract” 1985 Colum L Rev 1403-1444

Wong S “Improving corporate governance in SOEs: An integrated approach” 2004 Corp Gov 5-15

World Bank Held by the visible hand – the challenge of SOE corporate governance for emerging markets (World Bank Corporate Governance Department 2006)

Comair Limited v Minister of Public Enterprises 2016 1 SA 1 (GP)

Legislation

Companies Act 71 of 2008

Public Finance Management Act 1 of 1999

Broadcasting Act 4 of 1999

South African Airways Act 5 of 2007

Eskom Conversion Act 13 of 2001

Broadcasting Amendment Bill B39 of 2015

CIPC 2014 http://www.cipc.co.za Companies and Intellectual Property Commission (CIPC) 2014

Boards of directors of state-owned companies face the risk of being declared delinquent or being placed on probation http://www.cipc.co.za accessed 10 November 2015

Gqirana T 2015 SABC 'take-over' unconstitutional – DA http://www.news24.com accessed 4 January 2016

Hill L and Bowker J 2015 Poisoned chalice: SAA gets 7th CEO in 4yrs http://www.biznews.com accessed 10 December 2015

Joffe H 2015 SA pays price of Eskom’s disastrous governance http://www.bdlive.co.za accessed 10 December 2015

Landu Y 2013 Public Enterprises Committee unhappy with SAA http://www.parliament.gov.za accessed 2 December 2015

SAPA 2015 SABC board gives non-executive director the boot https://businesstech.co.za/news/media/82433/sabc-board-gives-non-executive-director-the-boot accessed 7 November 2015

SAPA 2015 S&P downgrades Eskom’s long-term debt rating following suspensions http://www.bdlive.co.za accessed 5 November 2015

Zibi S 2015 Bailouts are not enough for ailing parastatals http://www.bdlive.co.za accessed 5 December 2015

Published
2018-01-10
How to Cite
Thabane, T., & Snyman-Van Deventer, E. (2018). Pathological Corporate Governance Deficiencies in South Africa’s State-Owned Companies: A Critical Reflection. Potchefstroom Electronic Law Journal, 21, 1-32. https://doi.org/10.17159/1727-3781/2018/v21i0a2345
Section
Articles