Judith February
a second look
If there was ever any justification for revisiting the 1994 King Report on Corporate Governance, the recently revealed shenanigans at South African Airways (SAA) and Transnet have provided it.
The drama that has unfolded has seen accusations flying from Cape Town to London between Jeff Radebe, Minister of Public Enterprises, and Saki Macozoma, former managing director of Transnet.
Throughout we have heard the minister say that there has been a “collapse in corporate governance” within SAA that, at the time of Coleman Andrews’s tenure, was a division of Transnet. What does this mean though and why should citizens be concerned about corporate governance of state-owned enterprises (SOE)?
Corporate governance represents the schism between ownership and control of companies, which sees ownership of a company held by shareholders and control of the company abdicated to a board of directors controlling the business of the company.
Normally sound management spawns a healthy bottom line for a company, which in turn satisfies shareholders. In SOEs the state is the major shareholder and in reality the one concerned with the spending of public money.
It could be argued that greater vigilance is needed when laying the foundations for a desirable model of corporate governance within SOEs.
To its credit, the government had identified sound corporate governance of SOEs as a priority as early as 1997 when the Cabinet endorsed a corporate governance protocol for SOEs.
That government has crossed the Rubicon as far as the privatisation debate is concerned ought to provide an even greater impetus for clarity regarding the role of directors and collectively, the boards of directors of SOEs and companies.
Could the SAA debacle have been avoided had there been different standards of corporate governance and what then should these have been? One could venture to suggest that had there been stronger, more vigilant participation of non-executive directors on the SAA board and had the remuneration committee had a greater involvement in recommending and structuring the remuneration of the chief executive officer, the current situation within SAA may not have arisen.
If one accepts that the company/ SOE exists not only for the benefit of shareholders (which in the case of SOEs is the state) but also for other stakeholders such as the community at large, then there must be an obligation for the company/ SOE to consider the interests of other stakeholders such as human capital (employees), customers and suppliers of the company and its creditors.
Changing times demand that directors be aware of issues such as employment equity, transformation, development and the application of the new labour laws.
That this was not the case in the SAA scenario was evident given the number of expatriates employed and also the employment of a slew of foreign consultants.
The 1994 King report flirts with the model of corporate governance that places a greater emphasis on the consideration of outside stakeholders, but stops short of promoting this model directly.
It is hoped that the revised King report will consider in greater depth the role of other relevant stakeholders. In the case of SOEs this could only benefit the country.
The remuneration committee’s role is key, as the King report pointed out. It suggests combinations of a basic salary, a performance-related element, share options and other benefits for directors and senior executives.
The structuring of these elements is determined by the size, financial circumstances and market position of the company concerned. It is thus worrisome that in the case of Andrews the remuneration committee and relevant reporting lines appear to have been “bypassed” by the managing director.
It is in this respect that Parliament might have exercised its oversight role more deftly by calling SAA and Transnet to account before its public enterprise and transport committees respectively. This together with a greater degree of ministerial intervention might have averted the current crisis.
In the minister’s defence, there is a delicate balance that needs to be struck between strategic and necessary intervention and unnecessary interference.
It is a difficult lesson that Minister of Mineral and Energy Affairs Phumzile Mlambo-Ngcuka learned in the crisis at the Central Energy Fund earlier this year. In addition, the role of the non-executive director in ensuring sound corporate governance and accountability cannot be underestimated.
The non-executive director brings to the board expertise and conflict resolution skills and serves as a check against the exercise of unfettered power by the executive directors.
While one can only speculate on the role the non-executive directors of SAA played in the Andrews saga, perhaps if they had played a more active, monitoring role, the sad litany of events would have been avoided.
It is regrettable that the Cabinet has decided not to launch an investigation into the debacle and that we will never fully know or understand the way in which the board came to be disempowered to such an extent.
While a system of corporate governance is needed as a measure of control over the way in which an SOE or a company is managed, it cannot be the panacea for all action or inaction by the board. A balance must be maintained between accountability and the freedom of managers to manage.
Corporate governance which is too strict and seeks to over-regulate, squeezes out efficiency that is essential in any successful business.
Finding the balance between efficiency, flexibility and accountability it would seem is the key to sound corporate governance.
Judith February is an attorney and legislation monitor at the political information and monitoring service of the Institute for Democracy in South Africa