Judge to play role in SOE board picks

• Draft bill seeks to depoliticise holding company appointments

A retired judge will chair a panel that will interview candidates to serve on the board of the proposed State Asset Management Company, in a move that limits the powers initially conferred on the president.

The unfettered powers granted to the president in the draft National State Enterprises Bill published in 2023 raised eyebrows as it gave the head of state the sole power to appoint the board that will oversee the management of SA’s strategic state-owned assets.

Futuregrowth Asset Management was one of those that raised concern about the limitless power granted in the original bill to the president over the appointment of the holding company’s board members without any direct guidelines, oversight or limitations.

The revised draft bill, gazetted on Wednesday after a public consultation process, which began in September 2023, revealed the panel will also have representatives from organised labour and business, in a move meant to rid the process of politics.

The introduction of the panel is one of the main changes from the initial bill and a big curtailment of the power initially allocated to the president to appoint the board.

The department of public enterprises received about 3,500 comments from the public on the draft bill. These centred mainly on governance and transparency, it said.

The judge, to be appointed by the president, will serve alongside a representative from organised business and a member from organised labour.

The panel will also comprise two ministers and three current or former CEOs of public companies to be appointed by the president.

“The panel must call for nominations and interview the candidates and recommend them on the grounds of their skills, knowledge, experience and integrity, which, when considered collectively, will enable them to fulfil the objectives of the holding company,” reads the revised bill, which highlights the need to limit state interference in the functioning of state-owned companies’ boards.

“Key weaknesses of the system have been noted as being excessive politicisation of board and senior management in state-owned companies, weak co-ordination of both national and sectoral approaches, and a deficit of the required professional skills and sound corporate governance approaches.”

While the panel will interview and recommend, the president, as the shareholder, can veto the panel’s decision. “If the shareholder decides not to elect any person recommended by the panel, the panel must recommend an alternative person.”

The revised bill states the president is the sole representative of the company but may transfer such powers to another member of the cabinet.

Some of the responsibilities of the board will include establishing a reporting framework for its subsidiaries and developing a system for properly evaluating all capital investment projects of the subsidiaries.

Business Day understands the make-up of the panel is meant to “assuage concerns of politicisation of appointments”.

The process of appointing boards and executives was highlighted as one of the reasons that state capture thrived.

Chief justice Raymond Zondo, in his report into state capture, recommended the establishment of a standing appointment and oversight committee

to strengthen the process of nominating and appointing directors of state-owned enterprises (SOEs).

The board of the State Asset Management Company will now comprise a maximum of nine members, instead of the 11 previously proposed.

The bill also shows that it will be incumbent on the president to draft a national strategy to guide the work of the holding company.

It directs the president to review the strategy every five years, or earlier at the request of the responsible minister. The strategy must include performance targets and any potential private sector investment, among other objectives.

The bill requires the president to appoint a committee to advise on the national strategy. The strategy will be subject to public consultation and inputs.

The committee must include three members of the cabinet, one person appointed by business and one from labour.

The bill now also mentions SOEs that are likely to be under the umbrella of the holding company as subsidiaries. These include Eskom, Transnet, Denel, Airports Company SA, Air Traffic and Navigation Services, Broadband Infraco, the Central Energy Fund, Sentech, SAA, Sanral and the SA Nuclear Energy Corporation.

One of the issues the revised bill has done away with is the provision that allowed the shareholder of the holding company to “appoint an administrator, on such terms as the shareholder may determine, to take control of the management of the holding company”.

This was meant to apply in instances where there is a “material and persistent failure to meet objectives and targets”.

Futuregrowth Asset Management, one of SA’s biggest institutional bond investors, in its submissions on the initial bill flagged this particular provision as being at odds with the Companies Act, which already has extensive business rescue and insolvency-related provisions, which are either activated by the board or by the creditors of a company.

“The provisions of the bill, on the other hand, in allowing the shareholder to unilaterally appoint an administrator, would appear to conflict with the Companies Act provisions.

“No guidance is given in the bill on how to manage this conflict, or which legislation should take precedence,” the Old Mutual-owned entity said in its comments.