State company CEs must speak truth to power
FINANCE Minister Pravin Gordhan’s announcement of a new focus on “appropriate” private sector participation in state-owned enterprises and that “co-funding partnerships” with the private sector should be considered, is welcome. But is it an acknowledgement that government’s concept of stateowned enterprises is flawed?
If the government is looking for a private sector bailout, but will allow the political interference, dysfunctional boards, red tape, and the manipulated procurement and supply that have characterised state capitalism and ruined our parastatals, this initiative will fail.
State-owned companies, as parastatals are now called, are neither fish nor fowl. They are answerable to political masters, but responsible for their own balance sheets. They defer to a political hierarchy and are subject to the unpredictable currents of political favour, but have privatesector style governance and remuneration policies.
In essence, state-owned companies ape the form but violate the substance and principles that make private enterprises innovate, adapt, and gain success.
These companies lack the drive, independent strategic thinking, and the inviolate demand for adding economic value.
Parastatals are administratively and technically complex. The skills needed to plan, operate, and maintain such complex organisations can be acquired only through years of experience.
The best people to lead these companies are those who learn from mistakes and had proper guidance and mentoring in the early phases of their careers, when essential discipline and attitude are acquired.
Cadre deployment to parastatals shows an astonishing arrogance that assumes that the ideologically or politically suitable can bypass essential developmental processes. It results in easily manipulated political appointments to senior positions, often the boards of these companies, who misallocate resources for political ends.
Many deployees, especially board members, lack the knowledge to appreciate the complexity of the industries or organisations they manage.
The way an organisation allocates money and time and the focus and quality of attention it pays to what it deems important, is critical to its success.
STATE officials interrupt stateowned company management and leadership processes, forcing their ideological and tendentious orders of priority by, for example, insisting on including parastatal CEs on state visits and summoning them to other meetings, which seriously interrupts the vital decision-making and co-ordination processes.
This has resulted in a chronic decline of SA’s parastatals — which are now characterised by their consistent inability to provide economic impetus and expand the country’s infrastructure in accordance with their mandates.
They have also disappointed and betrayed the public — examples of this includes Eskom’s load shedding, and the inefficient and unsafe Metrorail commuter service.
The intuitive response to the parastatals’ endemic corruption is to tighten governance rules and policies. Knowing the rules may prevent inadvertent sins of omission — such as doing business with a nonpreferred provider — but is unlikely to stop sins of commission, such as giving a contract to the president’s friend.
Often, where regulations seem to have been followed, those with the power to rubberstamp are blackmailed, bribed, or bullied to ignore corporate governance rules.
How, for instance, can a board’s ethics subcommittee distinguish between a contract signed by a chief financial officer who has been coerced for political reasons, from a contract that was signed in good conscience?
Corruption, mismanagement, and poor decision-making have not been stopped at state-owned companies that have carefully mandated board structures and subcommittees — they have flourished since the imposition of the Public Finances Management Act.
Such conduct and the tangle of red-tape that the act imposes on companies — such as preferential procurement and demand — demoralises parastatal technocrats, and prevents managers and executives from trusting their own judgment and from taking risks that add value. This serves to further precipitate the steady, systemic decline of these companies.
This negatively affects how difficult or sensitive issues are confronted or raised. It is no small wonder that the problems at Medupi took so long to emerge and were so compounded. The problems should have been expected, given the enormity of the project and how little experience Eskom had retained for building new power stations.
Where responsible technical experts have been trusted, however, as with the Gautrain, a publicprivate partnership has been properly, consistently, and successfully managed. This shows that where boundaries are clear and respected — and it is safe for leaders to exercise their accountability — difficulties are confronted, trade-offs are made, and there can be progress.
S
UCCESSFUL organisations need good leadership, a quality that is intrinsic to a person, which can neither be codified nor faked for long. Leadership is about values and attitudes, rather than outcomes that can be seen or measured.
To exercise effective corporate leadership, a good board is essential; one that is an independent, robust body that respects the authority of executives, technical experts, and government departments.
Through their own leadership, the managers of parastatals must resolve the conflicts constructively between the state and its various ministries — of public good, technical consideration and commercial and financial prudence.
To achieve this, they will have to speak truth to power and encourage executives and experts for whom they are responsible at state-owned companies to do the same. ■ Yudelowitz is joint MD at YSA and the author of Smart Leadership.