Politicians must let SOE managers get on with the job

Not too long ago there was a very real prospect that paper manufacturer Sappi would have to close its doors. Weighed down by debt ramped up in the good old days before the 2008 financial crisis and the rise of digitisation, this was a company vulnerable to the excesses of the early part of the century. About nine years ago, Sappi was trading at an all-time low of R17 a share, having plummeted more than 80% from its 2002 record high. The company had borrowed substantially to expand into Europe and US on the back of its traditional graphic paper business. This segment of the paper business went into decline later because of the advent of smartphones, among other technologies.

Its debt, which peaked at around R20bn a decade ago, coupled with a shrinking market, appeared likely to sound the death knell for the company whose first mill was established in Springs, east of Johannesburg, 82 years ago.

I’ve always paid close attention to the company, mainly for sentimental reasons because it was possibly the biggest employer in my father’s home town of Stanger, north of Durban.

My uncle worked at the company’s Tugela mill — which began operating in 1945 — until a few years ago, so I’ve always wished Sappi well in the hopes that it keeps the creaking town going.

Today, after a difficult restructuring, Sappi still stands. In fact it is doing pretty well for itself after reducing costs, strengthening its balance sheet and selling noncore assets for the five years up to 2015.

This week the manufacturer of a product from the biblical age was the second-best-performing company in the Sunday Times Top 100 Awards, second only to Capitec.

At the close of trade on Friday, Sappi’s stock was six times higher than in the dark days of early 2009, and the company’s debt is half of what it was then.

Over the past six years it has been led by former Edcon FD Steve

Binnie, who was given the task of reining in debt and, in more recent years, seeking growth opportunities. The most exciting of these are in the clothing business.

While Binnie and his executive team were celebrating after the awards ceremony, I asked him what advice he had for our debt-ridden state-owned enterprises (SOEs).

I was half expecting an MBA-type answer that boiled down to a focus on the balance sheet and other numerical concerns. Instead, he sang the praises of the people he found in Sappi at the time of his appointment. They were optimistic despite the very gloomy prospects, and he found a team determined to improve their circumstances.

When you take a step back from the daunting metrics involved in an ailing institution such as Eskom ever returning to its former glory, you realise just how important the people in that institution are to its recovery. The same goes for SAA or any of the SOEs that have been disrupted by the past nine years of former president Jacob Zuma’s administration.

I imagine that the calls by finance minister Tito Mboweni for SAA to be closed aren’t too helpful in terms of staff morale. Public enterprises minister Pravin Gordhan’s townhall address to ease their concerns this week, however well-meaning, probably only served to further deepen insecurities.

How does a CEO or a board lead a turnaround in an organisation when its staff are being rattled by contradictory statements by its sole shareholder? How do you start the cultural change that is needed across most of these SOEs?

Eskom is about to start to address its high cost base by looking at its executives, a destabilising time for any organisation. How much more so when the shareholder is so involved with the day-to-day operations of the organisation?

Whatever plan that the board and CEO Phakamani Hadebe bring to the table will be challenged by staff, and the likes of the National Union of Metalworkers of SA, who know that real power lies in Luthuli House and the Union Buildings, not in Hadebe’s office.

This is no way to rebuild Eskom, SAA or any of the country’s SOEs. There has to be a return to proper governance, which starts with the political principals withdrawing from the day-to-day operations of the companies.

I know that men such as Malusi Gigaba, who has been both finance minister and minister of public enterprises, made it their job to interrupt normal governance processes. But in trying to undo that damage, the new powers that be shouldn’t steer the same course, no matter how good their intentions.

For politicians, their role is to set the mandates of these institutions and to sell their strategic importance to the electorate, but not to usurp the power of both the boards and the CEO.

If the good people are to emerge within the SOEs, the politics of the factional battles raging within the ruling party need to be removed from the equation.

Numsa knows that the real power lies in Luthuli House and the Union Buildings