Politi­cians must let SOE man­agers get on with the job

Sunday Times - - Business Opinion & Bits - By Ron Derby

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

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