Eskom is years behind and over budget in maintaining the power grid, making “load shedding” as common as braaivleis on a Saturday (which may soon become the most effective way to cook on other days of the week as well). Yet, Eskom executives are receiving million-Rand bonuses and the public is being kept in the dark about the real reasons for Eskom’s state of affairs. South African Airways (SAA) and South African Express are barely going concerns and are flying on fumes, so to speak, despite bailout after bailout by the government. The South African Broadcasting Corporation (SABC) has for quite some time not been on the same wavelength as good governance and effective management, apparently due to various degrees of mismanagement. The South African Post Office (SAPO) battles with its staff and the ability to deliver mail – untampered with, and on time; Transnet faces a billion-Rand class action law suit for allegedly failing to pay retired employees their pensions; and Petro SA’s Chairperson is in the hot seat. The list goes on… 

Almost every public enterprise has been marred by some or other governance or management ignominy and there are many reasons for these well-reported failures. However, at the core of the problem is the failure to adhere to the Constitution’s “10-point plan” for public administration. In terms of section 195(1) of the Constitution:

“Public administration must be governed by the democratic values and principles enshrined in the Constitution, including the following principles:

a)     A high standard of professional ethics must be promoted and maintained

b)     Efficient, economic and effective use of resources must be promoted.

 c)     Public administration must be development-oriented.

 d)     Services must be provided impartially, fairly, equitably and without bias.

 e)     People’s needs must be responded to, and the public must be encouraged to participate in policy-making.

 f)      Public administration must be accountable.

 g)     Transparency must be fostered by providing the public with timely, accessible and accurate information.

 h)     Good human-resource management and career-development practices, to maximise human potential, must be cultivated.

 i)      Public administration must be broadly representative of the South African people, with employment and personnel management practices based on ability, objectivity, fairness, and the need to redress the imbalances of the past to achieve broad representation.

These basic values and principles governing public administration are not optional, but a constitutional requirement which, according to section 195(2), applies to “(a) administration in every sphere of government; (b) organs of state; and (c) public enterprises“.

The first problem appears to be the fact that the government does not seem to view public enterprises as part of public administration. This is evident from the Public Administration Management Act, which was recently – although without proper debate – adopted by the National Assembly. This Act seeks to ensure more effective, professional and accountable “public administration”. It seeks to prevent and eliminate corruption by prohibiting employees from conducting business with the State; it establishes an Ethics, Integrity and Discipline Technical Assistance Unit to strengthen a culture of discipline, integrity and ethical conduct in “public administration”; and it provides for measures to inculcate a culture of compliance with the regulations by institutions within the “public administration”. The problem is the Act does not apply to public enterprises. Even though section 195(3) of the Constitution determines that “national legislation must ensure the promotion of the values and principles listed in subsection (1)” and despite the title of the Act, the Act only applies to, and regulates the public service and municipalities. It does not apply to organs of State and public enterprises as required by section 195(1) and (2) of the Constitution. In fact, the Act actually redefines “public administration” ignoring the meaning given to it by the Constitution. This was a huge error by Parliament – whether by omission or otherwise.

The second problem is the appointment of board members of public enterprises. In this regard, a Business Day editorial of 24 October 2014 referred to this dilemma as “the (at best) questionable quality of the state-owned company boards… composed of deployees and ministerial buddies who have little or no experience…” as a big part of the problem. Even a cursory look at the boards of public enterprises reveals justified reason for concern.

In any company, the chairperson and board should be able to provide effective leadership based on an ethical foundation. This requires a chairperson and individual board members who are knowledgeable, skilled and experienced to govern the specific company entrusted to them in a manner required by section 195 of the Constitution, the Companies Act 71 of 2008 (the Companies Act) and King Code of Governance for South Africa 2009 (the King III report). It includes the ability to direct strategy and operations in order to build a sustainable business, bearing in mind how such strategy will impact on the economy, society and the environment. It also requires ensuring that the performance and interaction of the company with its stakeholders are guided by the Constitution and the Bill of Rights. Moreover, in terms of the Companies Act and King III report, a board is obliged to act in the best interest of the company they govern, not the shareholders who appointed them. This means decisions based on ethical and good governance, as well as sound business practices, not personal or political interests. It also means a degree of independence of mind. According to the King III report, the best interests of the company should be interpreted within the parameters of the company as a sustainable enterprise and responsible corporate citizen “redefining success in terms of lasting positive effects for all stakeholders…“. As such, the board should consider the legitimate interests and expectations of stakeholders (which obviously include the people of South Africa) “on the basis that this is in the best interests of the company, and not merely as an instrument to serve the interests of the shareholder” – the latter being the government on behalf of the people of South Africa. It appears, however, as if the best interests of the various public enterprises and all of their stakeholders – including the people of South Africa – are often substituted with the interests of politicians and the politically connected. Unfortunately, it also appears as if political clout and political party association are the primary criteria for appointment as chairperson or board member of a public enterprise.

The third problem appears to be political meddling in day-to-day operations of public enterprises. Section 66 of the Companies Act provides that the business and affairs of a company must be managed by, or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that this Act or the company’s Memorandum of Incorporation provides otherwise. The Companies Act also requires of individual directors to act in good faith and for a proper purpose, in the best interests of the company, with care, skill and diligence that may reasonably be expected of a director in the same position. As highlighted by the King III report, a starting point of any analysis regarding this matter is the duty of directors and officers to discharge their legal duties: first, their duty of care, skill and diligence; and secondly, their fiduciary duties.

According to African National Congress (the ANC) Secretary-General, Gwede Mantashe, the party is setting up an internal committee to “monitor the work of state-owned enterprises and engage where necessary“. Operational “engagement” has been the order of the day. Eskom’s Chief Executive Officer, Tshediso Matona was recently quoted saying that politicians were to blame for Eskom’s current failures since it was told to keep the lights on for the 2010 World Cup and the elections when power cuts would have cost votes. Besides, President Zuma’s special advisor on business, Sandile Zungu, not long ago stated that the government needs to assure the people running public enterprises that it “appreciate[s] their sacrifices, support[s] them and [will not] unduly interfere“, begging the question: why is the government interfering and engaging in the operational management of these entities at all?

Public enterprises are part of public administration and are organs of state. They are not government or party businesses, nor pet projects. As such, citizens entrust their government and public enterprises to manage public resources and provide essential services. For that reason, the people have a right to expect that these state-owned enterprises are fully accountable, governed and managed mindful of those for whom they are in essence working: the people of South Africa. Nevertheless, the calamity confronting state-owned enterprises is not operational in nature, and no “5-point plan” aimed at addressing symptoms of deficient governance and mismanagement will solve strategic problems in the long run. These operational shortcomings are consequences of the government (and these entities themselves) failing to adhere to section 195 of the Constitution. The result is obvious in the quality of services rendered, as well as management of assets and financial and human resources – whether at Eskom, SAA, the Post Office or the SABC. In contrast, the Constitution requires a high standard of professional ethics, which includes efficient, economic and effective use of resources. It requires public enterprises to respond to the needs of the people (as opposed to those of political parties and politicians). It demands accountability and transparency (including providing the public with timely, accessible and accurate information). Moreover, it requires public enterprises to maintain good human-resource, employment and personnel management practices based on ability, objectivity, fairness, and the need to redress the imbalances of the past to achieve broad representation (not numerical demographic or political party representation). These basic values and principles – the Constitution’s “10-point plan” – are the foundation for well-governed and efficient state-owned enterprises. Any other plan will continue to leave the people of South Africa in the dark.

By Adv Johan Kruger, Director: Centre for Constitutional Rights

For comment on article:
Adv Johan Kruger: Director, Centre for Constitutional Rights
Phone: 27 21 (0) 930 3622

Megan Dick: Communications Officer, FW de Klerk Foundation
Phone: 27 21 (0) 930 3622

 Photo credit: Paul Keller / Foter / CC BY