Parmi Natesan - Executive, Centre for Corporate Governance at the IoDSA

IoDSA welcomes proposals to reform state-owned enterprises

By in Business, Economy, Finance on February 22, 2016

The Institute of Directors in Southern Africa (IoDSA) welcomes the proposed guidelines for reforming the country’s state-owned enterprises (SOEs) recently released by government.

Parmi Natesan Executive, Centre for Corporate Governance at the IoDSA, comments: “This initiative is most welcome as key parastatals provide the vital enabling environment for economic growth. The IoDSA has in the past noted that many of the challenges currently experienced by SOEs can be traced to inadequate governance.”

As highlighted in a recent article, much of the success of Singapore’s public sector is attributed to its adherence to strict governance guidelines.[1]

Board performance is strongly linked to organisation performance, which is why both King III and the Companies Act place such emphasis on governance and the function of boards, Natesan points out.

Natesan highlights some of the key governance issues for SOEs, as previously highlighted by the IoDSA and that now form part of the government’s reform plan:

Maintain the separation of roles
Perhaps one the key causes of SOE malfunction is the undue interference of the state in the running of SOEs. This includes short-circuiting the process for board and executive nominations, and issuing instructions to boards that are based on political rather than economic grounds. “If boards are to be accountable for the performance of the SOE, then they have to have the freedom to exercise their collective judgement in its best long-term interests,” she says. “The shareholder must, of course, spell out what the goals of the SOE are, but then it must allow the board and executive management team to do their jobs. The roles for each player need to be better understood and adhered to.”

Ensure boards have the right capacity
Natesan points out that boards need to have the right mix of knowledge, skills and experience or they cannot perform their strategic and oversight functions adequately. “Making appointments on political grounds alone has been a recipe for underperformance at best, and disaster at worst. SOEs have a unique economic and developmental role, and that must be incorporated into the skills matrix that guides board composition”, she says.

Natesan points out that South Africa does have a shortage of professionally qualified and experienced directorial talent. The IoDSA has already put in place a multifaceted plan to grow the talent pool by offering training related to the 20 competencies of its Director Competency Framework. This Framework will enable directors ultimately to achieve the professional Chartered Director (SA) designation. The IoDSA also offers associate membership to allow up-and-coming directors to upskill themselves and build their networks.

Board performance must be evaluated regularly
Evaluation is the only way for the state, as the shareholder, to assess whether the board is operating optimally, and to identify areas of improvement. Independently facilitated board evaluations provide the board itself, as well as the state as shareholder, with an objective understanding of how well the board is functioning, and what governance areas need to be addressed.

“Governance is receiving such attention globally because it improves performance,” Natesan concludes. “South Africa is a leader in this field—let’s hope that government finally benefits from our home-grown expertise to get our SOEs back on track.”

Photo caption: Parmi Natesan Executive, Centre for Corporate Governance at the IoDSA