NOW that the facts of Eskom’s corporate governance debacle are starting to emerge, it is time to start shedding light on some aspects of this unsavoury matter. We must accept as a fact that SA has destroyed a company that once received accolades as the best global utility company. This has been done through suspect reasoning and decision making.
Things are not right at Eskom. After the previous crisis, astute observers called for an inquiry to discover what happened so that we could avoid another crisis.
This call was ignored by Eskom’s management, board and shareholders.
Now we have fallen into another crisis, notwithstanding the existence of a so-called robust board. If unrestrained, Eskom’s leadership will inflict more damage on a once proud institution.
The term corporate governance is bandied about without any meaning attached to it. My take on corporate governance is that it is about the management of corporate power. It is the process of controlling management and balancing the interests of all stakeholders in the corporation in order to ensure responsible behaviour with a view to achieving the maximum level of efficiency and sustainability.
This requires the proper delimitation of the power of the board of directors and company officers, and the practices that they adopt and are permitted to adopt.
Many things have been said, but the following issues still need to be clarified.
How did good corporate governance processes allow the CEO and the chairman of Eskom to simultaneously present their different strategies to the board in a competitive manner? What was happening in the background before this sorry practice was sanctioned by the board through its chairman, or were interests declared and did an “independent” director chair the competitive pitching of strategies.
The “theory” and general practice is that the chairman and the board must support and guide the CEO and management, not compete with them.
I believe this is the source of accusations of racism and nonsupport. It cannot be in the interests of good corporate governance for a resignation to be extracted, in the heat of the moment, from the CEO.
It is strange that we accept as clear and unambiguous a verbal statement from a CEO that if he is not supported he will resign, when he is faced with the prospect of competitively pitching for acceptance of his strategy over that of the chairman in front of a board on which the chairman is first among equals.
Over and above this, board members who accept this resignation are ready and willing to take over as acting CEO. This is tantamount to an abuse of power and the flouting of the rules of justice and fairness.
The second point of interest is whether, since the policy decision to make SA a developmental state, the corporate governance protocol on state-owned enterprises has been revised to ensure more strategic control and management by the shareholder, the government.
The third matter that needs to be addressed is the adoption of a new business model for Eskom. The deposed CEO had called for a national dialogue on creating a sustainable business model for Eskom.
I think that Eskom should not search for a new CEO until there is a national consensus on its new business model, which the government must establish. The need for a new business model is that the current model of corporatisation and privatisation is not working. Eskom is supplying a public good, and has had conferred on it the responsibility of supplier of last resort.
The responsibilities of supplier of last resort that have been given to Eskom cannot be executed by a company that operates as a tax-paying entity, does not having a capital redemption fund, must pay dividends and is managed according to profit maximisation principles of the private sector, including executive performance management incentives.
The pre-1999 Eskom executed its mandate well before a private-sector ethos was introduced to its structure and governance.
Eskom had a well-functioning, two-tier board structure, in which a supervisory board represented all stakeholders and exercised proper oversight over a management board. The Jacob Maroga-Bobby Godsell mess would not have happened under this corporate governance model.
The current unitary board is not balanced as it neither represents all stakeholders nor does it represent management. There are only two executive directors on a board of 13 members. How can such a board, weighted in favour of nonexecutive directors, perform its duties. How is it informed?
The celebrated King code on corporate governance does not work well in state- owned enterprises as the unitary board is never balanced between executive and nonexecutive directors.
But the most important thing is that the board does not really represent the shareholder, where shareholder’s value must be maximised. If the board represented the shareholder, I do not see how it could not discuss the resignation of the CEO with Public Enterprises Minister before accepting it. The shareholder’s responsibility and power cannot be just about the appointment of the board. Key shareholders in the private sector would not accept this as their only power.
If any good comes of this sorry boardroom saga, it must be that the state develops a robust and unique corporate governance protocol that is independent from the King code but addresses the unique needs of state- owned enterprises and other public entities.
- Letlape is a corporate governance consultant at Intergrated Transformation Services.