The department of public enterprises, the custodian of many of SA’s state-owned companies, has suggested an increase in the powers of the minister over company boards by giving him the authority to dissolve them and step in when things go wrong.
State-owned entities (SOEs) have been plagued by governance problems, mismanagement, corruption and financial instability for more than a decade.
In a presentation to parliament’s portfolio committee on public enterprises on Wednesday, Orcilla Ruthman, the department’s chief director of the governance unit, said it was engaged in redrafting the memoranda of incorporation (MOI) for state-owned companies to enable greater “step-in rights” for the minister.
The changes will “empower the minister to intervene when the board is seriously underperforming by dissolving the board and appointing a ‘quasi’ administration to turn around the company”, Ruthman said.
The conditions for stepping in could include where the company is in financial distress or there are allegations of maladministration and mismanagement; where there are material governance challenges; when the company fails to perform efficiently or effectively; or when the company has acted unfairly or in a discriminatory manner or has failed to comply with its own legislative framework or policies.
However, the department said it was incorrect to construe this as a power grab.
“Minister (Pravin) Gordhan is specifically looking to empower the boards and management teams. From our side, the MOIs govern both the political and administrative interfaces in relating with the SOEs,” department spokesperson Sam Mkokeli said on Wednesday.
“He is specially not looking to gain more power over the boards and management. In fact, it’s quite the opposite. He absolutely believes the SOE must be empowered to run their affairs professionally without any inappropriate political interference.”
Gordhan has established “a different accountability framework” to that which allowed state capture to thrive, in which politicians had been involved in operational and financial matters.
“That is the spirit of the improvements required with regard to the MOI,” said Mkokeli.
State-owned companies are governed by their own specific laws as well as by the Companies Act and the Public Finance Management Act.
The MOI, which has been concluded separately with each company by the shareholder minister, sets out the detail of the relationship and their respective powers and obligations.
Legislation gives the minister of public enterprises the power to appoint the board as well as the CEO, on the basis of a recommendation by the board.
The power to remove the board is ambiguous in many instances, which has led directors who have been removed to take the government to court to insist on reinstatement.
The legal framework is intended to enable the boards to function independently, free of political interference. But political interference has nonetheless been extensive, leading to much conflict between the minister, the directors and management.
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