Ministers should not be solely responsible for the appointment of the boards of state-owned enterprises (SOEs) as is case now, chair of the Zondo commission of inquiry into state capture Raymond Zondo says.
He expressed this view in the first part of his voluminous report on state capture into allegations of corruption and fraud in the public sector, which was handed to President Cyril Ramaphosa on Tuesday.
It followed detailed evidence of the widespread corruption and abuse of power that took place in SOEs such as Transnet, Eskom, and SAA, which were looted by the Gupta family and their associates often in cahoots with board members and executives of these SOEs.
Zondo said his recommendation on how boards of SOEs should be appointed would be made in later reports, the second of which would be handed over at the end of January and the third at the end of February.
He said the evidence showed that the appointment of board members by ministers had proven to be problematic and “does not represent the robust and transparent process recommended by King IV. Procedures for the appointment of SOE board members lack integrity and are not transparent. In addition there is often a disjuncture between the fiduciary duties of SOE board members and the profiles, skills and expertise of incumbents.
“There are a number of alarming examples, which show that ministers have appointed persons to the boards who meet none of the required criteria. The system of unstructured appointments does not serve the national interest. The evidence regarding events at Transnet, Eskom and SAA presented a scarcely believable picture of rampant corruption,” Zondo said.
Zondo stressed that people appointed to SOE boards must have the necessary competence, capacity, experience, integrity, reputation and intellectual honesty to fulfil the demanding responsibilities of such an appointment.
“The national interest demands that SOEs operate under efficient and professional leadership, which requires that the appointment procedure is transparent, not driven by party political interests but made in accordance with objective criteria.”
President Cyril Ramaphosa remarked in his testimony to the commission that there had been a “massive system failure” on how the boards of SOES were appointed.
“This system failure needs to be remedied urgently,” Zondo said. “It is inconceivable that the system of appointments can be left unreformed,” even if since the revelations of state capture ministers have been more careful in their appointments and SOEs are beginning to show the benefits of better governance.
Zondo said a minister should never appoint a chair or CEO of an SOE. That was the function of the board.
“The evidence received by the commission demonstrates that in many cases and in fundamental respects, boards of the SOEs have shirked their responsibilities or worse, used their powers to corrupt the SOEs that they have been appointed to protect.
The report says certain individuals were strategically positioned to repurpose the SOE. Those implicated individuals oversaw the corrupt award of high-value contracts that allegedly enriched entities connected to them at great loss to the state owned enterprise.
“Directors on the boards have onerous fiduciary duties and must at all times act in the interests of the state owned enterprise. They remain accountable for leading the organisation ethically and effectively and report to the minister as the responsible shareholder,” the report said.
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