One of the greatest flaws in the governance of state enterprises is the tension caused by the inability to understand the distinctions and intersections between fiduciary duties, oversight and operations.
The current model preferred by the ANC government entails appointing a political principal as the shareholder representative. The party still regards state enterprises as strategic assets, the business models of which should be responsive to its prevailing policy stance.
To facilitate this, the ANC has always preferred to appoint executives who have an awareness of its policy stance to run the most important state enterprises. These are then supplemented by boards of directors who should be able to balance the political mandate — as articulated through the government’s policy stance — and the financial sustainability question. But sometimes this has turned out to be an unmitigated disaster.
When faced with tension between the financial sustainability question and the policy position of the government, boards gravitate towards championing the political cause and defer the financial sustainability issues. This is a clear abrogation of their fiduciary duties and has led to state enterprises being insolvent and hopelessly bankrupt. Executive directors, on the other hand, are bound to primarily observe their fiduciary duties and run organisations in a manner that makes them sustainable. This makes them the best-placed people to determine the nature and scale of operations that need to be undertaken by each entity for it to remain sustainable.
Regrettably, there is a lack of appreciation of the different roles of these stakeholders. The SABC crisis is an exhibit of this. Communications minister Stella Ndabeni-Abrahams has taken the extraordinary step of ceasing communications with the board. This is the result of the SABC’s decision to rationalise operations and retrench more than 2,000 employees through a section 189 process.
The reason the SABC has to consider this option is simply that its cost base exceeds its revenue. Consequently, it makes losses that require ongoing state bail-outs. As a result of its inability to improve its revenue streams, the logical solution is indeed to cut costs. Given the protracted process relating to retrenchments, the SABC will still have these “excess” workers on its payroll until 2019. Consequently, it has sought a bail-out of R3bn just to be able to pay salaries until March 2019.
Next year also happens to be an election year, so we all know the bail-out will be granted. The minister has come to the same conclusion and used this assumption to argue that retrenchment should now be taken off the table. This is a strange understanding of the situation. The question of how large a workforce the SABC ought to have is an operational issue that has nothing to do with the minister.
She should appreciate that the SABC is an entity whose independence has been repeatedly affirmed by the courts. To this end, her stance gives the unfortunate impression that she has designs on interfering with operational decision-making.
It is the role of the board to either support or reject the decisions of the executive. If the members of the board are of the view that financial sustainability can be achieved without retrenchments, it is their duty to articulate this to the minister and the country.
The resignation letters of board members Krish Naidoo and John Matisonn indicate that they agree with the minister that a bail-out is sufficient reason for them to stave off retrenchments. But they have not explained how costs should be cut, which on its own makes one wonder about their understanding of their fiduciary duties.
Sithole (@coruscakhaya) is a chartered accountant, academic and activist.
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