Citizens, consumers and civil society must play a more active role as shareholders of state-owned entities (SOEs) than is currently the case, just as activist shareholders in private companies do, to hold these entities to account.
Given that SOEs are taxpayer-funded companies, citizens should be seen as shareholders. When citizens, civil society and consumers hold SOEs accountable as shareholders, they are also exercising active citizenship. Citizen shareholder activism is the missing link in holding runaway SOEs accountable. Yet SA does not have a culture of citizen shareholder activism.
Private-sector shareholder activist Theo Botha, who regularly interrogates companies at their AGMs about corporate governance, board compensation and operational practices, provides an example to emulate in SOEs too.
Civil society organisations the Organisation Undoing Tax Abuse (Outa) and SA Airways Pilots Association (Saapa) showed the way when they lodged an application to the high court in March 2017 to have former SAA chair Dudu Myeni declared a delinquent director for her appallingly destructive mismanagement of the state airline.
Myeni was subsequently declared a delinquent director by the North Gauteng High Court in May this year, making her unfit to operate as a company director. Sadly, these civil organisations had to seek help from the courts after government lacked the political will to take action against Myeni’s destruction of value, jobs and services at SAA.
SOEs guzzle large amounts of scarce taxpayers’ money, with little return in terms of services, products or profits. Conservative estimates show appalling inefficiencies, waste and corruption in these entities, which have sucked up more than R1-trillion of taxpayers’ money over the past decade alone.
All SOE tender award deliberations should be in public. Citizens, civil society and the media should sit in on tender award decisions
Public funds that disappear into a black hole of SOE support is one of the reasons SA is now in such a financial crisis that it has had to seek $4.3bn from the International Monetary Fund (IMF) to fund Covid-19 related initiatives.
Malfunctioning SOEs have many kinds of opportunity costs, meaning the costs incurred by not having alternatives to resource-sapping SOEs. Money is being diverted from essential public services such as education, health and housing to SOEs, only to be flushed down the drain of incompetence, waste and corruption.
SOEs crowd out the private sector, preventing entrepreneurs from starting businesses, and therefore creating new jobs and growth in the sectors dominated by these SOEs. They are significantly contributing to rising taxes, rising debt and increasing cuts in public expenditure on crucial services.
Citizen shareholder activists should take on SOE executives and boards at their AGMs, although they are generally secretive affairs and information about them is not widely publicised, and they are not open to the public. It must become mandatory for SOEs to open their AGMs to citizens, consumers and civil society. In fact, citizens, consumers and civil society organisations should be given voting rights at SOE shareholder meetings.
SOE executives and boards receive huge remuneration packages and annual bonuses, yet these entities are loss-making, fail to deliver services — then they are bailed out. In the private sector, activist shareholders have caused the rejection of extravagant remuneration. Last year, both Old Mutual and Shoprite, two top 40 listed companies, saw shareholders vote against the remuneration of executives.
Citizens, civil society and consumers must do the same at SOE AGMs by objecting to extravagant remuneration packages for executives of failing companies. Incompetent boards and executives are among the major reasons for SOEs failures. SOEs boards require the right people, with the right skills, at the right time. Yet most SOE boards lack industry-appropriate skills, professionalism and demographic diversity. Politically exposed individuals are recycled from board to board, bringing failure to every board they are appointed to.
Citizens and civil society organisations should insist that long-lists of board nominations be made publicly available, and that those who are rejected be compared to those who have been accepted. They should contest irregular board and executive appointments. Failing this, citizen shareholder activists must go to the courts to challenge poor SOE board appointments.
They must also target failing, but politically connected, board members for dismissal, and have incompetent, corrupt and neglectful board members and executives declared delinquent, as Outa and Saapa did in the case of Myeni. Civil society organisations should draw up a list of compromised individuals that should be barred from SOE boards.
There has to be greater public participation in the awarding of tenders by SOEs. All SOE tender award deliberations should be in public. Citizens, civil society and the media should sit in on tender award decisions. In fact, there should be a consideration for citizen or civil society representatives to be part of tender award committees, to see that these awards are fair.
Fake companies that secure tenders from SOEs should also be exposed in public, the media and the courts. Citizens, civil society and the media must work to get such companies blacklisted from tendering for government services.
It should be compulsory for all SOEs to introduce citizen and consumer satisfaction surveys [and] that the results of these be made public
There have been a number of successful court applications by failed bidders challenging corrupt SOE tenders, and in some cases these awards have been set aside. Not only failing bidders in rigged tender awards should go to court — citizens, civil society and users or consumers should also take SOEs to court when they see that incompetent companies have been fraudulently awarded tenders to provide services and products.
They must also protest more about shabby services, products and treatment by SOEs. Citizens who consume services and use products from SOEs must form consumer groups to serve as pressure groups to get these entities to be more accountable. In fact, there is a case to be made for SOEs delivering public services to have user forums, including customers, watchdogs and community groups, to monitor the quality of their services, whether they fulfil their social obligations, and to hold them accountable.
Many SOEs, such as Eskom, are monopolies in their sectors, and therefore often do not care about providing quality services because there are no competitors to which customers could turn as alternative suppliers. It should be compulsory for all SOEs to introduce citizen and consumer satisfaction surveys, that the results of these be made public, and that SOE employee performance be measured partially based on the results.
In many countries, such as Canada, Singapore and South Korea, SOEs must consult local communities before they embark on new projects in their areas. In SA this is not the case. Citizens, local communities and civil society organisations should insist they get consulted, and their concerns incorporated about developments by SOEs in their areas.
Many SOEs repeatedly fail to complete their annual financial statements. In the auditor-general’s 2018/2019 consolidated national and provincial audit, SAA, the SA Nuclear Energy Corporation (for a second year in a row), and the Trans-Caledon Tunnel Authority, failed to submit their financials. Citizen shareholders must push to have executives and boards fired for not returning their companies’ annual financial statements.
Astonishingly, many failing SOEs seeking bailouts have no turnaround plans. Others that have been bailed out on the basis that they would implement turnaround plans either do not have such plans, or if they have are not implementing them. Continuing bailouts of failing SOEs, without any turnaround conditions and without enforcing these conditions, will add to SA’s post-coronavirus economic woes.
Citizens, civil society and the media must monitor whether failing SOEs have turnaround plans, which should include, at a minimum, recruiting the best talent in the country; changing their business models; getting rid of non-core assets and non-performing staff; tackling procurement corruption; and seeking strategic equity partners where possible.
Given the lack of political will to turn failing SOEs around, and that they are likely to get more taxpayer-funded bailouts, citizen shareholders are now more crucial than ever to hold these entities accountable.
• Gumede is associate professor at the School of Governance at Wits University and the author of ‘SA in Brics’.
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