The disempowered boards at Eskom and Transnet

The original article can be found here. Some subheads were inserted by Turnaround Talk.

The two state-owned enterprises at the forefront of our electricity and logistics crises are now both without permanent CEOs. The plans to fix Transnet and Eskom depend fundamentally on business and government being able to work with boards and strong management teams in both entities.

However, Eskom has been without a CEO since February and now Transnet is also leaderless following the departure of several key executives over the last two weeks.

Good governance departure point

Good governance starts with a board being able to hold the executive management to account. To do that, the board needs to have appointed and have the right to dismiss the chief executive officer. Yet in both Eskom and Transnet, as well as all other SOEs, the CEO is appointed and dismissed by a minister (Public Enterprises Minister Pravin Gordhan), who can under the organisations’ memoranda of incorporation ignore the board in the process.

This is the beginning of the disfunction that besets these entities.

The minister, as the shareholder representative, should be able to select directors of the businesses in line with the Companies Act. But those directors must then be empowered and be accountable for the performance of the entities.

Right now, that cannot happen in SOEs because the boards are disempowered on the most critical decision they should be making.

Slow progress

While Eskom has been making progress in-line with the National Energy Crisis Committee’s plan, the appointment of a permanent leader of the entity would give us a much clearer mechanism to engage and work with Eskom to deliver on the plan.

The appointment of a Transnet CEO presents an opportunity to put in place leadership who can embrace the Freight Logistics Roadmap being drawn up by the National Logistics Crisis Committee (NLCC).

This plan has been produced in partnership between government and business to urgently address the failure of rail and port services to support the economy. That failure is forcing companies to retrench tens of thousands of workers and costs billions in lost income that could be supporting government tax revenue.

It could make all the difference to have a strong leadership team at Transnet who is committed to working with business, government and other stakeholders to improve performance.

Empower the board

Those appointments, however, must be made in a way that empowers the board. These are complex organisations that require dedicated, professional, and committed boards to manage within established governance principles.

However, when boards are disempowered in key appointments, their roles are undermined, and they are left generally toothless in fulfilling the rest of their responsibilities.

The new National State Enterprises Bill envisages this changing. It will create a new SOE holding company, the CEO of which will be appointed by the board. That holding company will then exercise shareholder powers over any SOE that eventually is transferred to it.

This is set to be an improvement, but we are far from it being up and running.

Political interference

We must reach a point where the memoranda of incorporation of the SOEs empower their boards to appoint the CEOs without any political interference. But until then, as a matter of good governance, the minister can act in line with the boards’ wishes in appointing CEOs.

Engaging with the boards and committing to following their recommendations will empower those boards to effectively lead their organisations.

The NLCC has established several working groups focused on key freight corridors. These unite business, Transnet, law enforcement and other government departments to ensure that the flow of goods improves.

Companies in the shipping, mining, agriculture and automotive industries are actively involved in supporting the recovery process. These are part of the Freight Logistics Roadmap that outlines the short and long-term actions needed to fundamentally reform the logistics system.

It is needed urgently, and must be the centre piece of the engagement of new leadership at Transnet.

Strong permanent leadership at the two entities, appointed by empowered and capable boards, would substantially improve the outlook for both sectors and enable business to contribute more effectively to resolving the crises. I therefore urge the minister to empower the boards that he has appointed to act with urgency and focus.