The reported withdrawal of the National State Enterprises Bill and government’s consideration of a new model for overseeing state-owned enterprises (SOEs) presents another opportunity to address the governance challenges that have affected these institutions for many years, says the Institute of Directors in South Africa (IoDSA).
“Whether SOEs fall under individual ministries, a central holding company or a new commission is not, in itself, going to solve the problem,” says IoDSA CEO Parmi Natesan. “What matters is whether government is prepared to change some of the practices that have contributed to poor governance in the first place.”
The IoDSA has consistently raised concerns about the processes used to appoint SOE boards, political interference and the lack of clear accountability between ministers, boards and executive management.
“We have been talking about these issues for years, including following the recommendations of the Zondo Commission. Yet we continue to see the same governance challenges arising. A new structure may create an opportunity for improvement, but it cannot be a substitute for addressing the underlying problems,” says Natesan.
Board appointments remain a critical starting point
While ministers may have the legal authority to appoint directors, those appointments should follow transparent, rigorous processes that prioritise the skills, experience, integrity and independence needed by the particular SOE.
The recently published King V Guidance Note on the Application of King V to State-Owned Entities reinforces this position. It emphasises the importance of appropriate board composition, credible appointment processes and succession planning that preserves institutional knowledge and continuity.
“Government cannot expect SOEs to perform effectively if boards are not appointed primarily for their ability to govern. Nor can we expect meaningful accountability when boards are repeatedly replaced or their independence is compromised,” says Natesan.
Equally important is the relationship between the shareholder minister and the board
Government has a legitimate role in setting policy priorities and ensuring that SOEs fulfil their public mandates. However, this must be distinguished from the board’s responsibility to govern the organisation and oversee management.
King V’s SOE guidance makes it clear that directors’ legal duties are owed to the entity itself, rather than to the party that appointed them. Directors must therefore exercise independent judgement in the best interests of the SOE, even when appointed by a minister.
“This is a fundamental governance principle. Ministers cannot expect boards to take responsibility for an SOE’s performance while simultaneously interfering in decisions that properly belong to the board,” says Natesan.
She adds that the appointment and accountability of chief executives is particularly important. Where the lines of authority between ministers, boards and CEOs become blurred, it becomes difficult to establish who is responsible for decisions and outcomes.
The IoDSA believes that any revised SOE governance model should therefore be assessed not only on its organisational structure, but on whether it introduces meaningful improvements to board appointments, independence, decision-making authority and accountability.
“We are not suggesting that structural reform is unnecessary. But we have to be realistic about what it can achieve. If the same appointment practices, political interference and blurred accountability continue under a different structure, we should not expect different results.”
“Ultimately, improving SOE governance requires more than a new framework. It requires the political will to allow properly constituted boards to do the jobs they were appointed to do,” concludes Natesan.