A collection of Futuregrowth thought leadership pieces, media articles and interviews.

SOEs, where temps run the show

24 Oct 2019

Hilary Joffe / Journalist, Sunday TImes


Pretoria's inability to appoint CEOs paralyses key entities

Source: Sunday Times

"It seems I am always on standby," acting SAA CEO Zukiswa Ramasia joked at a conference recently.

So, it seems, is much of the rest of the state owned sector, where acting CEOs tend to be the rule and permanently appointed ones the exception. Nor is it just the captains who are acting so is much of the crew, with state owned enterprises SOEs peopled by executives who've often been acting for months, if not years.

Governance experts say this cannot be good for the ability of SA's crisis ridden SOEs to turn themselves around.

As Olga Constantatos, process manager: credit & equity at Futuregrowth, puts it: "People need to be in a position where they know they have line of sight and the ability and authority to execute on a plan. Acting roles hamper that.”

One SOE veteran has this to say: "The trouble is that acting CEOs have no time frame so all they are really doing is managing the day to day not taking the organisation forward. Everyone becomes very careful, they don't want to make big changes."

"You need to have proper CEOs that can take decisions and can be held accountable," says mineral and energy resources minister Gwede Mantashe, describing it as abnormal that all the CEOs in the Central Energy Fund group are acting.

The acting phenomenon in part reflects tough efforts to clean up corruption and malfeasance, but it's also seemingly a product of the government's ambivalence about how independently SOEs should operate as well as of a more generalised decision making paralysis in the state. It raises questions, too, about whether experienced and assertive executives are willing to serve in these roles and whether the government is willing to allow them to.

The list of acting CEOs is a long one - at Eskom, Transnet, SAA, SA Express, Airports Company SA, the Post Office, the Passenger Rail Agency of SA and the Land Bank, along with SOEs such as the Public Investment Corporation, State IT Agency Sita and Armscor. The largest of them fall under the department of public enterprises.

Most prominent lately has been Eskom's search for a group CEO to replace Phakamani Hadebe, who announced his resignation in May citing the role's "unimaginable demands which have had a negative impact on my health".

Public enterprises spokesperson Richard Mantu said this week the new group CEO of Eskom would be announced soon.

But it is Transnet that stands out for the sheer number of acting executives. The rail and logistics company is now on its second acting CEO since Siyabonga Gama was ousted, with great difficulty, in November 2018 and it's not just well regarded CEO Mohammed Mahomedy who is acting, but nine other members of his 15 person executive committee as well, including the heads of all five of Transnet's operating divisions.

Transnet chairman Popo Molefe told Business Times this week the board was moving rapidly to address this, saying: "We are addressing it as a priority matter and a lot of those vacant positions have been advertised. But in some cases executives are acting because the people in those positions are on suspension and we can't advertise until such time as the person who was there has exited lawfully. Some have deliberately made disciplinary proceedings take a long time."

Mantu says investigations into malfeasance in some SOEs over the past 18-24 months account for some of the vacancies and where investigations are still under way and executives still suspended, recruitment of new executives cannot start until the pro cesses are concluded.

"We tend to have short memories and do not appreciate the massive damage that state capture inflicted, and the type of board and management that is required at different stages in the recovery and stabilisation, let alone the repositioning and change in business models," says Mantu.

By no means are all the CEO vacancies state capture related, however. Some, such as the Land Bank CEO, who became the CEO of the Industrial Development Corporation, have left for better career prospects. Others were appointed precisely to clean up and turn around ailing enterprises, but resigned citing political interference in implementing the turnaround strategy as did former SAA CEO Vuyani Jarana and former Post Office CEO Mark Barnes.

Whatever the reason, it seems to take an inordinate time for new appointments to be made. That is, first, because the process is cumbersome and often contested. For a CEO post it usually involves an open process, through advertising the post and using executive recruitment specialists.

Typically, the SOE has to go out to tender for a panel of headhunters and then choose one so the search can begin. The process can take six months before the board comes up with a shortlist. Then, depending on what the legislation governing that entity says, the board may have to consult stakeholders including the ANC leadership and take its recommendations to the cabinet and the presidency.

At Transnet, for example, the CEO and CFO are appointed by the shareholder the government, not the board; Molefe says the process now has to go to the governance structures of the cabinet and must have the blessing of the president. "Appointments have to take into account the new perspective the president is bringing to how SOEs should be managed and what people should be appointed there," he says.

If Transnet and Eskom are speeding ahead, it's not clear others are. Says one executive recruitment specialist: "You would think it would be boom time for headhunters in the public sector but the urgency in government doesn't seem to be there.”

A bigger question is whether really good executives are willing or able to apply for, and land, these posts. Race, gender and political connectedness clearly feature as criteria in some cases, which limits the pool. One board member says, though, that there are plenty of excellent candidates from the private sector, including some young black executives, willing to put their hands up, do their patriotic duty and take on the challenge.

But the political interference is clearly an issue, as is the fact that some of the SOEs are so broken, and the solutions so contested, that these posts are a poisoned chalice.

The Black Management Forum, for example, put out a statement in June following the resignations of Jarana and Hadebe, urging black executives not to apply for leadership posts at SOEs until there is clarity on their governance. Word is that increasingly, when top class executives are approached for these positions, they submit a tough list of conditions to ensure they have the space they need to do what they need to do conditions that boards and the shareholder can't stomach, despite their supposed commitment to appointing the best people. There is a clear reluctance in the government to relinquish control, to appoint good people and just leave them alone to fix the SOEs.

Says Barnes: "The best CEO candidates are independent minded and energetic, purpose- and output-driven rather than input- and compliance-driven."

It remains to be seen when such appointments might be made. Meanwhile, SA's SOEs may continue to be on standby.

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