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Barring politics and the desire to control power, there is no rational reason why the appointment of CEOs of state-owned companies should rest with Cabinet and the president, writes Matodzi Ratshimbilani.
The testimony of the former minister of public enterprises
Barbara Hogan before the Zondo commission on state capture has highlighted long
standing incongruity that beset the directors of state-owned companies (SOEs).
Hogan testified how former president Jacob Zuma sought to
influence the decisions of directors in SOEs under her watch and allegedly
interfered in the appointment of Transnet's CEO, one of the African continent's
biggest state-owned companies to the potential detriment of Transnet.
Transnet is incorporated as a company in terms of the
Companies Act. Section 66 of the Companies Act confers on the directors the
authority to exercise all powers and perform all functions directly or by
delegation. In this regard the Companies Act makes no distinction between state-owned
companies and private companies.
It is for this reason that the boards of private companies
choose their managing directors or CEOs without interference from the
shareholders. The logic is that because the role to manage and direct the affairs
of the company is primarily that of the board, it should exercise unfettered
discretion to appoint a suitable and qualified steward to run the company on a
day to day basis at the behest of the directors.
Whereas the board has the legal powers to manage and direct
the affairs of a company, it is impractical for the board to manage the day to
day affairs of the company. Directors of private companies appoint suitable
people of their choice to manage the affairs of the company on their behalf. The
directors take responsibility of their appointees' success and failures. In turn, the shareholders look up to the
directors to act in the best interest of the company including their ability
and wisdom to choose the right steward to act as a CEO.
In SOEs, the appointment of CEOs and finance directors is
subject to veto by the shareholding minister who also requires the concurrence
of Cabinet. In this way, the directors of state-owned companies are treated
differently compared to those of private companies. The effect of this practice
is that the directors of state-owned companies have limited abilities in
appointing a suitable steward of their company on their behalf.
As it was apparent from Hogan's testimony before the state
capture commission, should the Cabinet members have ulterior motives, the
directors will be saddled with less and/or undesirable candidates to manage and
direct a company on their behalf.
These anomalous provisions are often contained in the
respective state-owned companies founding legislation. These are the various
acts that provide for the establishment of the various state-owned companies
such as the Legal Succession to the South African Transport Services Act in the
case of Transnet. Further, these kinds of provisions are also contained in the
state-owned companies' memoranda of incorporation.
The Companies Act prevails over memoranda of incorporation
and the state owned companies founding legislation. If the Cabinet members so
desire, these provisions would not constitute an impediment to allowing the
directors of state-owned companies to appoint their desired CEOs.
The directors of state-owned companies have to contend with
limited powers to hire and fire CEOs.
Legally and in terms of the Companies Act in particular, the directors
are not excused of their fiduciary and other duties notwithstanding that they
operate with constrained ability to manage and direct the affairs of the
Barring politics and the desire to control and exert power,
there is no rational reason why the appointment of CEOs of state-owned
companies should rest with members of Cabinet, including the president. The
government as a shareholder retains the power to appoint and remove
directors. One would hope that the
directors appointed by the government as a shareholder are so appointed on
merit and have the ability to appoint and remove suitably qualified CEOs who
can be trusted to execute their responsibilities under the strategic direction
of the directors.
If the government feel the need to second-guess its
appointed directors, this may be a reflection on the quality of directors that
are appointed to serve on the boards of state-owned companies. At worst, this maybe a reflection of the
government insecurities, or an unhealthy desire to control the state-owned
companies for ulterior purposes.
The government will do well to heed the call made by Hogan
and other former government officials that political control of state-owned
companies can expose these entities to untold harm if the control lands in the
The revelations by Hogan and others present an opportunity
for the government to rethink the process of appointing state-owned companies'
- Matodzi Ratshimbilani is an attorney and director of Tshisevhe Gwina Ratshimbilani Inc.
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