Rebuilding SOEs will require a completely new mind-set

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Turning state-owned enterprises around, however, will take more than lofty political ideals – it will require a complete mind shift and a new culture. Photo: iStock
Turning state-owned enterprises around, however, will take more than lofty political ideals – it will require a complete mind shift and a new culture. Photo: iStock

VOICES


In one of his recent weekly newsletters to the nation, President Cyril Ramaphosa wrote extensively about the importance of state-owned enterprises (SOEs) in our economy and the broader development agenda. He also dealt with the governance challenges facing these entities and the need to turn them around if they are to deliver any public value to the nation.

The significance of parastatals in propelling economic growth in a developmental state such as ours cannot be overemphasised.

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During recent years, these entities have gone through a difficult period, which has seen many of them repeatedly knocking on Treasury’s door for bailouts. Auditor-General Tsakani Maluleke has also expressed serious concerns about governance in these public enterprises, several of which have continuously achieved adverse audit outcomes, especially in key areas such as asset management.

Turning state-owned enterprises around, however, will take more than lofty political ideals – it will require a complete mind shift and a new culture that shapes behaviour. Of course, we need the correct political tone at the top dictating how these entities should be managed and what trajectory they should take if they are to survive in the short to medium term, and continue to play their developmental role.

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In my view, as someone working for a company working in the area of asset management in the public sector, there are several factors that require close attention if we are to save these companies and set them on a sustainable course.

First, there has to be a healthy culture of ethics. Second – and perhaps more important – is the need for a strong system of audit and risk management. 

It is impossible for any company to have a decent balance sheet if it does not know what assets it owns, where those assets are and what their state is.

Sadly, this is something with which many companies struggle, making it nearly impossible to get a clear picture of their assets’ health.

Coupled with this is the importance of risk culture in the organisation. Risks will always be there, but what matters is how a company chooses to approach them. Some risks are identified, but simply ignored, which speaks to the problem of dereliction of duty. That, in turn, adds another challenge to state-owned enterprises bringing into sharp focus the bigger issue of people and culture in the organisation.

The expectation is usually that anyone employed in an organisation should have an interest in its wellbeing and assume individual stewardship.

The third important point has to do with monitoring and evaluation. This is about determining the quality of internal control measures to achieve the desired performance. With a proper monitoring and evaluation system in place, a company is able to determine its design and operations, control systems and ability to take timely action to avert a disaster – such as the one the Passenger Rail Agency of SA experienced, leading to a collapse of the system.

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Yet, even with the best system in place, a company still needs people to ensure that it delivers the goods at the end of the day and prevents corruption. Thought leaders in the field of state-owned enterprises globally have what is called the “fraud triangle”, which refers to the preparation of the environment for fraud to emerge and thrive in any situation.

First, there is an element of pressure, where an individual is hounded to commit a crime (such as going against the Public Finance Management Act). Second, there is an element of opportunity to commit an crime, such as we saw with the tender fraud at the beginning of the Covid-19 pandemic.

READ: Politicians are the reason for SOEs continued failure

Lastly, there is an element of rationalisation, or seeking to explain the wrongdoing in a manner that seeks to make it acceptable or justifiable.

State-owned enterprises have a huge role to play in our country, but getting them to deliver on their national mandate will require these elements. In addition, the positive asset management culture has to be sustainable and anchored to consequence management.

Dube is the director of operations at SDM Asset Management & Consulting


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