OPINION | Why the appointment of administrators at state-owned entities erodes good governance

Photo: Thapelo Maphakela
Photo: Thapelo Maphakela

It would be better to appoint a board for a limited time than to place an administrator in charge at SOEs, argues Matodzi Ratshimbilani.

Some of South Africa's state-owned entities (SOEs), particularly the second and third tier sized ones, contain in their founding legislation provisions that the Cabinet member responsible for such entities may, under certain circumstances, appoint an administrator to take charge of the management and direction of the entities in the stead of duly appointed boards, albeit for a limited period.

By way of example, the Housing Development Agency Act 23 of 2008 in section 31 thereof, empowers the responsible minister to intervene and take several actions affecting the affairs of the entity for a myriad of reasons, including but not limited to if the entity has obstructed the minister or her representatives to perform their functions in terms of the Act, if the entity is in financial difficulty or if the entity is unable to fulfil its functions due to a dissension among the board members.

The discretion in this regard lies entirely with the minister. 

If any of the events contemplated in this section occur, the minister may cause the appointment of an administrator to take place. 

An individual so appointed as an administrator assumes the role of the board and possibly more, as his/her role in certain cases includes powers that are ordinarily vested with executives of such an entity.

In a way, an administrator may take the role of a board, CEO, the CFO and other senior executives with one fell swoop.

The Passenger Rail Agency of South Africa (Prasa) is currently under the tutelage of a sole administrator, following successive removals of the members of its board of control for varying reasons under different ministers in the recent past.

How Prasa got into administration is a mystery in the first place.

Its founding legislation (the Legal Succession Act) does not provide for the appointment of an administrator or similar process.

Super boss role

In all instances, the administrator assumes a super boss role only accountable to the relevant minister. 

Not only do these individuals assume such vital roles all by themselves, but they are tasked to perform duties and make decisions that normally would be taken and effected by an assortment of persons with varying skills - ranging from finance, legal, business management and others. 

In company law, directors are often referred to as the directing minds of the company. Under certain circumstances, company laws prescribe a minimum number of directors. 

In the case of state-owned companies, the respective founding legislation does not only prescribe the minimum and maximum number of board members to be appointed, but in the majority of cases the founding legislation also prescribes the skills required for the board to be duly constituted. 

This is an acknowledgement that to make far-reaching decisions at institutions, such as SOEs, a diversity of views and skills is crucial for commercially sound decisions to be made. 

Most importantly, a balanced board of varied experiences, professional and otherwise safeguards the organisation from adverse personal interests, partial views and lopsided decisions that may be of detriment to the organisation.

The instability and the recurrent board changes that have characterised South African SOEs in the recent past have seen more cases of entities being put under the control of administrators. 

This is not desirable as important decisions are left to individuals who, like most, are fallible, and are experienced and trained in limited professional fields. 

Leaving decision-making to an administrator strips such entities of the safeguards that are afforded by good corporate governance, ordinarily achieved in boards made up of diverse skills, experience and backgrounds.

The Public Finance Management Act (PFMA), whose stated objective is to ensure that all revenue, expenditure, assets and liabilities of organs of state, including SOEs, are efficiently and effectively managed, may also be blunted by the appointment of administrators in SOEs.

Accounting authorities

Section 49 of the PFMA designates the boards of SOEs as accounting authorities of the entities. 

The role of the accounting authorities, in terms of the PFMA, is primarily to assume the ultimate fiscal management and control of the entity. 

Section 49 empowers the board of entities to take the role of accounting authority, as defined in the PFMA, the apex of power and control of an entity by all accounts, barring a few decisions that require the concurrence of the responsible Cabinet minister. 

In terms of section 49(1)(b), if an entity does not have a board at any given time, the CEO or any person in control of the entity at the time assumes the role of the accounting authority. 

This means that an individual, appointed as an administrator, assumes all powers vested on an SOE in terms of the PFMA.

The powers of an administrator, as currently practised within South African SOEs, can be a weapon of destruction if placed in the hands of unscrupulous characters. 

Humans are fallible, it is thus undesirable that the affairs of any SOE should be handed to one individual at any time. 

It would be much better for ministers appoint boards, even for a limited period, than place the fate of SOEs in the hands of a single person. 

- Matodzi Ratshimbilani is the director at Tshisevhe Gwina Ratshimbilani Inc.

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