After the Bell: Why is appointing the CEO of an SOE so WTF?

The problem with the appointment of a CEO for Eskom has been reported fairly broadly. What happened was that after André de Ruyter announced his resignation, Eskom advertised for a new CEO and conducted the interviews. It then submitted one name: the former head of group capital, Dan Marokane.

Public Enterprises Minister Pravin Gordhan dithered and ultimately instructed Eskom to supply three names, not just one. It is now nine months on. Gordhan strenuously denied that he was “interfering”, saying Eskom’s Deed of Incorporation required three names to be forwarded.

However, with the government, you never quite know. City Press speculated that the ANC wanted Ayanda Noah, formerly a group executive member at Eskom, who is believed to be in the camp of Minister of Mineral Resources and Energy Gwede Mantashe.

In the meantime, Eskom chairman Mpho Makwana resigned, presumably partly at least over this spat; his job will go to Mteto Nyati, a former MTN South Africa and Altron CEO. This is all just nuts.

The situation at Transnet is, if anything, worse. With the CEO, the CFO, and the CEO of the group’s largest division having resigned, the President has taken the opportunity to announce a dramatic turnaround plan for the sector. The plan may be great, or it may be useless. I’ll write more about it later this week. It very specifically nixes the idea of privatisation. 

But what concerns me now is the implicit contempt for the future CEO, whoever that may eventually be, involved in this manoeuvre. Surely the CEO should have some say in the process, particularly if he or she is meant to implement it?

Why is the appointment of a CEO to head an SOE so different from the appointment of a CEO of a private company? I think the answer is that the board of a private company considers the CEO to be the day-to-day decision-maker, whereas the government considers SOEs to be tools of policy, and therefore, it’s vital to have a CEO who will take day-to-day instructions.

Just how crucial the government considers this, er, talent, is visible in the grand plan concocted by the Department of Public Enterprises contained in the new National State Enterprises Bill, which was open for public comments for one whole month. That period has just closed.

The Bill broadly proposes to substitute the Department of Public Enterprises with a mighty SOE which will rule them all. This will be concentrated in the Presidency. All, or at least some, of SA’s public enterprises will then become subsidiaries of the big SOE. 

Which of SA’s 700-odd SOEs will be, in the parlance of the legislation, “SubCos” of the “HoldCo” has yet to be announced. You would think that would be a pretty important aspect of the exercise, but no. In other words, parliamentarians are going to be asked to pass legislation which could dramatically change the structure of SOEs forever. Or maybe not.

My colleague Marianne Merten pointed out to me that the Department of Public Enterprises first revealed part of this plan at the Zondo Commission, proposing it as a solution to State Capture. It’s instructive to go back quickly to see what the commission said about the plan. At that point, the Memorandum of Incorporation for the SubCos said, “The Shareholder shall … have the exclusive power to appoint Directors pursuant to the provisions of section 66(4)(a)(i) of the Companies Act and section 63(2) of the PFMA.”

A portion of the legislation marked “secret” suggested there be a nominations committee, appointed by the relevant minister (the President, unless specifically delegated), that would make recommendations to the Minister (the President), who would then make the appointment.

The Zondo Commission didn’t like this at all and proposed a completely different procedure. The commission said, “It is difficult to see why the proposed system will be any better placed to deal with state capture than it was before. There are no effective mechanisms which would prevent cronyism and cadre deployment from continuing to dominate appointments to the Boards and to senior executive officers.” Snaps to that.

The commission “must insist on a truly independent and transparent process free from political manipulations so that the ultimate appointment made by a Minister is genuinely the result of a merit-based selection process”, the final report said.

It proposed a permanent Standing Appointment and Oversight Committee, made up of government, trade union and business representatives and, in addition, lawyers and experts, who would be responsible for making recommendations which the Minister could then accept or reject. It specified, at length, a possible procedure involved.

So, how much of that process was included in the legislation which is going to change the face of public enterprises in SA? Would you believe, um, none? Not a jot. Not one little aspect. Nix. Nada. Nothing.

The legislation simply says the appointment process will be the same as that in the Companies Act. In other words, shareholders — or in this case, the only shareholder — will make the decision.

Which is in itself instructive of how seriously this government takes the recommendations of the Zondo Commission. DM