How to strengthen governance systems in SA’s state-owned enterprises

South Africa's state-owned enterprises (SOEs) have long been plagued by issues of weak financial controls, poor management, and governance failures. With over 700 SOEs in the country, most of them are operating at a loss, requiring multiple bailouts to stay afloat. This has led to a conversation on the purpose of SOEs in modern society and the need for a new framework to govern how they are managed. A key issue identified in the current system is the process for appointing directors in SOEs. The traditional approach, where the minister appoints the board members and ultimately the CEO, has raised concerns about competency and meritocracy. There is a consensus that appointees lack the necessary skills and experience to make informed decisions, leading to a cycle of poor governance and mismanagement. Alan Mukoki, CEO at the South African Chamber of Commerce, highlighted the need for a new approach to the appointment process. He proposed the establishment of an independent commission tasked with evaluating potential board members based on clear criteria of integrity, skill, and competence. This commission would serve as an advisory body to the minister, helping shield against political interference and ensuring appointments are made in the best interest of the SOE. On the other hand, Mervyn King, founder of the Good Governance Academy, emphasized the importance of competency and meritocracy in leadership appointments. He argued that directors should act in the best long-term interest of the company, focusing on creating value and preserving the health of the organization. King shared a personal experience from his time at the Frame Group, where tough decisions to reduce headcounts led to the company's success and ultimately created a social good. The conversation also touched on the balance between social good and capital motive in SOEs. Mukoki and King discussed the challenges faced by SOEs like Eskom, with bloated headcounts and inefficiencies. They agreed that the primary focus should be on the long-term health of the company, even if it means making tough decisions like restructuring and retrenchment. Both experts stressed the importance of creating value and avoiding value erosion in SOEs. In conclusion, the need for governance reform in South Africa's SOEs is evident. The current framework for appointing directors needs to be reevaluated to ensure competency, meritocracy, and independence in decision-making. The balance between social good and capital motive must be carefully navigated, with a focus on creating value and preserving the health of the organizations. Only through these reforms can South Africa's SOEs regain stability and fulfill their role in the economy.