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Malfunctioning SOEs urgently need citizen shareholder activists

- William Gumede

Ordinary citizens, consumers and civil society must play more active roles as shareholders of state-owned enterprises.

More than is currently the case, they must be activists, as shareholders in private companies’ do, to hold these SOE entities accountable.

Given that SOEs are taxpayer funded companies, citizens should be seen as shareholders of these companies. When ordinary citizens, civil society and consumers hold SOEs accountable as shareholders, they are exercising active citizenship. Citizen shareholder activism is the missing link in holding runaway SOEs accountable. South Africa does not have a culture of citizen shareholder activism holding SOEs accountable.

Theo Botha, the private sector shareholder activist, who regularly interrogates companies at annual general meetings about corporate governance, board compensation and operational practices, provide an example to emulate in SOEs too.    

Civil society organisations, the Organisation Undoing Tax Abuse (Outa) and SA Airways Pilots Association (Saapa) showed the way in citizen shareholder activism, when they lodged an application to the High Court in March 2017 to have former SAA chairwoman Dudu Myeni declared a delinquent director for her appallingly destructive mismanagement of the state airline.

Myeni was subsequently in May this year declared a delinquent director by the North Gauteng High Court, unfit to operate as a company director. Sadly, these civil organisations had to seek help from the courts after government lacked the political will to take action against Myeni’s destruction of value, jobs and services at SAA.

SOEs guzzle up large amounts of scarce taxpayers’ money, with little returns, in terms of services, products or profits. Conservative estimates showed that appalling inefficiencies, waste and corruption, in these entities which have sucked more than R1trillion taxpayers’ money alone the past decade.

Public funds that disappeared into the black hole of SOE support is one of the reasons why South Africa now is in such a financial crisis that it has to seek US$4.3bn from the International Monetary Fund to fund Covid-19 related reconstruction initiatives.

Malfunctioning SOEs has many kinds of opportunity costs, meaning the costs incurred by not pursuing alternatives to these resource-sapping SOEs. Money are being diverted from essential public services such as education, health and housing to SOEs, only to be flushed down the drain of incompetence, waste and corruption.

SOEs crowd out the private sector, preventing entrepreneurs from starting businesses, and therefore creating new jobs and growth, in the sectors dominated by these SOEs. They are significantly contributing to rising taxes, ballooning public debt and increasing public expenditure cuts of essential public services.

SOE annual general meetings (AGMs) are generally secretive affairs, information about them not widely publicized and not open to the public. It must become mandatory for SOEs to open their AGM’s to ordinary citizens, consumers and civil society. Citizens, consumers and civil society organizations should be given voting rights at SOE shareholder meetings. Citizen shareholder activists should take on SOE executives and boards at annual general meetings.

SOE executives and boards receive huge remuneration packages and annual bonuses, yet these entities are loss-making, fail to deliver services and are frequently bailed out with public funds. In the private sector, activist shareholders has often successfully pushed for the rejection of extravagant executive and board remuneration. Last year, both Old Mutual and Shoprite, two Top 40 listed companies, saw shareholders vote against the remuneration of executives. Citizens, civil society and consumers must similarly at SOE annual general meetings object to extravagant remuneration packages for executives of failing companies.

Incompetent boards and executive are among the major reasons for SOEs failures. SOEs boards require the right people, with right skills, at the right time. Yet most SOE boards lack industry appropriate skills, professionals and demographic diversity. Politically exposed individuals are recycled from board to board, bringing failure to every board they are appointed to.

Citizens and civil society organisations should insist that long-lists of SOE board nominations should be made publicly available; and that those who were rejected should be compared to those who have been appointed to board positions. They should contest irregular board and executive appointments. Failing this, citizen shareholder activists should go to courts, to challenge such poor SOE board appointments.

They must also target failing, but politically connected board members for dismissal, and, have incompetent, corrupt and neglectful board members and executives, declared delinquent, as Outa and (Saapa) did in the case of the SAA’s Myeni. Civil society organisations should draw up lists of compromised individuals who should be barred from SOE board and executive appointments.

There has to be greater public participation in the awarding of tenders by SOEs. All SOEs tender award deliberations should be in public. Citizens, civil society and the media should sit in tender award decisions deliberations. In fact, there should be a consideration for citizen or civil society representatives to be part of tender award committees to see these awards are fair. Fake companies who secure tenders from SOEs should also be exposed in public, the media and in courts. Citizens, civil society and the media must work to get such companies blacklisted from tendering for government services.

There has been a number of successful court applications, of failing bidders challenging corrupt SOE tenders, and have these awards set aside. Not only should failing bidders in rigged tender awards seek redress in court, but citizen, civil society and user or consumers should also take SOEs to court when they see that incompetent companies have been fraudulent awarded tenders to provide services and products.

Citizens, consumers and civil society organisations must also protest more about shabby services, products and treatment by SOEs. Citizens who consume products and use services of SOEs must form consumer groups to serve as pressure groups to get these entities to be more accountable. There is a strong case to be made for SOEs delivering public services to have user-forums, including customers, watchdogs and community groups, to monitor the quality of services of these entities, whether they full-fill their social obligations and to hold them accountable.

Many SOEs, such as Eskom, are monopolies in their sectors, and therefore often do not care about providing quality services, because there are no competitors to which customers could turn to as alternative suppliers. It should be compulsory for all SOEs to introduce citizen and consumer satisfaction surveys, and the results of these be made public. SOE employee performance should be measured partially based on the results of these citizen and consumer satisfaction surveys.

In many countries, such as Canada, Singapore and South Korea, SOEs must consult local communities before they embark on new projects in their areas. In South Africa this is not the case. Citizens, local communities and civil society organisations should insist they get consulted about, and their concerns incorporated, on new developments by SOEs in their areas.

Many SOEs repeatedly fail to complete their annual financial statements. In the Auditor-General’s 2018/2019 consolidated national and provincial audit, SAA, the South African Energy Corporation, for a second year in a row for that matter, and the Trans-Caledon Tunnel Authority failed to submit their financials. Citizen shareholders must push to have executives and boards fired for not returning their companies’ annual financial statements.

Astonishingly many failing SOEs, who have been seeking public bailouts, have had no turnaround plans. Others, who have been bailed out, on the basis that they would implement turnaround plans, either did not have such plans, and if they have, they were not implementing them. Continuing bailouts to failing SOEs, without any turnaround conditions, or without enforcing these conditions, will add to SA’s post-Covid-19 economic woes.

Citizens, civil society and the media must monitor whether failing SOEs have turnaround plans, which should at the minimum include recruiting the best talent in the country, on merit, changing their business model, getting rid of non-core assets and non-performing staff, tackling procurement corruption and seeking strategic equity partners where possible.

Given the lack of political will to turn around failing SOEs, and the fact that they are likely to get more taxpayer funded bailouts, citizen shareholders is absolute crucial now, to hold these entities accountable.

William Gumede is Associate Professor, School of Governance, University of the Witwatersrand; and author of South Africa in BRICS (Tafelberg). this article was first published in Businesslive.