Question NW4298 to the Minister of Public Enterprise

Reply:

Sound governance happens only when leaders lead with integrity, when directors act in the in the interest of the of the company, and when major organizations are held to the highest standards of accountability by vigilant stakeholders and informed individuals. Corporate governance regulates the exercise of power (that is, authority, direction, and control) within a company to ensure that the company’s purpose is achieved by:
a) ensuring compliance with legal and regulatory obligations;
b) implementing processes to minimise risk and to ensure the sustainability of business; and
c) the development of policies and practices to ensure accountability.

SOEs are governed collectively, and to the extent applicable by
a. their founding legislation;
b. The Companies Act, 2008;
c. The PFMA and the Treasury Regulations;
d. The King Code of 2016 (King IV); and
e. The Protocol on Corporate Governance for State-Owned Enterprises, in addition to being subject to overarching duties in terms of the Constitution of South Africa.

The governance and operation of SOEs must comply with the requirements set out in section 195(1) of the Constitution, 1996. The standards and requirements for directors are regulated in section 76 of the Companies Act and requires, amongst other qualities that, a director of a company, when acting in that capacity, must exercise the powers and perform the functions of director:
a. in good faith and for a proper purpose;
b. in the best interests of the company; and
c. with the degree of care, skill and diligence that may reasonably be expected of a person.

Despite this inherent obligation, the Commission of Inquiry into State Capture (the Commission) specifically highlighted shortcomings in the governance and performance of State-Owned Enterprises, which are directly linked to noncompliance with prescripts regulating SOEs.

The Commission confirmed state capture concerning the affairs of Eskom, Transnet, Denel, SAA and Alexkor. To date, all these SOEs are still dealing with the negative effect of the systematic looting that was led by board members and senior executives that were installed to perpetuate state capture. The Commission found that the appointment and removal of members of the board and other senior executives in SOEs as one of the key causes of state capture. The appointments of board members and executives were mostly done on an irrational manner and in conflict with legislative requirements. Across DPE’s SOEs, the pattern suggested a disjuncture between the fiduciary duties of State-owned enterprises board members and the profile, skills and expertise of incumbents, pointing to inadequate criteria for appointment and dismissal or inadequate application of these. The lack of compliance, transparency and accountability in the appointment of Board members seems to have flaunted the standards required for their appointments as directors and failure to comply with fiduciary obligations. The President published govern-wide state capture response plan, which also details the work the department is currently seized concerning implementation of the Commission’s recommendations. The work is meant to ensure that there is no repeat of state capture.

Remarks:
Jacky Molisane
Acting Director-General
Date:


Reply: Approved / Not approved
PJ Gordhan, MP
Minister
Date: