Premier Corporate Governance Conference

Public sector governance:

From Armscor to Transnet

Stephen Sadie

(MBA, M. Ed)

CEO

Outline 1.

Armscor2.

Blue IQ3.

Eskom

4. PetroSA

5. SAA

6.SABC

7. Telkom

8.Transnet

Types of State-owned Enterprises

• Schedule 1: Constitutional Institutions - Public Protector, HRC, IEC

• Schedule 2: Major Public Entities - Eskom, SABC, Telkom, Transnet, DBSA, CEF, ACSA

• Schedule 3: Other Public Entities• National – Accounting Stds Board, ARC,

Competition Board, CCMA (PFMA 1999)

Provincial Public Entities X9• Gauteng Economic Development Agency• Gauteng Gambling Board• Gauteng Tourism Authority• Gauteng Consumer Affairs Court• Gauteng Development Tribunal• Gauteng Education & Training Board• Gauteng Municipal Demarcation Board• Gauteng Provincial Housing Board• Gauteng Services Appeal Board (PFMA 1999)

Legislation

• Public Finance Management Act• Municipal Finance Management Act• Companies Act• Protocol on Corporate Governance in the Public Sector• King 3• President’s Review of SOEs

Legislation

• Government is the shareholder and its powers are exercised through the responsible minister

• In PFMA, accounting authority = board, executive authority = minister

• Although Dept of Public Enterprises is only responsible for 6 entities, it formulates policy and guidelines for all SOEs.

1. ARMSCOR

Armscor Directors (Dept of Defence)

CEO fired• CEO Sipho Thomo & 2 senior officials suspended in 2005

after recommendations by First Consulting• They were found not guilty and reinstated• CEO asked by board to resign in Nov 2009• Suspended in Nov 2009• Airbus A400 risen to R47bn from R17bn• Late for portfolio committee, fell asleep at table• Chairman Popo Molefe “you are pulling us all down with you”• Fired on 7 January 2010 (M&G online 20/01/10)

2. BLUE IQ

Blue IQ Investment Holdings Directors (Dept of Economic Development, Gauteng)

• Mr Phakathi – Chairman• Mogopodi Mokoena – Deputy Chairman• Amanda Nair – Executive Director• Joe Tsotetsi - Non Executive Director• Johnny Sexwale - Non Executive Director• Younaid Waja - Non Executive Director• Doris Dondur - Non Executive Director• Abel Mawela - Non Executive Director• S'celo Mahlalela

Remuneration

• Firoz Cachalia, MEC for Economic Development, cuts fees• R4m paid in 2009/10• Chairman from R25 000 to R10 000 per scheduled meeting

(10pa)• Board members from R20 000 to R7 500 (BD 24/08/10)

• Eskom R477 000 pa• Private sector average R362 000 pa• 2 employed by other govt entities - to be recovered (BD

26/05/10)

3. ESKOM

Eskom Directors (Dept of Public Enterprises)

PM MakwanaChairman

BA DamesChief Executive

LCZ CeleNED

SD DubeNED

BL FanaroffNED

LG JosefssonNED

H Beom LeeNED

WE Lucas-BullNED

B MehlomakuluNED

J MirengeNED

P O’FlahertyFinancial Director

JRD ModiseNED

U ZikalalaNED

Chairman resigns, CEO fired• Eskom Conversion Act 2002• Tussle between CEO and chairman • Maroga resigns, Godsell resigns• President intervenes• Maroga fired• “CEO didn’t complete 41 tasks”• “Chairman is racist” BMF vs COSATU• “Who is in charge?” • “Do we need boards?” Vytjie Mentor• Maroga wants R85 million

Underlying problems

• PFMA – the government can directly appoint both board and CEO

• Abolish boards or give up appointing CEOs• Government wields power without responsibility. • Board has responsibility without power• Key issue is relationship between government and

parastatal

4. PETROSA

PetroSA Directors (Dept of Minerals & Energy)

• Adv L. Makatini – Acting Chairperson• Mr M. Damane – CEO of CEF• Dr Z. Rustomjee – Board of CEF• Mr D.R. Zihlangu – Former CEO of Alexkor and Impala Plat• Mr M.Y. Kajee – CEO Sekunjalo Investments• Ms N. Medupe – Founding Director of Indyebo Consulting• Mr Y. Tenza – Former COO of Foskor• Mr Z. Mavuso – Chief Director, Dept of Energy• Mr N.G. Nika – Chief Financial Officer• Ms P.S.V. Ngaba – Company Secretary

CEO fired

• Sipho Mkhize, CEO, fired in Sept 10• No reasons given by chairman, Popo Molefe (BD

24/08/10)

• Tender irregularities• Based on Gobodo auditors report (FM 3/09/10)

• CEO to challenge dismissal (BD 30/08/10)

5. SAA

SAA Directors (Dept of Public Enterprises)

• Cheryl Carolus – Chairperson• Sizakela Mzimela - CEO• Cyril Jantjies - HR professional• Russell Loubser – CEO, JSE• Duduzile Miyeni – CEO, Skills Dynamics• Bonang Mohale – Chairman of Shell SA• Lindi Nkosi-Thomas – Advocate of High Court• Margie Whitehouse – Marketing professional

Exceeded authorisation

• Former CEO Khaya Ngqula left under a cloud (family tenders)

• New Chairwoman, Cheryl Carolus, taking action• Audit by KPMG• 1st summons R27m for retention bonuses• 2nd summons for R24.8m for sponsorships• Angel Cabrera, Argentinian golfer & other sponsorships• SAA wants R52m back

Reviewing processes to appoint board members

• Acting director general, Andrew Shaw of DPE, told Scopa in Sept 10:

• Relevant skill sets• Assessing potential conflicts of interest• Sufficient time to dedicate to company• Excluded previous SAA board members from all boards

under DPE• Could charge other employees as well. (M&G 3/09/10)

6. SABC

SABC Directors (Dept of Communications)

The best soapie in town• SABC Ltd in 2004• Dali Mpofu, CEO, caught up in Mbeki/Zuma conflict• Gab Mampone, acting CEO, March 09• SOS – Save our SABC May 09• Prevent political interference in board – Prof Harber (BD

27/05/09)

• Outgoing chairwoman, Irene Charnley appoints Solly Mokoetle as CEO

• Zuma appoints new board Jan 10• Ngubane unpopular with board over unilateral decision to

appoint Phil Molefe, head of news May 10

Chairman/CEO vs Board

• Mokoetle complains to Ngubane of pressure from board. 524 emails from board Jan – July 2010

• Board is beginning to manage SABC (M&G 20/08/10)

• Board launches disciplinary action against Mokoetle. Provide reasons why he should not be suspended (M&G 27/08/10)

• Robin Nicholson, CFO appointed acting CEO• MK Military Veterans Assoc backing Mokoetle vs COSATU

& SACP (The Times 1/09/10)

Board and management

• Once the board has established the values, vision and purpose of the business, it must determine the strategic direction. Management can develop various strategies which are approved by the board and then management implements them.

(Khoza, RJ and Adam, M. The Power of Governance, 2007)

7. TELKOM

Telkom – Board of Directors

Jeff MolobelaChairman

Jeffrey HedbergActing

Group CEO

Deon Fredericks

Acting Chief Financial Officer

Younaid WajaNon-

Executive Director PIC

Dr Victor Lawrence

Government Representative

Reitumetse Jackie HuntleyGovernment

Representative

Brahm du Plessis

Independent

Sibusiso Luthuli

Independent

Julia Ntombikayise

Hope Government

Representative

Peter Joubert

Independent

Chairman interference• Telkom SA Ltd - Listed on JSE & NYSE 2003• Acquired Multilinks in Nigeria May 07 – financial disaster• Govt 39.8% largest shareholder – can appoint 5/12

directors• PIC 15% (www.telkom.co.za)• Tension between profit and installing unprofitable landlines

in remote areas

Chairman interference

• CEO Reuben September complains of interference by chairman Jeff Molobela (BD 22/06/10).

• CEO and CFO Peter Nelson resign (BD 14/07/10)

• Jeffery Hedberg appointed as acting CEO from Cell C (FM 16/07/10)

8. TRANSNET

Transnet Directors (Dept of Public Enterprises)

Prof G.K. Everingham

Acting Chairman

CF Wells Acting Group

Chief Executive

A SinghActing Chief

Financial Officer

N.B.P. Gcaba NED

M.J. Hankinson NED

Dr ND Haste OBENED

PG JoubertNED

NNA MatyumzaNED

MP MoyoNED

NR NtshingilaNED

KC RamonNED

Succession

• Transnet Ltd a public company in 2000• Maria Ramos resigns as CEO to go to ABSA Feb 09 • Siyabonga Gama, CEO Transnet Freight Rail is a

candidate supported by Cabinet ministers (Minister of Justice - Radebe & Minister of Communications - Nyanda)

• Disciplinary process against Gama and dismissal for exceeding limit of R10m (BD 15/06/10)

• Quiet diplomacy of minister criticised. Prefers to let boards run SOEs. (M&G 18/06/10)

Shortage of skilled corporate governance professionals

• Company secretaries: King III – “competent, suitably qualified”

• Companies Act – “knowledgeable and experienced in the law”

• CIS qualification recognised in 70 countries• 101 years old in Southern Africa