Dr Tim London reveals the one crucial element necessary to get SOEs back on track.
Many of South Africa’s state-owned enterprises (SOEs) have been in the news a huge amount in recent years, often for the wrong reasons. While there have been a host of issues, many of them have more recently been lumped together under the investigations into “State Capture”. Scandals have ranged from flawed procurement and appointment processes, damaging inefficiency and ineffectiveness, and a lack of accountability for actors central to many of these issues.
This has saddled many SOEs with massive challenges; the one that gets the most press is often the financial peril many are in individually as well as the collective financial threat they pose to the wider South African economy as billions of rands are pumped into them.
While the financial implications of the ongoing struggles of SOEs are no doubt important and worthy of discussion, the recent turnover of the CEOs at Eskom, South African Airways, and Transnet (though this was simply the non-renewal of an acting CEO’s contract) highlights a core factor that will severely limit the potential for actual turnarounds in these SOEs: the loss of trust.
South Africa’s SOEs have many stakeholders including multiple government ministries (Public Enterprises, Finance, and Treasury), citizens and taxpayers, unions, and creditors. The last few years have broken down trust from all of these different groups in the leadership of SOEs: leaders of SOEs are not sure about support from different government actors, government ministers are of different minds about the best way forward for SOEs, the public has grown wary of more of their tax money being lost, unions see threats to their members, and creditors see the likelihood of their money being returned to be shrinking.
These failings of trust have been laid bare in the most recent spate of leadership turnover at these SOEs and makes the work of whomever succeeds them even more daunting. Multiple reports have shown that as these CEOs left, a huge factor has been their inability to execute turnarounds in this type of mistrustful environment.
This has taken the extraordinarily difficult job of turning some of these failing SOEs around and made it into a near-impossible mission. This lack of trust will hamstring the needed overhauls in multiple ways, of which three are highlighted here: certainty of support for the SOE leadership, long-term approaches even with short-term pain, and the willingness to examine and change governance processes to effect significant change.
Who trusts the CEO and their plan?
The reality is that Transnet, Eskom, and SAA are all in need of massive changes. Playing around the edges is simply not going to generate the change necessary to create a meaningful turnaround in any of these SOEs (as is discussed a bit further below). Any turnaround plan by the incoming leadership teams, if they are serious, will inherently be uncomfortable: significant retrenchments of personnel, changes to business models, reallocation or sizeable boosts in funding are all likely to be just some of the moves required to improve the SOEs.
The leaders of SOEs cannot, of course, just do these things unilaterally, so they will need the buy-in and trust of people in other spaces in order to actually implement changes in these areas. So, the next leaders of these SOEs will need to generate trust in the following domains:
- Government ministers from relevant portfolios need to clearly show they believe in the plan; failure to do so will empower every other skeptical person to either block or simply fail to execute and any turnaround plan will be doomed to failure.
- Union leaders need to believe that their members will be treated fairly; current workers need to believe the same. If workers cannot be convinced to buy into changes, then any turnaround strategy will die on the paper it’s written on, never to actually be put into motion.
- When reporting or announcements come out about big changes being proposed, there must be clear accountability aspects announced to the general public. This helps to create trust that their money is being used wisely and transparently in order to cut through lingering resentment from previous scandals and the fog of State Capture.
Change for now or long-term benefits?
You can see from each of the previous instances where trust will need to be rebuilt that the issue of timelines become essential. For politicians, the next election is always on the horizon and most workers are not wealthy enough to not be worried about going without a paycheck for days or weeks, let alone months. Therefore, the new leaders coming into SOEs will have to strike a balance of generating short-term protections while longer term changes are put in motion.
This builds trust with all stakeholders as they get tangible support on a regular basis (great for the politician looking to trumpet their success to potential voters, great for the banks as they can see some financial returns, and great for the worker who knows they can keep food on the table), which strengthens support for the bigger changes that are coming down the road. While everyone no doubt understands that turning around these SOEs is a long-term project, you would be hard pressed to find anyone involved who is not also aware of the immediate impacts on themselves in the short term; trust will need to be rebuilt with short-term wins as part of a longer term project.
Is it prudent governance or just a bunch of “red tape”?
Finally, one of the biggest issues to consider in these turnaround efforts is the governance angle. There are a host of legal and regulatory requirements in place (including, most notably for SOEs, the Public Finance Management Act) which are designed to encourage “good” organisational behavior. While we have certainly seen many of these failed in recent years, which has led to many of the issues these SOEs are facing now, one of the biggest questions facing political leaders and regulatory officials is how flexible to be with these guidelines during this rebuilding process.
While relaxing the rules would no doubt make things “easier” for leaders to make changes, we must also recognise that the reason we have those rules is to try to prevent the very type of mismanagement that dug the holes that these SOEs must climb out of now. So, a real question for the new leaders at SOEs will be how to get the trust of not only the rule makers (politicians and regulators) that they should unshackle them a bit given all of the mismanagement that preceded them, but also the taxpaying public who have seen previous leaders squander billions of rands during other “turnaround” efforts in recent years.
As noted previously, I fear the past and current states of play make the likelihood of executing all of the necessary steps for turnarounds of the largest SOEs nigh on impossible. This does not mean, of course, that leaders in different spaces cannot exert influence in various ways (and we should not discount the role of chance and unexpected outside actors!) to create a more favorable environment for the resurrection of at least some of the damaged SOEs.
But while there are technical improvements and quantifiable steps that can be taken and measured, I believe one of the real indicators for progress (and hopefully success) will be whether trust among different stakeholders can be raised, leading to an even more stable platform for future improvements to the standing of Eskom, SAA, Transnet, and other SOEs.