LeaderBoard

The problem is the Act

28 November 2013
Author   J.W. ASHEEKE

Lately more people are addressing specific shortcomings of SOEs to find solutions to the challenges they present. Speaking from experience, this discussion is long overdue. Questions about SOE performance, the salary cap, financial management, non-submission of required reports, and other concerns have their roots in the short-comings of the SOE Act.

Salary levels at SOEs are a populist political hot potato. Glaring headlines announcing the million dollar salary levels of SOE executives stroke the envy button of the general public. It is important, therefore, to separate informed concerns about SOEs from jealous noises. To find workable solutions, we need objective debate.

There is no doubt that the salary cap required by the SOE Act is one of the barriers to hiring new executives. The salary cap means that an incoming MD may earn less than existing senior managers. This presents a real professional problem. You cannot legally cancel or reduce the salaries of existing work contracts as this is against various laws. Only new or renewed contracts (after the SOE Act gazetting) would be affected by the salary cap. So, what then is the solution?

When the SOE Act was written, why was no language providing for a mandate (with the accompanying budget) to pay-out any current SOE executives where salary level conflicts existed, and offer those former executives (those who qualified) new job contracts as per the cap along with mandated performance targets?

The point is this: the language in the SOE Act mandating a salary cap should have been accompanied by language that soberly and legally laid the road map for how the Act could be followed within existing law. The emphasis should have been on PERFORMANCE, not only the salary level.

But, the real problem with the salary cap is how SOEs will recruit capable private sector trained, experienced managers, who are already gainfully employed (with seniority and tenure) elsewhere. Because of the salary cap, SOE boards may have to consider making decisions on employment based on who will accept the salary offered over who is best for the company. This is bad governance.

The SOE Governance Council Secretariat (SOEGC) is not fully supported by Government. The staff compliment is incomplete; their budget is insufficient and their authority is too narrow. They are meant to be the SOE Act over-sight implementers, involved day-to-day to enforce the Act, answer questions about the Act, collect data, and advise SOEs. They are currently ill-equipped to undertake this role; yet this role is vital. If you enact a law, full financial support must go along with it else you cannot complain when the law’s expected results, fall short.

The wording of the SOE Act actually mandates (among other things) that the SOEGC review and approve all SOE bank loans, credit applications and debt levels. The Act also empowers the SOEGC to confirm management hiring appointments, decide and implement re-structuring at SOEs, and approve any changes to the budget. But, as it is, reports are not being submitted on time to the SOEGC nor are they being tabled in Parliament in a timely manner. What penalties are in the Act to redress this? Effectively, there are none.

Another worrying problem is that the SOEGC is made up of Ministers who are too busy to play the role that the Act defines for them. With all due respect to our esteemed Cabinet members, they are pulled in far too many directions to be the decision-making, oversight body for economic SOEs. In business, time is money and decisions should not wait for a quorum of Ministers before money or market opportunities are jeopardized.

In addition, Board meeting preparation, can require reading and understanding detailed financial data, market surveys, statistics, and technical reports – hundreds of pages of data may need to be prepared for just one meeting. When any board member (whether a Minister or not) is pulled in too many directions, inevitably, only headline issues get cut-and-paste attention and details can lie unaddressed. Millions can be lost, stolen or misspent as a result.

There is also another delicate problem: While I mean no disrespect, line Ministers interfere, to varying degrees, in their SOEs. Boards are sometimes under pressure to get a Minister’s approval for a decision they are legally entitled to take under their mandate. To be fair to the line Ministers, they could be under pressure to interfere because they bear the political liability for the outputs of their SOEs, particularly if an SOE has had negative headlines in the newspapers.

Clashes happen between management, boards and Ministers when interpretations of company ‘vision’ and responsibilities differ. Ministers sometimes dictate to the Board whom to hire, how to expend resources and what timeline is required for particular actions. We have already seen an SOE board take their line Minister to court and boards fired for not meeting a line Minister’s expectations, regardless of any tenets within the Company Act or corporate governance guidelines. There seems to be a blurred line between a ‘recommendation’ or ‘consultation’ (which is the language in various Acts) and an ‘order’ or ‘permission.’ The SOE Act does not acknowledge these potential clashes and makes no provision for mandatory joint training sessions or mechanisms for independent trouble-shooting.

Another problem is that the SOE Act and the Company Act clash on several points, including RISK, LIABILITY and FIDUCIARY responsibility for the company. These responsibilities lie with the Board, but the SOE Act and various Acts that created some SOEs seems to leave final approvals for several key items in the hands of line Ministers. Most economic SOEs are registered under the Company Act yet they also have Acts which created them. At times, these two laws clash and the SOE Act is now added to the jumble. Is the public aware that an entire section of the SOE Act is ‘suppressed’ by Parliament (the legality of this is questionable) due to these un-reconciled conflicts in the law?

Why not consider making line Ministers equally legally responsible, alongside the Board, for risk and financial liability of their SOEs? This way, boards pressured into adhering to their line Minister’s demands, even if it’s against their own due diligence process, will not shoulder the full legal weight for such coerced decisions.

Perhaps the SOEGC could be made up of specialists. The current Ministerial body could remain as a ‘Supreme Court’ of SOEs that receives briefings and oversees and appoints the SOEGC.

SOE boards should receive regular and mandatory training funded by the SOEGC. People are appointed to boards for many reasons; many times, skill or knowledge of the business of the SOE has little to do with it. Gaps in information levels can impair a board. Boards should not usurp management responsibilities, but they need enough information to interpret Management’s data. A balance is needed.

Acts creating SOEs proscribe board membership. This needs to be fully re-examined. For example, an Act creating an SOE may require the board to have ‘someone’ from the Ministry of Trade, Finance or Lands – no particular seniority, experience or level is stipulated. The equality needed for an independent and balanced board is out of whack when senior Government officials (like a PS or Deputy PS) sit on boards with junior officials (like Deputy Directors or desk officers).

The junior officials on a board usually feel constrained to openly disagree with their seniors; they remain silent in discussions or they join with their seniors’ positions for reasons that may not necessarily be in the best interest of the SOE. This is bad governance.

Gaps and lack of clarity in the SOE Act are the underlying cause of many SOE problems and they should be re-examined with urgency.

WINDHOEK OBSERVER

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