Do state-owned enterprise boards have what it takes?

Over the years, I have wondered whether state-owned enterprises (SOEs) have what it takes.

I also served on a number of SOE boards, and it is my conviction that some SOE boards are just there for window dressing and to please their political appointing principals.

When one considers how some SOE board members are appointed, one finds much left to be desired.

It is regrettable that although the law is very clear on how boards of directors are to be appointed, there are still conflicting interpretations of certain provisions of the Public Enterprises Governance Act, 2019 (Act No. 1 of 2019) vis-à-vis statutory acts of SOEs when it comes to the appointment of boards of directors.

This misinterpretation allows political appointing authorities to take advantage of such misinterpretations and nominate and appoint their cronies to advance their political agendas.

It is no secret that some SOEs underperform and expect constant bailouts from treasury, while directors receive enormous emoluments while serving on such struggling SOEs.

Questions that need answers are: whether directors are appointed on merit or not? Do directors have the requisite qualifications, skills, experience and expertise to serve on SOE boards? Do directors understand their fiduciary responsibilities?

I believe a proper audit needs to be done to provide answers to the above questions.

It is no secret that many SOE boards are not taken to task if they fail to discharge their fiduciary responsibilities.

The Act makes it very clear that directors have to sign performance agreements immediately after their appointments. If they do sign such performance agreements, are there mechanisms in place to monitor the performance of such boards?

I personally have doubts as to whether there are such performance monitoring mechanisms in place. If there are such mechanisms in place, why do some SOEs still underperform and need constant bailouts?

In my view, some of these institutions are headed by incompetent boards and management cadres.

Some board members serve on two, if not more than three, boards at any given time. Another observation is the recycling of board members from one board to the next.

Is this an element of good corporate governance? Some boards are used as cash cows these days to enrich directors and do not serve the interests of the organisation they are appointed to serve.

Squandered resources

In a recent High Court judgment delivered over a civil case that protracted over many years between an axed chief executive officer and an SOE, the latter was ordered to pay the axed CEO millions of Namibian dollars.

In her judgment, the judge concluded: “I find that the plaintiff has proven his case on a balance of probabilities and should succeed in his claim in the amount set out. The defendant, on the contrary, did not prove its counterclaim on a balance of probabilities and stands to be dismissed. The costs must follow the result."

Having read the judgment, it is evident that the witnesses in this matter, on the part of the SOE, made a mockery out of this case. No wonder that the matter was dismissed with cost. The question is: will this board be held accountable for wasting state resources? If this matter had been settled out of court at an earlier stage, the organisation could have saved millions rather than opting for a legal battle that cost the state a lot of money.

One wonders why the organisation opted to enter into a legal battle with the axed CEO while they knew they didn’t have legal recourse on the matter.

Is this how state funds are wasted? Will the directors of this SOE be held accountable for squandering state resources? Much is left to be desired if no action is taken against the directors of the organisation to address the mess and wasted resources.

I don’t want to generalise the issue of SOEs. Some SOE boards are trying their level best to discharge their responsibilities, while with others, there are serious reservations regarding the performance of their fiduciary responsibilities.

It does not require rocket science to turn around an underperforming SOE.

Turn it around

If one is serious about turning around the underperforming SOEs, the first thing to do is to appoint board members and management cadres on merit with the requisite qualifications, skills, experience and expertise.

Secondly, directors should be subjected to rigorous training to understand their fiduciary responsibilities. Thirdly, directors should be held accountable for their actions while serving on such boards. Fourthly, there should be performance agreements in place between the board and appointing authorities.

Such performance agreements should be monitored frequently.

Fifthly, boards are to ensure that they also recruit the right management cadres to run such organisations.

Directors should guard against manipulation by appointing authorities to prevent them from recruiting and appointing incompetent management cadres. Appointing authorities should also guard against appointing their cronies to advance their personal and individual agendas.

There is no reason for SOEs to underperform if they have the requisite skills, qualifications, experience and expertise. Also, what should be ensured is that such boards sign performance agreements, which should be regularly monitored. Political interference must be avoided at all costs when it comes to the appointment of boards of directors.

Appointments should be based on merit.

Also, when board terms expire, such boards should be replaced immediately.

I am aware of some institutions where it took more than a year to appoint directors, which is a poor corporate governance principle. Finally, the method used to recruit the board of directors does not yield the desired results, and there is a call to seriously review the process. Failure to adhere to the above is a good recipe for disaster for many of the SOEs.

*Dr. Raimo Naanda, is a retired TVET expert.