Eskom and Transnet: No CEOs as logistics descends into a crisis

Eskom and Transnet are now without permanent CEOs while the country is in crises regarding power and logistics. This means that there is no executive management to hold to account.

Busi Mavuso, CEO of Business Leadership South Africa (BLSA), said plans to fix Transnet and Eskom depend fundamentally on business and government being able to work with boards and strong management teams in both entities.

“Good governance starts with a board being able to hold the executive management to account. To do that, the board needs to have appointed and have the right to dismiss the chief executive officer. Yet, in both Eskom and Transnet, as well as all other SOEs, the CEO is appointed and dismissed by a minister who can, under the organisations’ memoranda of incorporation, ignore the board in the process. This is the beginning of the dysfunction that besets these entities.”

Mavuso wrote in her weekly newsletter the minister, as the shareholder representative, should be able to select directors of the businesses in line with the Companies Act. However, those directors must then be empowered and be accountable for the performance of the entities. Right now, that cannot happen in SOEs because the boards are disempowered on the most critical decision they should be making.

“While Eskom has been making progress in line with the National Energy Crisis Committee’s (Necom’s) plan, the appointment of a permanent leader of the entity would give us a much clearer mechanism to engage and work with Eskom to deliver on the plan.”

ALSO READ: Rail reform ‘more urgent than ever’ after Transnet CEO resigns

Chance to choose CEO to lead the Freight Logistics Roadmap

She added the appointment of a Transnet CEO presents an opportunity to put leadership in place who can embrace the Freight Logistics Roadmap being drawn up by the National Logistics Crisis Committee (NLCC).

“This plan has been produced in partnership between government and business to urgently address the failure of rail and port services to support the economy. This failure forces companies to retrench tens of thousands of workers and costs billions in lost income that could support government tax revenue.

“It could make all the difference to have a strong leadership team at Transnet who is committed to working with business, government and other stakeholders to improve performance.”

However, Mavuso wrote, those appointments must be made in a way that empowers the board.

“These are complex organisations that require dedicated, professional and committed boards to manage within established governance principles. When boards are disempowered in key appointments, their roles are undermined and they are left generally toothless in fulfilling the rest of their responsibilities.”

The new National State Enterprises Bill envisages this change. Mavuso says it will create a new SOE holding company and its CEO will be appointed by the board. The holding company will then exercise shareholder powers over any SOE that is eventually transferred to it. Although this is set to be an improvement, it is far from up and running, she said.

“We must reach a point where the memoranda of incorporation of the SOEs empower their boards to appoint the CEOs without any political interference. Until then, as a matter of good governance, the minister can act in line with the boards’ wishes in appointing CEOs. Engaging with the boards and committing to following their recommendations will empower those boards to effectively lead their organisations.”

The NLCC established several working groups focused on key freight corridors, Mavuso said. These unite businesses, Transnet, law enforcement and other government departments to ensure the flow of goods improves. Companies in the shipping, mining, agriculture and automotive industries are actively involved in supporting the recovery process.

These are part of the Freight Logistics Roadmap that outlines the short and long-term actions needed to fundamentally reform the logistics system. It is needed urgently and must be the centrepiece of the engagement of new leadership at Transnet, Mavuso wrote.

ALSO READ: Reforms in underperforming logistics sector too slow

Strong permanent leadership needed

“Strong permanent leadership at the two entities, appointed by empowered and capable boards, would substantially improve the outlook for both sectors and enable business to contribute more effectively to resolving the crises. I therefore urge the minister to empower the boards that he has appointed to act with urgency and focus.”

The Bureau for Economic Research (BER) at Stellenbosch University also noted in its weekly newsletter the freight rail division has been Transnet’s problem child in recent years, with a dramatic deterioration in the volume of freight and bulk minerals shipped.

“Given this dire situation, the resignations should be welcomed. However, the relief will only last if an open recruitment process is followed to find the most suitable replacements and also if the candidates applying for the positions are giving government assurances a policy of noninterference will be followed.”