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ROUNDTABLE DISCUSSION for
The Institute of African
Leadership for Sustainable
Development
Copyright 2012
All rights reserved.
This presentation and/or any part thereof is intended for personal use and may not be
reproduced or distributed without the express permission of the author/s.
CORPORATE GOVERNANCE
IN STATE OWNED & PUBLIC
ENTERPRISES (SOE’S / PE’S)
”Why and How?”
Presented by Thina Siwendu
Hyatt Regency The Kilimanjaro Hotel, Dar es Salaam
20 September 2012
INTRODUCTORY REMARKS
Presented by Thina Siwendu
Hyatt Regency The Kilimanjaro Hotel, Dar es Salaam
20 September 2012
THE CONTEXT OF THE DICUSSION
 Corporate Governance as a means for:-
 Institutional development
 Deciding and the allocation, the distribution of resources and benefits
 Recognition of the pivotal role of SoE’s in the development of nations and
meeting economic and social goals
 We offer conceptual frameworks for:
 Generic corporate governance system
 The governance by the state as owner
 Translation of political and social policy mandate to strategy in SoE’s;
and
 The role of the board
 The idea of corporate stewardship
Uongozi Institute
20 September 2012
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STATUS OF GOVERNANCE OF SOE’S / PE’S
Empirical research and experience shows that they:
 Work with unclear objectives;
 Unclear strategies;
 Have multiple lines of accountability and reporting;
 Decision making becomes hostage to politics of the day;
 Tend to have conflicting bureaucratic interests;
 Bedeviled by lack of transparency, incompetence and accusation of
corruption and patronage; and
 Ultimate accountability is diffused in confused roles.
Consequences:
 Lack of responsibility and responsive leadership;
 Misallocation and loss of public funds; and
 Ineffectiveness
Uongozi Institute
20 September 2012
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THE SOUTH AFRICAN EXAMPLE
 Development of SoE’s galvanised post 1994 by political transformation
 Resulted in a developed constitutional democratic framework that
outlines property rights, commercial rights, rights of citizens
 The Constitution reinforces core values aligned with good governance
 Relatively consistent regulatory framework (PFMA, Companies Act
King III, Protocol on Governance of SoE’s)
 Is not immune to:
 conflicting bureaucratic interests
 political interference
 policy underdevelopment and mishaps
Uongozi Institute
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MAPPING A CORPORATE PRIVATE SECTOR GOVERNANCE
SYSTEM
Internal
External
Private
Shareholders
Regulatory
Stakeholders
Standards
• (for example, accounting
and auditing)
Board of Directors
Laws and regulations
Appoint
and
monitors
Reports to
Management
Operates
Reputational Agents 1
• Accountants
• Lawyers
• Credit rating
• Investment bankers
• Financial media
• Investment advisors
• Research
• Corporate Governance
analysts
Core Functions
1.
refer to the private sector agents, self-regulating bodies, the media, and civic society that reduce information asymmetry,
improve the monitoring of firms, and shed light on opportunistic behavior
Uongozi Institute
Financial sector
• Debt
• Equity
Markets
• Competitive factor and
product markets
• Foreign direct investment
• Corporate Control
® World Bank Research
20 September 2012
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CIRCLE OF ACCOUNTABILITY
Information
Standards
Information
providers
Corporations,
corporate
executives and
workforce
Boards of
companies
State / Capitalist
manifesto
Investors /
shareowners /
Citizens
Governments
and regulators
Civil society
groups
“The new capitalist”
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20 September 2012
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CLASSIC AGENCY THEORY
Shareowners
Decide the business
Directors
Decide the strategy
Management
Implements the
strategy
Power
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Information
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MAKING THE STATE AN EFFIECIENT OWNER
The Executive through line or
functional ministry
Determines the political and
social policy mandate
Director General or Secretary
Translates the mandate to
SoE enterprise objectives
Boards
Translates objectives to
strategy
Management
Implements
and feeds back
Uongozi Institute
20 September 2012
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MAKING THE STATE AN EFFIECIENT OWNER
 State ownership is generally exercised through a single state ownership
Ministry
 The Ministry translates the political and social demands of state ownership
into enterprise objectives
 The mandate is handed over to a qualified board of directors
 The board translates these objectives to strategies for management to
implement
 Translation process must lead to clarity of objectives and/or purpose
 Requires transparent communication
 Alignment of understanding through the various levels leading to a shared
vision between the shareholders, the board, and management
 Requires feedback loops and information flow
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20 September 2012
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LEVERS OF INFLUENCE OF THE STATE AS OWNER
 Board appointments
 Term of appointment
 Agrees SoE’s strategic plan
 Effective chairmanship
 Control Tools:
 Shareholder compact with key performance measures
 Engaged vs Interfering shareholder:
 Operational freedom to oversee strategy implementation by the board
 Monitors performance
 Provides incentives for performance and remunerates
 Timely intervention
 Separation of role of owner and that of regulator
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20 September 2012
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FOCUSING ON THE BOARD ROLE
Based on clear articulation of the board’s role in the translation process, the
board role is in:
 Driving the enterprise forward while keeping it under prudent control
 Quality of strategic thought (reckless and negligent trading)
 Quality of board leadership essential
 Business appropriate board composition
 Effective management of succession with the shareholder
 Right culture and/or tone at the top
 Reporting and accountability
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20 September 2012
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DEVELOPING THE LEARNING BOARD
External
ACCOUNTABILITY
BOARD
CONFORMANCE
Internal
POLICY FORMULATION
BUSINESS
BRAIN
SUPERVISING MANAGEMENT
Short term
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© Prof. Bob Garratt
BOARD
PERFORMANCE
STRATEGIC THINKING
Long term
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CORPORATE STEWARDSHIP
 Holding in trust for the future
 An ethical tone from the top
 Combines financial returns with environmental and social responsibility
 Long term sustainability
 Inclusive, responsive and responsible leadership
 Values of accountability and transparency
Uongozi Institute
20 September 2012
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Questions and Discussion