Using 2019’s governance lessons to elevate South Africa

Businesses need to bring in experts, strategic exercises and the right technologies to strengthen governance and make it a powerful force in changing organisations for the better.

Johannesburg, 24 Jan 2020
Read time 5min 40sec
Denice Manganye, Managing Partner, e-SEK.
Denice Manganye, Managing Partner, e-SEK.

Many would regard 2019 as a low point for SA, a year during which the cracks in the country’s governance and accountability became ever more gaping and visible. But one could also argue that these problems had been apparent and culminating for some time. 2019 was the year when it all came to a head.

"Better late than never" is an appropriate maxim for 2019’s startling governance revelations and staggering accountability failings. It heralds an appropriate time to do some soul searching and respond to these challenges.

For Denice Manganye, Managing Partner at e-SEK, 2019 carried with it the following lessons that SA’s public and private sectors should take note of: “There were several major examples of governance failures, many of them pointing to the same problems: poor board composition, a lack of knowledgeable decision-makers in the right roles, and too much rubber-stamping in lieu of proper and relevant information,” he said. 

"If we had to reduce the causes of governance failures to one point, even though there are many, it’s that many leaders, particularly at the board level, are delegating their responsibilities to parties they think they can trust.They aren’t informing themselves about the organisations they oversee.”

But, he added, it’s good that we can see these problems. The question is: How do we respond to them? To answer this, it’s helpful to review some of the year’s most well-known cases.

The Good: EOH/iOCO

The appropriate place to start is with an example where things went wrong, but corrective action was taken. Since 2018, EOH had been on a rollercoaster. It was rocked with claims of corruption among some of its business units and lost Microsoft licensing status as a result, and it saw its share price plummet. A poor mergers and acquisitions (M&A) strategy, which was the board's responsibility, made matters worse

Although this saga is still ongoing, much can be learned from how the company responded. It launched an internal investigation and made the results known. It spun off business units that were implicated in corrupt activities. EOH also rebranded itself as iOCO. It executed all of these activities under full public scrutiny.

“The EOH/iOCO lesson is that there is always goodwill and a way forward if you are open and honest about the issues you have to resolve,” said Manganye. 

“It did not shy away from making tough decisions, including making major management changes and being open about what was happening. It still made some mistakes, but I believe the company and its board deserve credit for biting the bullet and taking care of their governance failures.”

The bad: SAA

Little needs to be said about South African Airways (SAA). The national airline sank into so much debt that it was forced into business administration, effectively taking away all control from its board and management. This, after the carrier lost a prominent CEO with a turnaround strategy. After an ineffectual strike, even unions agreed that the airline had no recourse left but to go into administration.

SAA is a prime example of what happens when management won't take action, the board is not co-operating and there are too many chefs in the kitchen,” said Manganye. 

“It could benefit from state bailouts, which have kept it afloat, but these didn’t incentivise leaders to change their attitudes. Eventually, there was only one choice left, and it might still lead to the end of the airline, as well as the many jobs it provides. SAA shows what happens when boards don’t step up or aren’t equipped to meet difficult situations with insight and sector expertise.”

The ugly: Tongaat Hulett

There are many examples of catastrophic governance failures, including Eskom, Steinhoff and Prasa. All of these came to ruin because of inactive boards, undisciplined management and rampant corruption, including collusion by risk and governance managers, the very gatekeepers meant to stop such actions. But Tongaat Hulett takes the cake: Its management was found to have issued personal loans out of company funds, over-reported results and hoodwinked a board that neglected its due diligence.

“The leaders at Tongaat Hulett refer to accounting irregularities and debt strategies as if these are small events,” said Manganye. 

“In reality, the company is on the edge of liquidation. It will be shedding assets, jobs and whatever else it can to survive. Market conditions can’t be blamed for this; it’s evident that the company’s management either was up to no good or wasn’t paying attention to what some were doing. With rising risks such as changing weather and the sugar tax, one has to ask if Tongaat Hulett is in any shape to keep going.”

2019’s governance lessons

If we regard these examples, what are the key takeaways for those wanting to improve their organisations’ reputation and ethics? Manganye said it’s a combination of enhancing the board as well as pursuing governance as a tool for efficiency: “Governance can create efficiency, leading to effectiveness and, ultimately, making an impact on the company’s core vision. This relies completely on having an effective board that is engaged, informed and composed of knowledgeable people who can ask the hard questions. Boards hold the executive committee accountable, and that spreads to management and employees.”

Creating such a culture is possible if the appetite exists for it. But expecting these matters to resolve themselves will only lead to disaster.

“Organisations can do several things,” said Manganye. First, bring subject-matter experts on to the board; people who have knowledge that will be useful to the business. This ensures that they aren’t deceived by old boys’ clubs and charismatic tricksters. Second, go through the strategic exercises to plan ahead, understand shortcomings and identify strategic risks. Third, bring in technologies that can aggregate information from across the organisation, so that the board can educate itself on business issues and not rely solely on the reports generated by managers.

"If there are stronger controls and more integration with strategy, then governance can be a powerful lever by which to change organisations for the better.”

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