Role of boards in strategic oversight of state-owned enterprises in South Africa

Abstract

In South Africa, State Owned Enterprises (SOEs) are confronted with various challenges including financial mismanagement, poor performance, corruption, high debt all of which require bailouts from government on regular basis. Most of the challenges are attributed to governance failures emanating from lack of oversight and non-functional monitoring systems. Despite the fact that strategic oversight is a core function of board of directors entrusted with the function to oversee the functioning of SOEs, it remains unclear as to how do boards of directors discharge the fiduciary responsibility of oversight function over strategy implementation on SOEs. Thus, the research was aimed at determining how boards are providing strategic oversight over strategy implementation in SOEs. A qualitative research strategy using interpretive paradigm with a case study design was adopted for the study. The scope of the research was limited to Schedule 2 SOEs in South Africa across different sectors covering energy, transport, construction, development finance and agricultural finance. Data was collected through semi-structured interviews with twelve (12) participants, including current and previous board members and executive directors with at least three (3) years of experience at a board level from the selected SOEs. The data collected for the study was analysed using a thematic content analysis approach to identify emerging themes related to board strategic oversight. The research findings demonstrate that strategic oversight is a multifaceted and dynamic function that extends beyond the theoretical and legal prescripts. Boards execute this function through a holistic approach focused on mandate fulfilment. Oversight is primarily discharged through establishing functional governance structures including board committees, where board members actively engage the executives on the financial and non-financial performance of the SOEs on a continuous basis. A unique empirical finding demonstrates that boards often adopt a hands-on approach, where boards get involved in operational activities when there are capacity constraints, suggesting a practical role of boards as primary engine for effective strategic oversight. The research demonstrates that effective oversight function is dependent on three factors, the execution of the oversight function, the competency and integrity of the board members, and the political and regulatory environment. Key barriers affecting boards from effectively discharging their oversight function include political interference, incompetence of some board members, bureaucracy and regulatory red tape. The current appointment process of board members is perceived to be highly political, as candidates with no requisite skills and experience often get appointed to serve in boards. The study highlights that for the boards to discharge their fiduciary responsibility of strategic oversight on SOEs, the regulatory environment and competency of board members must be addressed.