Presentation to the Portfolio Committee Presenter: Nonkululeko Msomi Venue: Cape Town S26 1st Floor, NCOP Wing Date: 13 March 2002 Time: 10h00
Contents • Introduction • Aim, Vision and Mission of the Unit • The current and proposed structure of the Unit • Objectives for the 2001-2002 financial year • Projects undertaken during the 2001-2002 financial year • Achievements to-date • Objectives for the 2002-2003 financial year • The Unit’s approach to managing shareholding interests • Projects planned for the 2002-2003 financial year • The Unit’s medium-term objectives for the next five years • The Unit’s long – term objectives for the next ten years • Conclusion
Introduction • Government, as a shareholder in state owned enterprises (“SOE’s) , seeks to protect and maximize the benefits of its investments in the SOE’s. • This can be achieved by monitoring the overall performance of SOE’s within their environments and benchmarking the said performance with other companies whether public or private locally and internationally. • Performance Monitoring and Benchmarking Unit is intended to and undertakes the function of safeguarding the shareholder interests in SOE’s. • It is, however, the Government’s intention to consolidate its whole shareholding interests in public entities and manage it under one Business Unit Model in order to avoid the current fragmentation in the management of the shareholding interests. • To give effect to the intention of Government, the government shareholding model is currently being developed by the Unit.
Aim of the Unit • The Unit’s aim is: • To serve as best vehicle to manage Government shareholding interests through monitoring and evaluating the financial, socio-economic and non-financial performance of state owned enterprises through the promotion and advocacy of best performance management practices contributing to enhancement of shareholder value, within an improved corporate governance environment.
The Unit’s Vision and Mission • The Unit's vision is: • To be a shareholder of value in creating a portfolio of globally competitive SOEs that promotes economic growth for a better life for all, in a good corporate governance environment. • The Unit’s mission is: • To entrench a performance culture in state owned enterprises through holistic monitoring and evaluation processes in terms of best practices.
Unit’s current and proposed structure (2) • A need has been identified to position the Unit structurally in order to enable it to deliver in terms of the mandate bestowed upon it by the Department. • In doing so, the professional capabilities that have been sourced for the Unit ranging between the disciplines of Finance, law, economics and the Unit continues to identify other capabilities that are necessary as determined by the business needs. • The challenge is to find a balance between the necessary human capital and the existing budget. The Unit’s approach, therefore, is to continue engage the Department on these issues whilst utilizing the existing human capital to the optimum levels. • The consideration of human capital also involves managing training and development, employment equity and succession planning. These considerations apply to the whole Unit, as we believe in the lowest staff turn – over and a focused continuity of the Unit.
Objectives for the 2002-3 • In line with the Departmental Business Plan, the Branch had set for itself the following objectives for the abovementioned period: • Monitor and interrogate the financial performance of SOE’s with a view to holding leadership accountable for performance of the SOE. • Monitor, implement and advocate improved corporate governance ensuring improved ethics and probity in SOE’s. • Manage healthy relations between the shareholder and SOE’s. • Monitor broader socio-economic indicators of SOE’s including empowerment strategies. • Be the State's custodian for the portfolio of SOE’s and advise government of SOE performance and progress towards established targets and indicators. • Develop a database of relevant benchmarks and SOE information to entrench a performance mindset in the SOE’s.
Projects for the 2002-3 • Development of a financial model as an instrument and a framework to measure the financial performance of the SOE’s. • Review shareholder compacts for the SOE’s as instruments to give effect to good governance in SOE’s. • Finalize an “AS IS” corporate governance audit on SOE’s and within the shareholder to ascertain the status of compliance with corporate governance principles as set out in the Corporate Governance Protocol for Public Entities and in the King 2 Report. • Develop a Web based database system of SOE’s and other Public Entities. • Develop a shareholding model within which government shareholding will be consolidated and managed. • Advocate for good corporate governance within the various structures of government through presentations, discussions and providing advice.
Achievements for the 2001-2 period • Shareholder compacts have been signed with Transnet, Eskom and is in the process of being signed with Denel. • The process of operationalizing the shareholder compacts is currently under way. • The revision of the Protocol on Corporate Governance for use in the Public Entities is under way, and the first draft is out for comment. • Director training commences today and will be an ongoing project to empower the boards. • The boards of the following SOE’s have been restructured: • Transnet • South African Airways • Denel • Safcol • Aventura
Achievements for the 2001-2 • The challenges in Aventura called for the board to be restructured before the annual general meeting. The new Aventura Board is now in place, and therefore, the disposal strategy as approved by Cabinet is now under way. The disposal process of Aventura is now being handled by the Restructuring Unit. • The government “Shareholding end-state/ model” has been developed albeit being a draft document for consideration at this stage.
Progress on Corporate Governance Audit • An audit of compliance with corporate governance in SOE’s is on the second phase whilst the third and the final phases are to be completed soon. The objective of the audit is to determine the status of the SOE’s compliance with the principles of good governance as spelt out in the Protocol and the King Report. • The report of this audit will assist the Department and the SOE’s to develop intervention measures where shortfalls have been identified.
Projects for 2002-3 period • Incorporation of Eskom Holdings Limited • Eskom Holdings Limited is expected to be incorporated on or about the 15th of March 2002. • This period was targeted to align the incorporation process with the expiry of the term of office of the existing Electricity Council. • The challenge is balancing the needs of the new Board with those of the outgoing Electricity Council. • These needs are divergent but all in the best interest of the company about to be formed.
Incorporation of Eskom Holdings Limited (2) • With regard to the Council, membership was drawn from various interests groups including inter alia organized business, organized labour, civil society. This structure worked well as evidenced by the successes of Eskom over the years. • The board representation, on the other hand, places emphasis on drawing membership purely based on expertise and not on interest groupings. In addressing this challenge it has been identified that sufficient and due consideration should be given to these issues before finalizing the board. In its final form, the board should also provide Eskom Holdings with continuity during the transitional period.
Incorporation of Eskom Holdings Limited (3) • This has, therefore, resulted in the extension of the term of office of the existing Council members until the date of proclamation of the Eskom Conversion Act No.13 of 2000. • All systems, however, are now in place to incorporate Eskom Holdings Limited and to form the board of Eskom Holdings, accordingly.
Approach to managing shareholding interests (1) • The Unit’s approach to the managing government shareholding interests is premised on the principle of shareholder activism. • The time is long gone where shareholders waited for the financial year end documents in the form of financial statements to inform themselves of the performance or otherwise of their shareholding. • Even when the financial statements are issued, by their very nature, they do not provide a level of detail that would comfort the shareholder in every respect of the business, and therefore, a more proactive approach has been adopted. • The Unit’s approach is thus, regular reporting as set out in the shareholders compact and the PFMA, better communication and good relations with the management structures of the SOE’s, but most importantly, provide clear mandate to the SOE’s and allow them freedom to conduct business.
Approach to managing shareholding interests (2) • The challenge is to avoid crossing that fine line between what is perceived as shareholder interference, shareholder activism and that is why it is absolutely vital to communicate with the boards regularly. • The other challenge is to have an adequate structure that will be able to interrogate the reports from each SOE and to advise the shareholder accordingly. • We are mindful that the shareholder should not be rudely awaken by events similar to the Enron Saga.
Projects planned for 2002-3 • Revision of 1997 Protocol on Corporate Governance and alignment thereof with the King Report II and the PFMA. • Development of Investment map of SOE’s. • Research on Socio Economic best practice and benchmarks for each SOE. • Conduct second phase of the Post restructuring model DPE end- state. • Awareness of SOE web based database to all SOE’s resulting in the population of the said database. • Conduct Director’s training.
The Unit’s medium term / 5 year objectives • Safe guard of government shareholding interests in State Owned Enterprises, thus serving as “holding company”. • Provide advice to shareholder on performance of its investment and continued ownership, on a holistic and integrated basis. • Ensure efficient performance and maximum return on investment through rigorous performance monitoring and evaluation. • Continue to harness a culture of and promote good corporate governance, probity and business ethics in terms of best practices within SOEs. • Monitor and evaluate socio-economic performance and “organizational health” of SOEs within established frameworks. • Develop and implement intervention measures within framework of relevant acceptable benchmarks, to enhance value.
Unit’s medium term/ 5 year objectives • Approved policies and guidelines for Corporate Governance • Approved economic, investment and integrated risk management strategies • Preparation for Effecting the shareholding end-state • A final report on departmental end state • Approval and implementation of relevant databases for the SOE’s • Sufficiently developed human capital in the necessary capabilities • Approval and implementation of an electronic platform/interface between DPE and SOE’s
Unit’s long- term /10 year objectives • A consolidated government shareholding approach which will enhance shareholder value. • Originally Restructuring was the main priority of the Department, however, Performance Monitoring will be the main priority of the Department up to and including the year 2014. • Any Restructuring that will be executed post 2004 will have to be identified through a performance evaluation process.This entails monitoring the performance of SOE’s in inter alia: - • Corporate Governance. • Financial performance. • Risk analysis identification, monitoring and management. • Socio Economic and Environmental performance of SOE’s.
Conclusion • The Unit is mindful of challenges that exist and will continue to exist in the management of shareholder interest, and therefore, will continue to research best practices in addressing these challenges. • The approach of shareholder activism will be driven passionately guarding against perceived interferences. • The second phase of the “Shareholding Model” will be the focus of the Unit, and be informed by the evolving corporate governance as will be provided for by the • Revised Protocol on Corporate Governance.
Conclusion (2) • The emphasis on the operationalization of the shareholder compacts will be on mandate definition, roles and expectations between shareholder and the board, setting targets in consultation with the board of SOE’s in particular relating to financial, socio economic including health and safety, Black Economic Empowerment, Succession Planning. • Critical to this process will be the evaluation of success in terms of the targets set for and by SOE’s for the purposes of reporting to the shareholder. • The Board of Alexkor will be capacitated better in the process of preparing for the introduction of a strategic equity partner.
Presented by Nonkululeko Msomi Chief Director: Performance Monitoring and Benchmarking Contact Details: Tel: (012) 431 1109 Cell: 083 327 4425 email: firstname.lastname@example.org