SOEs on autopilot: A gateway to corruption

Among the SOEs affected is Debswana Diamond Mining Company for instance, which has been under the captaincy of an interim MD Lynnette Amstrong, since August 2019 when the then substantive Managing Director (MD) died. The appointment of the Debswana MD is currently controversial, especially now that the diamond sales and mining licence negotiations are ongoing with De Beers.

SOEs like the Botswana Agricultural Marketing Board (BAMB), Botswana Tourism Organisation (BTO), and Selibe-Phikwe’s  Economic Diversification Unit (SPEDU) are also without substantial to leaders. Former SPEDU CEO Dr Mokubung Mokubung left under a cloud surrounded by several allegations of corruption. Government has never fully replaced him.

Botswana Meat Commission (BMC), which was at one point the pride of the nation, is also without a substantive CEO. The Commission is amongst perennial loss-making SOEs. Other SOEs without substantive CEOs include Fairgrounds Holdings, Botswana Examinations Council (BEC), Botswana Railways, and the Public Enterprises Evaluation and Privatisation Agency (PEEPA).

Out of concern, The Business Weekly & Review sent a detailed inquiry to Office of the President (OP), specifically to the Permanent Secretary (PS) of Government Communications, Andrew Sesinyi, seeking to establish reasons why so many key SOEs do not have substantive top executives. The inquiry further sought to establish whether the government is facing challenges to appoint CEOs for some SOEs for months now while some are more than a year. It sought to establish from the government whether such leadership vacuums do not create a loophole for lack of accountability, corruption as well as improper corporate governance.

However, the inquiry has not been responded to. It has been two weeks now. But there was a remark made previously by President Mokgweetsi Masisi a few weeks ago at a press conference when he was asked about the leadership vacuums and challenges faced by the government in appointing CEOs. In his response, he President said that the delay in appointing CEOs was actually a good thing because it showed that they are undergoing a rigorous process to ensure that the right candidates are appointed. However, experts in matters of corporate governance and public integrity disagree with this perspective.

CEOs/MDs of SOEs report to the Board/Minister. Permanent Secretaries (PSs) and CEOs are of the same authority. So without a CEO, it only means that PSs runs the SOEs. What this means is that the PSs would enjoy the privilege of reporting to the Minister while the boards of directors remain crippled without operational authority of power over the PSs who, in this case, would be controlling the SOEs.

This is basically because an interim CEO does not have a full mandate or authority to make critical decisions. They are remotely controlled by the PSs and the minister.

At the Botswana Centre for Public Integrity (BCPI), Pusetso Morapedi, the Executive Director, says lack of substantial CEOs for SOEs affects negatively their performance as well as the SOE’s strategic leadership. “It is important to know and comprehend la raison d’etre of establishing structures in management, in governance and in leadership,” Morapedi said. “Corporate governance is not a mistake; it is supposed to bring about some good in an enterprise, ministry or any organisation.”

In her view, operations of state-owned enterprises have an impact on citizens’ everyday life and on the competitiveness of the rest of the economy. Ensuring that they operate in a sound competitive and regulatory environment is crucial to maintaining an open trade and investment environment that underpins economic growth. “The question is, do we understand this in Botswana?,” she asked rhetorically.

Why we do not have substantial leadership in SOEs is an important question to ask, the answer to which citizens must be serious to have, according to Morapedi. She said the lives of citizens are impacted by SOEs in that when they do not do well, taxpayers’ money is taken to help those running at a deficit. Most of these SOEs rely on state funding, save for only a few. Further, she noted, most of these SOEs are perennial loss makers.

Another corporate governance expert added that a leadership vacuum hampers performance because the leader must provide guidance to his immediate subordinates, which should then trickle down to lowest levels of the organisational hierarchy.  “From a strategy perspective, strategy tends to entail a long-term time horizon element to it, and a lack of substantial CEO would make it difficult for strategic vision to be monitored and met,” he added.

Considering that strategy also entails aspects such as mission and objectives (with inherent Key Performance Indicators), there is no solid leadership to ensure that KPIs are being met and consequently objectives may not be achieved. Further, the expert pointed out, in relation to corporate governance, the CEO is best positioned to ensure that both board and lower-level staff are held accountable for all aspects under the purview of these two sectors.

“Lack of a substantial CEO enables opportunities for accountability to be somewhat distorted or undermined. We may also ask questions relating to remuneration of these interim CEOs. There is an opportunity for distortion in this regard when there isn’t a single substantial CEO. It becomes difficult for the Board to be able to set particular remuneration strata/levels/notches. This doesn’t reflect well to stakeholders,” he stated, adding that having a substantial CEO would ensure better levels of transparency with respect to reporting and information sharing. The lack thereof presents opportunities for information asymmetry where whoever is acting may conceal some information.

At BCPI, Morapedi added that CEOs are important in cultivating and promoting cultures in an environment. “Can an acting CEO have the ‘neck’ to speak to the minister about the best way to run the company when there is political interference and against the interference that leads to losses in corporate operations?,” she queried.

Morapedi emphasised that CEOs determine the implementation trajectory of the structures, policies and processes that provide checks and balances, and effective governance, including an organisation’s ethics, values and corporate culture. Acting CEOs may not necessarily so this.

Last week, the Botswana Accountancy Oversight Authority’s (BAOA) reviews showed that the major problem with state-owned entities is that the laws establishing these organisations often run contrary to internationally accepted governance standards. In hard hitting submissions before the Parliamentary Committee on Statutory Bodies and State Entities on Tuesday, the CEO of BAOA, Duncan Majinda, said the last review of state entities and other major private sector bodies had shown a corporate governance compliance rate of just 13 percent.

The BAOA is the oversight body of the accounting and auditing profession in Botswana, regulating the activities of auditors and regulating the financial reporting and corporate governance of Public Interest Entities and the corporate sector. Public Interest Entities (PIE) are major firms listed on the Botswana Stock Exchange, licensed by the Non-Bank Financial Institutions Regulatory Authority or the Bank of Botswana, state entities and others deemed significant in terms of their presence in the country.

Majinda’s submissions were no different from what Morapedi at BCPI and other corporate governance experts have said. In Morapedi’s view, an environment that perpetuates unclear lines of responsibility, a lack of accountability and inefficiency is breeding ground for corruption, misuse and abuse. “Where you have people unsure about the next day or year, you create an environment where outside interference in forms of favours and patronage comes into play,” she pointed out.

“What are the Boards doing not hiring CEOs? This lack of certainty and by acting CEOs can weaken the incentives of SOEs and their staff to perform in the best interests of the enterprise and the general public who constitute its ultimate shareholders. It can also raise the likelihood of self-serving behaviour by corporate insiders.”

She added that the self-serving interests at times spill over to the Board and that having an acting CEO who serves the Board and not the public is bound to trump all sorts of corporate governance protocols in pursuit of pleasing the Board and government in cases where political interference is also the order of the day.

Morapedi stated that corporate governance difficulties originate from the fact that the accountability for the performance of SOEs involves a complex chain of agents. From management, board, ownership entities, ministries and the legislature, which motivates decisions based on self-interest other than the best interests of the enterprise and the general public.

However, she noted, it is good business for boards to put in place systems of substantive checks and balances that start with the CEO, senior management, and the board itself, and then proceed through the entire organisation. Improved board and organisational oversight and governance lower the risk of failures and problems in the organisation. It can also bring sustainable operating benefits to a company and its shareholders (citizens).