Learning from Eskom and others

Learn the critical lessons of corporate (mis)governance and don’t take your organisation down the same road of failure.

Managing for profit by Peter Hughes

This country is loaded with managerial talent and successful companies, from SABMiller and Pick n Pay to Gauteng-based Black Like Me, the largest ethnic hair and personal care products business in Africa – and many more. Of course, behind each success story stands an outstanding entrepreneur, but that person would never have succeeded without the support of a team of capable managers. And those managers were found right here in South Africa.

READ:Getting to grips with Accounting 101

Why, then, are Eskom, Telkom and SAA losing money hand over fist? What is the secret to private sector success?

At the core of the problem is a lack of vision. Without a shared vision creating a productive, trusting relationship between owners, directors and management, no organisation has ever been a sustained success. Then there’s the difference in the way things are done by government departments and private sector companies:

  • Successful organisations appoint the best possible directors, people of unquestioned integrity, and then let them get on with the job. Government seems to award directorships on the basis of political loyalties. Who you are matters much more than what you can do.
  • If private sector owners are unhappy with the way the business is being run, they replace the directors, but never too many to upset stability and succession. Government has a tendency to sack entire boards of non-performing entities.
  • In government, strategy is driven by political considerations and the CEOs are continually plagued by interference.

Lessons in incompetence
All this might seem an oversimplification of the complex managerial process of building a business, but without these basics, the success of the private sector giants would never have been realised. At the moment, it seems as if the only contribution being made by Eskom and the others to SA business is providing lessons on how not to run a company. Moreover, there seem to be no senior members of government who have much of a clue about corporate governance.

Who does what
In the private sector, the role of shareholder, director and manager are complementary, but completely separate functions. In large corporations, different people fill these seats, so it’s easier to keep the jobs separate. But in a small family business such as a farm, where one person fills all three roles (owner, director and manager), it’s more difficult.

Owners and shareholders have the right to vote, and are entitled to dividends and growth in share value, nothing else.
Directors are appointed to provide strategic direction. They are the navigators, choosing the road ahead. Managers are the drivers. They follow this road and must be left to get on with it. When these roles get confused, trouble starts.

Do you appreciate the difference between the roles you fulfil, and are you doing your best to separate them?

Learn the lessons provided by the state: bad governance is a business killer.

This article was originally published in the 13 March 2015 isue of Farmer’s Weekly.