Contextual framework on corporate governance.

Problems of SOEs by Richard Gud

oi Gid’Agui –Wits University- Graduate School of Public Administration and Managemen
t.
Codes of good corporate governance and State Owned Enterprise -SOEs
The application of best corporate governance codes continued to be defined ba
sically in the areas of the ownership, structure of the boards, nomination ,ove
rsight and remuneration committees. These codes not only relate Private sector b
ut also to the performance of State Owned Enterprises –SOEs, (King III, (2009) ref
ers. As indicated in Broadman (1999)2-7 agrees that SOEs when they practice perf
ormance results oriented measureable roles therefore competence through divers
ified ownership can improve governance and institutional frameworks of checks an
d balances. However, O Shea (2005)33-37 noted that the private sectors as well a
s the public sector alike voluntarily seek to comply with the principles of good
corporate governance. In this respect, Mangaliso and Nkomo (2001)8-15 observe
that SOEs are Public Entities that attract and represent heavy government financ
ial investment, labour, technology, and infrastructure resources in South Africa
and SADC sub-region. With this regard, the state owned enterprises are protecte
d and are government budget supported. The SOEs therefore face a lot of challeng
es of integrity, compliance with good corporate governance and the law and chall
enges in managing state assets. In addition they submit to codes of good corpor
ate governance King III(2009)report; OECD (2004)guidelines on SOEs; World Bank(1
997) .They codes provide the equitable protection of all investors and stake hol
ders alike. But the problems and stakes are high on the government side in that
they have failed to deliver in some aspects of social and commercialization of p
ublic entities, Tamasic and Jiang Rong Fu (2006)123-131.
Moreover, Natasha and Bouman (2010)11-12., observes that:
“The new companies Act (17 of 2008) as amended “…require public and state owned compan
ies to appoint as a minimum, an audit committee and a social and ethics committe
e”, in addition King III-2009 recommends that all board committees with exception
of risk committee, should consist of board members, the majority of whom can be
independent and non-executive directors. Further that “the new Act prescribes the
audit committee’s composition… will be appointed by shareholders, as opposed to the
board,” that “board committees have the full authority of the board in respect of
matters referred to it, save to the extent that ….the committee’s establishing resol
ution states otherwise”. This protocol is best for the private sector environment
but is a challenge for the public sector.
With the exception that risk committee should not be part of the independent com
mittees of the board because they have well specialised roles and measureable ta
sks to achieve that benefit the entire organisation should not occur. All commit
tees of are tasked to have their measurable roles and are all accountable to the
investors.
This poses the problem of ownership structures, relationships with the investor,
Board and CEO in the management of SOE.
Moreover, Bozec, Zéghal and Boujenoui (2004). 79-94 assert that the most discussed
topic nowadays is corporate governance. It is topical in many institutions by a
cademics, practitioners and regulators, legal and health management. The public
sector that was once left to only public laws and governmental guidelines have r
eformed world widely. This is because globally, governments face drastic social,
economic and technological challenges. Lopez, Iturriaga and Carmo (2006)10-21
, indicate that reforms in corporate governance complement deficiencies of the l
egal and institutional setting. They attempt to harmonise the shareholders prote
ction where there is least legal protection.
This practice was applied to private sector before that had embraced the corpora
te governance codes unlike in the public sector entities. Also, Bozec et al, (20
04) note that unlike in private sector, SOEs are not exposed to JSE guidelines s
ince their share are 100% owned by the government. While this was a major concer
n, Prempeh (2002)54, observed poor shortcomings in SOEs do not mandate the serio
us practice of good corporate governance. White and Montgomery (1980)80-87 howev
er found that various processes are used to enforce the practice of codes of cor
porate governance. Other researchers including Broadman (1999)2-7 are alarmed fo
r problems still exist when there is a separation of business from government.
Such problems according to Broadman (1999) relate them with:
“Assets striping, decapitalisation, wage manipulation, and tax evasion”, and that “th
e reforms have failed to address the fundamental problems of large enterprises..
.”
This was the trend before and more research on the structures, audit, compensati
on, governance, and nominations issues continue to be studied regarding assessme
nt of best corporate governance practices in South African state owned enterpris
es and on the continent. But Rossouw (2005) 94-106 infer that this was a new tre
nd of practices affecting ethics and good corporate governance in Africa. In sup
port of this, Marshall (2003) 48, noted that there are global continuous review
of corporate governance codes. It is due to the challenging profiles of boards o
f directors. Meanwhile, Vaugh and Ryan (2006)504-512 indicated that the global r
eviews of corporate governance imply that the practice of good corporate governa
nce is globally essential to economic stability and growth of an entity. Theref
ore , codes of corporate governance (King reports 1994, 2002 and 2009; the Publi
c Finance Management Act 2002-PFMA as amended 2009; Municipal Finance Management
Act-2003.(MFMA) as amended; Combined Code 1992,1998,2003 now UK Corporate gover
nance code(2008); South African Companies Act 2002 and 2009 as amended. Accordin
g to Bozec (2004), some groups strive to improve governance practices in all are
as. Below are some of them:
“(Dey Committee on Corporate Governance 2001) and in the department of public sect
or
(Department of Finance and Treasury Board Secretariat (DFTB) - 1996).
(Blue Ribbon Committee -1999) in the United States of America-USA);
Vie`not report -1999 in France; Cadbury report -1992, the Hampel report -1998 an
d the
Turnbull Report (1999 and 2004/2005); Greenbury report-1995; Hampel Report
-1992 and 2004); Combine Code-2003; Higgs-2003; Smith report-2003; Rutteman -199
4
in Britain”; The (2004) Sarbanes-Oxley Act-2002.
Committee of sponsoring organisations report –COSO- USA; Kon Trag (1999) Germany;
Germany corporate governance codex (KonTrag) (1998); The Law 441//2006 (2006),
Romania. Code of practice for the Governance of sate bodies, Ireland-2001.
The 8th Guidelines of the European Union (EU)-2004; Criteria Control Board of Ca
nada
(CoCo) of Canada-2004; Organisations for European Corporation for Development-
OECD 1994; Australia and New Zealand corporate governance assessment –ASX-2004.
World Bank corporate governance-1997; Code of Best Practice of the
state owned enterprises (Thailand)-2003;
The guidelines on Good Corporate Governance for listed Companies on the Stock
Exchange of Thailand (SET) and the State Enterprise’s Performance Assessment-2003.
The world over, best corporate governance practices are reviewed, debated and di
scussed.
O’Shea (2005) identified a few of them as: Australia, Belgium, Brazil, Canada,
China, Denmark, Finland, France, Germany, Greece, Hong Kong, India, Spain, Italy
,
Japan, New Zealand, Russia, Singapore,” United Kingdom.
There are more emerging codes of corporate governance in other sectors of the gl
obal
economies basically in third world.
These codes of corporate governance empower the board of directors to know their
duties and responsibilities. To understand their assignments, they are able to
deliver on their contract obligations. They are able to represent the aspiration
s of the shareholders and the stakeholders regardless of the organisational set
ups. These codes guide the roles and measurable tasks, responsibilities of the e
ntire board of directors. Interestingly, Chambers (2005) 92-100 indicated that t
he roles and responsibilities for audit committees were similar, except for the
SOEs that were controlled by the state. This is the where problems of ownership
and board structure became an issue.
Most important of these are the remuneration, audit and corporate governance and
by so doing, Esser and Dekker (2008) 157-169 observe that directors are agents
of shareholders appointed to oversee that the entity objectives are met. But goo
d compensation for the COE, can promote profitability and company growth.
The legation of the South African Broad Based Black Economic Empowerment Act 53
of 2003, aims at both correcting racial imbalances, promotes social investment a
nd empowers the communities. Corporate social responsibility-CSR by implication
reveals that directors will consider all the interests of the community. Best c
orporate governance practices are realised in every spheres of life when Bindixe
n and Thomas (2003)65-75 acknowledges that corporate governance is a necessity f
or every country and business enterprise. CACG-1999:1.
In this context, corporate governance requires that an effective board should be
acceptable to all stakeholders.
The problem for the SOEs not honouring codes of corporate governance can be a re
sult of poor leadership. While Dollery and Graves (2009)101-116, observe the nee
d to follow best practices of corporate governance, Michael and Armand (2005) 30
-38, emphasise the ratification of corporate governance guidelines to create val
ue. This is not absolute due to conflicting desires of the investors, board and
CEOs. Moreover Baker (2010)18-27 recommended that changes in corporate governanc
e practices are paramount. This is for all public sector entities to practice an
d add value to their organisations.
In the case of SOEs Aivazian, et al (2005)791-808; On and Kit (2000)52, agree th
at the reforms in corporate governance yield positive performance of SOEs. But H
adfield (2008).20. differed with this paradigm and observed that “State firms fall
behind on governance” and lack capacity to appoint technically skilled non-execut
ive directors but indicated that this was not in every aspect true. I agree that
some state owned enterprises outperform those in the private sector. Jinghan (
2004), 82-93 ;( 2005)75-93.insists that SOE’s yield. This is the agency problem. I
n which case, SOEs are characterised by poor corporate governance, poor manageme
nt and lack of competent managers, Watanabe (2002)373, also feared that the prob
lem of SOEs is structurally pyramidal that results in exploitation. Because of t
his, the problems of corporate governance and control have led to global reviews
of codes of corporate governance .This is evidenced by EBRD (1997) which emph
asises the following good corporate practices guidelines:
“the development of transparent shareholder structures; the provision to share hol
ders of proper internally and externally audited accounts, and of a comprehensiv
e annual reports; sufficient presence on the board of directors that is independ
ent of management; and full disclosure by directors of conflicts of interest; an
d that governments are promising reforms along these lines”
Mace (1975)18-168 suggests that the board and management of both of both publ
icly owned and privately held companies should observe legal guidelines as well
as acquire skills and understand the business processes to properly serve the en
tities.
Further, Mace (1975) asserted that for directors to successfully perform their d
uties, they need the board charters in place to define their roles and responsib
ilities.
To address the problems of Corporate governance, Ownership and board structures,
CEO and Controls relationships need their roles and tasks to be well defined an
d measurable.
Because of the problems of ownership structure and lack of an astute practice of
good corporate governance, many entities in public sector may be reluctant to f
ully follow good guidelines. It is not a surprise therefore, that Heinrich and
Ralph (2002) hardback observe reviews of good corporate governance. The agenda t
o review good corporate governance is a global phenomenon. It happens in both ma
jor and developing economies alike. These are the European Union, the United Sta
tes, Japan, China and emerging market economies. South Africa with the King repo
rts (1993, 2002, September 2009) are among them. It is not only the failures of
Enron -1992 that raises eyebrows, among others like TYCO, Pamarlat, WorldCom-200
1, also relate sentiments of non compliance with the principles and guidelines
of good corporate governance. This has affected the SOEs as well as the Private
sector entities. According to Demise and Ralph (2006) hardback, a lot of researc
h regarding corporate governance of SOEs continues to be done.
The corporate failures of Enron 1992 awakened other countries to develop guideli
nes and laws for best practices. This has evolved in all sectors of national eco
nomies including SOEs.
Globally, corporate failures urgently urged South African corporate in 1994, to
attest the King Reports (1994, 2002 and 2009).
Yan-Leuang, et al (2010)94-123 notes that some of the best corporate governance
Guidelines as evidenced by OECD (2004) where adapted in China. Further, the sepa
ration of powers between the chairman and the executive board, their roles and d
isclosures are some of the factors that lead to poor leadership and management o
f SOEs. This has brought about conflicts when the investor cannot trust those en
trusted to manage their investments to create shareholder value. To achieve the
investors’ objective with that of the organisation and CEO interest will also conf
lict. To absolve this Munir (2004)137-138 observed that good corporate governanc
e must be followed. This applies to all organisations. Hadfield (2008)20 quickly
differed with this opinion and emphasised that it is not the same with SOEs sin
ce they have poor ownership and board structures.
The problem of ownership and board structures is widely noticed after the study
of Berle and Means 1932, Jansen and Meckling (1976); Shleifer and Vishny (1997)7
37; la Porter et al (2000)4; Denis and McConnell (2003)2; OECD (2003). Leadershi
p and management models are also discussed by Garber (1997), Halligan (2004), an
d World Bank (2010). There are also levels corporate governance developed by Car
ver (1997); John Carver (1997, 2000) p4; Kelly Hugh (2004)4-8; that include "Adv
isory board level; Patron model; Cooperative model; management model, policy boa
rd model and proven model” These levels relate to corporate governance in the SOEs
.
It prompted research and debates with the same factors found in ownership, board
structures, CEO and control they observed.
The sources of conflicting practices of corporate governance affect the performa
nce and relationships of ownership, the board, the CEO, controls and stakeholder
s. This affects the SEO growth and hinders the independence of the board and the
CEO and injures the organisation objective and reputation.
The problems of ownership and board structure affects disclosures, accountabilit
ies and without background checks, appointments remain a difficult trend.
Many codes of corporate governance for both private and public organisations con
tinue to be reviewed to meet the new challenges in a multi cultural complex econ
omy. This is embraced by the guidelines from King III Report (2009), Managerial
Law (2006)467-478 and UK Combined Code 4 and 7(2008) and the Sarbanes-Oxley Act-
1999, Section 403 and 404. Collier and Zaman (2005)753-768 observed that there
is continuous changes in administering corporate governance that are being adapt
ed in many countries, and audit committees are being formed
The development of firm structures of corporate governance is crucial as emphas
ised by on and Kit (2000)52. Even though this idea is good ,On and Kit(2000) are
quick to observe that the practice of corporate governance related to instituti
onal backgrounds, are challenged by the many problems of ownership and board str
uctures. This refers to separation powers between the Chief Executive Officer -C
EO and Board chairman positions. To have more active independent directors, prom
otes their role to monitor institutions yet it is also a problem of SOEs. The t
heory of agency augurs well with the principal agent relations, on and Kit (200)
. The relationships between ownership and board structures, CEO and Control in
SOEs are complex matters that affect the practice of good corporate governance.
The guise nowadays and for future is for all business entities to conform to be
st corporate governance practices in SOEs. It is paradoxical in SOEs when the qu
estion of ownership structure and individual shareholdings, largely influence th
e business operations of a public entity. The performance of the SOEs is to enha
nce the best practices of the private sector so that they can outperform the pri
vate sector entities. The public entities basically benefit from national public
budget support. They are net receivers of tax income from government.
Consequently, I agree with Mantshantsha (2009) 22-24, that there is a problem of
accountability which goes with poor financial disclosures. This is a result of
lack of transparency in SOEs that nobody is solely responsible for their poor pe
rformance. The fact that many entities fail, Waugh (2005)7, observes that Chairm
an and managing director being the same office are to blame. In the case of SOEs
, the ownership and board structure make it even worse to comprehend. There are
different types of practices of good corporate governance.
The Anglo-American model is good corporate governance for a capitalistic environ
ment. The boards of SOEs should hold management accountable for its failures an
d disclosures. This is accepted by Gallagher (2002)23 who notes that Shareholder
s have the right to understand how the board and its committees and CEOs run the
ir investments. The agency factor here raises concerns when the objectives of th
e investor conflict with those of the CEOs. The board of directors should be h
eld responsible for their failures as well. Thus why in MacNeil (2006), 486-496,
brought the element of “Comply or Explain” for non compliance in the application of
codes of corporate governance which are voluntary. Largely, this is supported
by Zheka (2005)451-460.who observes that there are more problems in developing e
conomies. This is with regard to principal-agent problem originating from SOEs a
nd other entities.
The relationships between the Ownership and Board structures, CEO and Controls a
re the source of conflicts in SOEs. This notwithstanding, Alina (2008)576-580 su
pports the idea that the practice of corporate governance strengthens weak mecha
nisms in institutional settings. I support the views that these should be given
priority or be addressed through the law. However, the practice of good corpora
te governance is voluntary. Its enforcement through the law can cause many hurdl
es. I argue that the practice of good corporate governance can be best accepted
when corporate governance becomes a practical profession. It must be acceptable
with a proper definition and standards that identify a profession with the devel
opment of professional examinations. The weak corporate governance frameworks ha
ve attracted debates in various professions and practices including the accounti
ng agenda Elson (2003) 68-77).

Martin (2010) 145-171 and OECD (2004) highlights that more global awareness is n
eeded for the practice of good corporate governance. I agree with this assertion
that corporate board function without proper understanding properly their measu
rable tasks and roles in the public sector can lead to poor performance. I also
agree with Holm and Scholar (2010) 32-47 who promotes transparency and board in
dependence and Broadman (1999) 2-7 recommended further restructuring.
Wu (2006)249-267)26, observed that the increase of accounting regulations and co
rporate governance was a result of the enactment of Sarbanes-Oxley Act of 2002.
This enactment is a new phenomenon that has broadly increased regulations of acc
ounting and corporate governance among professions. The practice of best corpora
te governance in public entities in South Africa should comply with the PFMA-200
2 and MFMA-2003 as amended. It makes the corporate boards to know their roles an
d responsibilities. They should equitably serve all stakeholders so that their v
alues can be indentified with the successes of the SOEs. Whereas Wu (2006) furth
er advocates for the regulation of corporate governance and increase of the over
sight committees which are acceptable, is not absolute to bring positive results
without addressing the compensation packages for the independent boards and CEO
.
The Board’s relationship with the investor however is to oversee the successes of
the investments adds value to shareholding. The Board therefore Kim and Nofsinge
r (2007)41-134 noted they represent shareholder’s interests but he face problems t
hat emanate from the conflict of interests of the CEO who sometimes may only hav
e little time for the job. This affects the investor CEO relationships. It is no
ted that SOEs must follow the law ,the South African SOEs are governed under the
companies Act 2008 ,section 93 Schedule II as amended and by the PFMA 2002 and
MFMA 2003 as amended do apply. In the case of The US, Sarbanes Oxley Act 1992 S
ection 404 the UK combined code 2009 does apply in all aspects either in public
or private entities must have the board and their committees. Since practicing g
ood corporate governance is voluntary, MacNeil and Xiao (2006)486-496 observed t
hat it is better when organisations have boards of directors in organisations.
It is best practice to follow corporate governance guidelines to avoid conflicts
with the law. It is also best to have a well structured, skilled, technical boa
rd that promotes good leadership and represents all stakeholders in SOEs.
In addition Kim (2007) indicates that for the corporations to function well, the
boards of directors must be given more authority to independently exercise thei
r fiduciary duties, duty of loyalty, and duty of care which promotes the structu
re of the board. I argue that the well perceived board structure can understand
its roles and follow up on measurable tasks. Good corporate governance is associ
ated with good board structure therefore; it improves controls with key results
oriented performance, roles and tasks that should not conflict with those of CEO
.
Mark et al (as cited in King 11(1993,2002,2009; Sarbanes Oxley Act (2002),OECD(1
999) developed guidelines and recommended as best practice the characteristics
of good corporate governance, code of corporate governance, conduct and to obse
rve the law.
The board is empowered when it follows good practices of corporate governance. I
t promotes and depicts good leadership that yields profitable economic benefits
for all stakeholders. Frohman (2006)124-131 believes like I do that it is the r
esponsibility of the board to strategically ensure the long term continuity of o
rganisations. When leaders focus in the boardroom to strategically implement lon
g-term plans, conflict can be minimized.
This is observed by Lorsch and Clark (2008)104-111; (2009)112-112; (2009)136-146
, that boardroom governance now targets its leadership through an effective comm
unication. Communication promotes cohesion, understanding of the organisation po
licies and reduces poor perception that relates to an entities’ governance. Moreov
er independent directors are tasked to argue more transformation needed in a tra
nsparent manner to achieve best results. Because boards of directors are appoint
ed to perform their duties, the challenges remain with lack leadership and ski
lls to understand the Public entities business. Some of them are ignorant of the
ir roles as directors in SOEs. More problem of interference from supervisory Min
istry of Corporative Governance and line Ministries, affect the independence of
the board and that of the CEOs.
Best practices of corporate governance in SOEs should follow the eleven guidelin
es laid out in King III (2009) Report. Monks (2001)142, discloses that in organi
sations where best corporate governance is practiced, economic successes have be
en identified with an effective independent board. The success of these board co
mmittees depends on meeting their contractual obligations to deliver on:
- understanding the business, having technical skills and adequate communication
. Based on the premise of their contractual obligations, corporate boards that d
on’t deliver shall be relieved of their duties. Goodman and McGhee (2002)17 recomm
end public corporations to follow the principles of good corporate governance. T
hey address the leadership problem found in the board and management even if the
ir independence and ethical issues remain a challenge.
This study shall exploit the relationships of the investor, the board CEO, Contr
ollership and other stakeholders who benefit from the SOEs successes.
Van Wyk (1999). 48-64 (as cited in Butler-1991:24; Daily and Dalton-1994:647; Fi
nkelstein and Boyd-1998:179: Melville-Ross-1996:54: Peake-1991:157) noted that
after the Enron scandal, good corporate governance is being researched. The obj
ective is to identify if it contributes to good performance of corporations.
Many codes of corporate governance including the King reports -1993-2002-2009 ca
me into lime light after global corporate scandals. Others are the Cadbury repor
t -1992 as revised - UK Combined Code -2010 and the Treadway Commission-1992 of
the United States of America and the Sarbanes-Oxley Act -2002.
The phenomenon of best practices of corporate governance continues worldwide, Va
n Wyk -2001, (as cited in De Castro-1998:23; Coner-1995.19; Bryne-1996:64) have
been going on since the Enron Scandals-1992. Many countries have now enacted law
s and regulations even if these enactments may not be a guarantee to good corpor
ate governance in SOEs. National corporate governance codes have come on board t
o guide enterprises operating better to meet the organizational objectives.
Despite the enactment of laws and regulations, Wu (2006) argues that this canno
t not bring acceptable changes that are premised on integrity and voluntary focu
s. Whereas this argument is agreeable to the study, in some cases the laws and
regulations when enacted should suite an economic environment .What is obtaining
now is service deliveries that lead to job creation and organizational self sus
tainably, accountability and transparency in public entities. This depicts good
leadership and focus to manage strategic risks in public organisations. In addit
ion Wu (2006) associates good corporate governance with competency and independe
nt decisions among major committees of corporate boards that promote their effec
tiveness.
The Chartered Secretaries of Australia- CSA (2005)1-18 emphasises that with an e
thical board and good culture, SOE can transparently account to parliament on th
e public funds’ state of affairs of the SOEs. More so CSA (2005) asserts that it
is a good gesture to follow “good public sector governance” premised on “a culture o
f accountability, openness, integrity and honesty”. This is however relates to goo
d leadership, skilled board that communicates proper strategic plans and manages
corporate risks.
How SOEs account to parliament, the government, boards, CEOs, and other stake ho
lders on stewardship matters, is a result of good relationships. This demonstra
tes that SOEs efficiently and effectively manages tax payers’ money in an ethical
way.
However, Bendixen and Thomas (2000)65-75, argues that best corporate governance
practices in public business cannot be over emphasised. It is good to adapt and
create values in public service to achieve economic growth. But CSA -2005 differ
s with this observation that SOEs are challenged to understand and adapt legal a
nd corporate governance frameworks that are frustrating. It is also a task to im
plement the corporate governance guidelines together with the laws and regulatio
n about the same business entity. Given the fact that most boards also face lead
ership and skills problems, means that to achieve acceptable performance will be
a big another big step to overcome.
That good corporate governance is best for South African SOEs; King III-2009 rep
ort has been adapted to guide this practice. Whether this adaptation will achie
ve its objectives shall be revealed in this study.
In this context, Bendixen, et al -2000 (cites Canyon-1992), recognises the relev
ancy of adapting codes of corporate governance like Cadbury Report-1992; Greenbu
ry-1995; Hampel Report-1998 have also brought new thinking in corporate governan
ce paradigm. In the case of South Africa, King Report (1994, 2002 and2009) have
gained prominence in the public sector. Bindizen-2000 (cites Ronan, 1996; Rosso
uw, 1997) further noted that good corporate governance have changed the percepti
on for the practice of corporate governance as provided for in the King Report -
2009. In particular this leads to employee participation, affirmative action pro
grams and work ethics in the South African environment. However, the Institute o
f Directors -1995 identified four tenets that are a challenge to the board are a
s follows:
“being simultaneously entrepreneurial whilst exercising prudent control.; being kn
owledgeable about operations whilst returning an objective, long-term pressures
yet being informed about external trends; and being focused on commercial needs
whilst responsibly on”.
Without overcoming the above challenges, pertinent factors that contribute to fa
ilures of business and public organisations due to lack of ethical leadership,
skills, transparency and integrity practices in the public corporate boards sha
ll increase . Because of this, O’Shea -2005 also notes that accelerating the enact
ments and swift reforms of codes of corporate governance in many countries reduc
es corporate failures. It is O’Sheaa-2005 who observes that after the scandals of “E
nron, WorldCom, TYCO, Conseco and Adelphia in the US, and Skandia, Pamarlat and
Swissair, while Japan had Mitsubishi motor and Serbu Railway and in UK, were the
BCCI, Guinness, Polly Peck and Maxwell” among others, that the many economies are
adapting best codes of corporate governance. The question of ownership and boar
d structure remain unattended and unsolved in the public sector.
This analogy confers best corporate governance practices in both public and priv
ate entities alike. The problem of the relationships of the ownership and boar
d structures, is the independence of public sector boards .In particular, the Ow
nership and CEO relationships, the remuneration for an independent board and the
CEO, the Controllership of the running the organisation may cause conflicts bet
ween the investor, CEO, and other stake holders. The CEO objective may not be t
he same with that of the investor even if the structured roles and responsibilit
ies for the Board and the CEO are known. Abramovich (2006) 4 notes that some of
these conflicts can be minimized in the long term only when the independent boa
rd and the CEOs are well remunerated hence better performance. This is a long te
rm project. This assertion promotes, trust, transparency, shareholder communica
tions and independence of the boards. This is also agreed in the Corporate Gove
rnance Report (1999)218, that corporate governance follows proper guidelines. Th
at they lead to good accountability; transparency; equity, voting methods; and c
odes of best practices among other codes, laws and regulations. Whereas Bozec, e
t al (2004) in addition argues that some characteristics of corporate governance
do not apply to SOEs, Eldenburg et al. (2000) contends that some of them affect
the reforms of SOEs on good corporate governance.
The problems that emerge in advancing good corporate governance in SOEs are sugg
ested by Spangenberg and Theron (2005)1-18. They provide good corporate governan
ce with measurable tasks for the board of director’s .They reveal the quality of e
thical leadership between the board and management. This yields good quality of
good corporate governance, Van Wyk (1998)48-64 in SOEs.
The above premise considers that background checks and technical skills for new
hires of corporate boards, are some of the tools that contribute to good corpora
te governance in SOEs.
Oyugu (2001)308-330 concludes that the significance of corporate governance stan
dards influences the understanding with good ethical standards which improves bo
ard performance. With adequate structure in the boardroom, an independent board
can take corrective decisions and control.
Amabile and Khaile (2008)100-109 emphasises that leaders should together be stra
tegic thinkers who manage strategic plans and risk management. This benefits all
stakeholders. However, Drucker (2004) 58-63 focuses attention to the effect tha
t in order for the top management to practice best corporate governance, they sh
ould as a guide, follow eight principles below:
“They asked, “what needs to be done”; “They asked, “What is right for the enterprise”; “the
eveloped action plans”; “they took responsibility for decisions”; “they took responsibil
ity for communicating”; They were focused on opportunities rather than problems”; “the
y ran productive meetings”; “ they thought and said “we rather than I” .
The above principles give corporate boards the best guidelines to practice good
corporate governance to perform to achieve the enterprise objectives. In additio
n, due to scarcity of skilled human resource, Hadfield, (2008) argues that SOEs
may not appoint non executive board members who are pecuniary technical with ana
lytical skills. I also agree that SOEs fail to follow the codes of corporate gov
ernance as it is in private sector. Hadfield further states that in some instanc
es, the public sectors outperform the private sector. This assertion may be due
to SOE dependence on national budget support and State protection. This confirm
s that SOEs should follow best corporate governance King III (2009), Sarbanes-Ox
ley Act (2002), Combined code (2002). For the SOE to achieve the State objective
, that voluntary should address the best practice of good corporate governance.
The SOEs in South Africa abide with PFMA-2002 and MFMA-2003 as amended should in
addition voluntarily follow the King III (2009) Report.
There is a syndicate of fears that serving on corporate boards of directors is n
ot a smooth undertaking, notes Bischel, (2004)12. The investor is weary of the C
EO and the board performance that do not meet the investor objectives; that do n
ot add shareholder value yet demands for high compensations for the independen
t directors do not match performance, Bischel-2004. The attributing poor perform
ance of the board and the CEO may not be absolute as; other factors may be the s
ource of an entities poor performance. I argue that high compensations also cont
ribute to good Investor and Board; Investor and CEO long term relationships .Own
ership and Agent content manifests into positive results when harmonisation and
timely communication of board decisions is understood by all stakeholders. The o
bservation that good corporate governance is a problem in private sector as well
in the public sector is therefore noted. The observation of good corporate gove
rnance needs as expressed by Rein and Stott (2009)79-89; Healy and Iles (2002)11
7-124, support law enforcement and practice of good codes of corporate governa
nce. Baker (2009) 62, emphasises that King report III (2009) on cooperate govern
ance, encourages the notion of independent committee members of the Board and th
e concept of integrated assurance may prove the point of having board structure.
A good structured corporate board can improves board performance and that of th
e organisation. The global developments and the reviews of codes of corporate go
vernance have been witness in Australia, South Africa, Western and Eastern Europ
e, China, South East Asia and Brazil. All these revisions are a result of proble
ms of ownership and board structures in organisations including SEOs.
Rossouw, Watt and Malan (2002), give an overview of corporate governance in Sout
h Africa and agree the impact of King Reports have not been witnessed. However,
Aka (2007)219-292, observes that there is need in South Africa for good corporat
e governance to conform to acceptable global trends. The corporate governance co
de of South Africa is one of the most comprehensive in the world. In this conte
xt, West (2006) 433-433 implores all enterprises to practice best corporate gove
rnance that consider the interests of all stake holders.
Public sector demands transparency and disclosure of information. Kolk and Pinks
e (2010)15-26 ,Butler and Waldnop (2004)104-111, all accept that the factors tha
t contribute to good corporate governance are interpersonal, facilitation, rela
tional creativity and team leadership, but technical skills is paramount also. I
support Drucker -2004 who agrees that these factors can lead the boards of dire
ctors to better manage their enterprises without causing fears of enterprise fai
lure. Besides, Holm and Scholer (2010) examine that boards independence is a con
tributing factor for the success of an organisation. This argument is true in th
e King III-2009 that the board should be skilled to both manage risks and its st
rategic plans. However, Holm (2010)32-47 intimated that good corporate governanc
e should be communicated to enable best assessment of the board impact. I furthe
r agree that the board should set measurable tasks and roles on which their perf
ormance can be based.
Conclusion
Lack of a comprehensive definition of corporate governance only addresses specif
ic interests of an economy. This distorts the aspiration of corporate governance
practice. The relationships existing in the management of SOEs are problems of
Ownership and Board structures, Ownership and CEOs, Ownership and other Stakehol
ders ,Board and CEO, Board and other stakeholders. The issues of investor and ag
ent is an issue of trust and independence; shareholder value and risk management
that are a threat to SOE performance.
Good corporate governance is voluntarily guided by codes of corporate governance
. These codes compliment the enacted laws and regulations. Continuous reviews of
these codes imply that they serve different purposes according to the environme
nt obtaining is a particular country. Because of this, voluntary acceptance of c
odes of corporate governance has not been easy adapted. Laws and regulations ena
cted help organisations enforce the codes of corporate governance. However, the
SOEs do face big challenges to comprehend the practice since they abide by the C
ompanies Laws. The South African SOEs comply with the PFMA-2002 and MPFA -2003 a
nd the Companies Act-2008 as amended. The problems of Ownership, Board ,CEO and
Control relationships is a result of poor structures, lack of independence of o
rganisation, of the board and of the CEO. The constant interference with the pol
itical loyalty, poor supervision brings conflict among line and supervisory mini
stries, board and management. Poor leadership and lack of good communication, la
ck of technical skills among the board committees result into ethical transforma
tion and lead to poor transparency and accountability. This promotes poor disclo
sures of information relevant to the performance of the SOEs. Guidelines for the
implementation of Codes of corporate governance therefore bring good relationsh
ips among all stake holders and promote positive performance of SOEs