The State-owned Public Investment Corporation (PIC) requires a fundamental overhaul of how it is governed, as it faces the same institutional flaws as large State-owned enterprises did before their reform, says business organisation Business Leadership South Africa CEO Busisiwe Mavuso.

During the week of August 3 to 7, the Gauteng High Court overturned the suspension of PIC CEO Patrick Dlamini, ruling that the board that suspended him lacked the authority to do so, as only the Finance Minister holds that power.

The PIC CEO is appointed by the Minister, and not the board, which is the same predicament that State-owned companies Eskom and Transnet faced when Ministerial interference in senior appointments undermined both institutions, Mavuso says.

The court ruling showed the board cannot suspend its own CEO because that power belongs to the Minister.

Whatever the merits of the decision to suspend him, which the court did not assess, no company, public or private, can operate that way. A board without authority over its executive is inert, she adds.

The PIC is the largest shareholder in many large listed companies. It holds the retirement savings of millions of South African workers. It is the single largest force in listed equity markets.

Its views have significant influence in boardrooms. Its own governance should be beyond reproach, Mavuso asserts.

However, South Africa is watching a repeat of the dysfunction that led to the Mpati Commission more than five years ago, which is unacceptable, Mavuso says.

The Mpati Commission, which concluded in 2020, was established after a series of irregular PIC investments where political connections drove dealmaking rather than investment rationale.

The commission found that Ministerial control over board appointments was a primary driver of poor decision-making, and that successive Finance Ministers had exercised total control over who sat on the board and, through that, over how the institution operated.

The fundamental institutional problems the commission identified remain unresolved, emphasises Mavuso.

The PIC has the potential to be a powerful force for good; for the companies it invests in, for the pension fund members whose savings it manages and for South Africa's broader growth agenda.

When it functions well, it can be a genuine partner in South Africa's growth and transformation agenda.

It cannot fulfil that potential while its own house is not in order. Instability has repeatedly plagued this institution and each time the root causes are left unaddressed, she says.

The board must have full authority over the executive. It must appoint the CEO, assess performance against a clear mandate and support management in delivering without political interference.

Additionally, the PIC must shut down back channels to politically exposed persons, which is what Justice Lex Mpati recommended explicitly, Mavuso points out.

Investment decisions must be made through professional committee structures that implement world-class processes, such as those that pension fund managers globally have refined over decades.

Board members should be selected by the existing board, with the shareholder's role being limited to approval, she adds.

“The Mpati Commission made these recommendations in detail. It found that the convention of having the Deputy Finance Minister chair the board meant every Cabinet reshuffle brought a new chair, which was a major source of instability.

“It recommended that the board choose its own chairperson. It recommended that the board select the CEO, subject to Ministerial approval, with rejection permitted only on demonstrated good cause,” Mavuso says.

In the commission's words, the CEO “should never feel indebted to the government of the day or the Minister”.

On directors, Mpati was equally clear, stating that removal “should not be at the whim of the Minister” and “directors should not be apprehensive of or feel indebted to the Minister”.

These are the minimum conditions for professional governance, she adds.

“National Treasury must now act. The Mpati report has gathered dust for five years while the PIC has lurched from one governance crisis to the next.

“The PIC Act must be amended to give effect to the commission's recommendations, including reformed board selection, genuine CEO appointment authority vested in the board and Ministerial powers limited to approval with cause,” says Mavuso.

A governance framework must be developed to ensure these changes are implemented in practice, she adds.

“While the new board should be given the space to stabilise the institution while that legislative work proceeds, the work must start now. BLSA will continue to press for the governance reforms that will make that possible. Five years after the Mpati report, there is no excuse for further delay.”