To succeed, any business needs to ensure that its revenues exceed its costs. Where a business falls short on the revenue side, it has one of two options: it has to revise its costs downwards, or call on its shareholders for a capital injection or to stand surety for a loan from financial institutions. The logic is not different for individuals: when we lose weight during tough times, we have to have our cloths cut down to fit our new sizes or to avail ourselves of opportunities to raise loans or increase our bank overdraft facilities.

Alas, that last option is neither indefinitely reliable nor a permanent solution. At some stage, both we and companies have to show ourselves to be able to service our debts, or we stand to forfeit any such private arrangements concluded with financial institutions.

So, if the management of costs is such a fundamental and basic business principle, why is it that companies like the South African Broadcasting Corporation (SABC) and other State-owned enterprises (SOEs) are refused permission to do that which is eminently sensible, given their situations? Why is it that they need permission at all from political leaders to execute a perfectly reasonable business solution? And, if this impasse continues indefinitely, just how sustainable with the public broadcaster be in the long term?

That the country has frightening levels of unemployment, as the economy continues to shrink, is beyond doubt. It is understandable, therefore, that political leaders would be reluctant to be seen to be sanctioning retrenchments at SOEs at any time, but especially ahead of a plebiscite such as we will have this year in the form of the local government elections.

Two crucial questions need to be asked, though: will the Government, which is itself increasingly bankrupt, continue to bail these SOES out (and can it afford to do so?), and where do political and business considerations start and end in such deliberations?

The Organisation for Economic Cooperation and Development (OECD) recognises the importance of SOEs in a growing number of countries, including in the USA after private companies deemed too big to fail during the global financial crisis of 2009 were bailed out by the government there, and recommends that governments should establish “clear and consistent ownership” policies for them and ensure that they are governed transparently, accountably, professionally and effectively. The OECD further recommends that SOEs’ Boards should have the requisite authority and be made up of qualified people who will be accountable for their actions, with both Board members and management teams being appropriately qualified, competent, professional and possess the requisite authority and integrity.

In South Africa, however, those guidelines have largely been observed in breach, as reams of evidence led during the Zondo commission of enquiry into State capture over the past two years have revealed. Indeed, evidence from an intensive doctoral study that I have conducted showed overwhelmingly that the Government was itself one of the main reasons for some of the SOEs’ failures (especially South African Airways, which was my case study). The national carrier found itself in an ultra-competitive, capital-intensive industry which is hyper-sensitive to all kinds of exogenous factors, and yet it remained shackled by Government bureaucracy and requirements which made it impossible for it to compete effectively. The analogy often used by SAA interview participants was that of a boxer thrown into a ring for a world championship fight – but with his hands tied behind his back!

Turnaround scholars are unanimous in their view that successful implementation of a turnaround strategy requires leadership stability, adherence to good corporate governance and a supportive shareholder that leaves a capable, empowered management team to run a company under the direction of a similarly supportive Board of Directors. A successful turnaround also needs ample resources (Donald Bibeault argues that “money is … analogous to a blood transfusion” during such a period) and the existence of a viable core of the business.

There is unanimity in the literature that the CEO, who must be the architect and implementer of the turnaround strategy, must be seen to have full authority in the company and to enjoy the unwavering support of the Board. The literature is clear that no turnaround strategy, whether operational or strategic, can ever be implemented successfully without reducing costs (including employment costs) in order for a company to make itself fit for purpose.

Speaking in the context of SAA, which was the case study for my research, former Department of Public Enterprises Deputy Director-General Matsietsi Makholo likened it to a situation where an aircraft takes off with more weight than it is legally permitted to carry, thus risking collapse while in mid-air. Clearly the rational thing to do is for the aircraft to rid itself of the excess baggage before take-off to improve its chances of a safe landing at its destination, rather than risking a crash which would endanger everybody and everything aboard.

“Once you have identified that you want to turn this airline around, you ask yourself: this human capital that I have, how much weight is it adding? Can I risk taking off with this weight, when I know that while I am up on air I might have a problem?” she asked rhetorically.

Another analogy would be that of an obese person weighing over 120kg being warned by his doctors to take immediate steps to lose weight to stave off a possible health crisis which might eventually claim his life. If that person values his life, he has no choice but to take the painful steps of watching what and when he eats and to start exercising. After all, losing excess weight is never a painless exercise. It is far better to lose a few kilograms but to remain intact, than to die and lose all human functionality.

However, the SABC and other cash-strapped SOEs like Eskom and SAA are routinely singled out for criticism by politicians for wanting to take the only logical – albeit painful – step of meaningfully reducing their costs through employee retrenchments, among other means. SAA was also repeatedly refused permission to place the airline in business rescue – until very late in the day when President Cyril Ramaphosa eventually agreed reluctantly to do so.

That is what explains the absence of any successful implementation of a turnaround strategy in our SOEs. Wittingly or unwittingly, politicians are by far the main reason for these efforts’ failure. SOEs’ private-sector counterparts have not had similar challenges in implementing turnaround strategies and have tended to be far more successful in their endeavours. Regrettably, most SOEs are bound to remain in the dreadful state in which they currently find themselves, and even worsen, unless the Boards and management teams are made up of professionals appointed on merit and are given space to take and implement the necessary tough decisions, without which their turnarounds will continue to be stillborn.

From a distance, the SABC appears to have been fortunate in the high calibre of most of its Board members, who have so far proved to be courageous and even willing to stand up to their intrusive Shareholder Minister, and the CEO and his team appear to have been equally fortunate to enjoy the apparently unshakeable support of the same Board. This is thanks largely to the manner in which the SABC Board is appointed, especially given the determination by political parties represented in Parliament to remove the stench left behind at the corporation by the previous Board and management team which, collectively, was under Hlaudi Motsoeneng’s spell. We can only wish them continued strength and determination, and hope that the current Board members will not be replaced with lily-livered, pliable individuals when their term of office ends.

Unlike SAA, the SABC has a legitimate public (some would say developmental) mandate. In an ideal environment, that should entitle the corporation to reliable, annual public funding of that mandate, with only the broadcaster’s private radio stations required to earn their keep in the competitive market place. It makes absolutely no sense to expect the SABC and other SOEs like Eskom, Denel, etc. to carry out a public mandate, for the State to refuse to fund that mandate and for these companies to be denied the right to make commercially sensible business decisions which are vital for their continued viability.

Kaizer M. Nyatsumba is a turnaround strategist and the author of Successfully Implementing Turnaround Strategies in State-owned Companies: SAA, Kenya Airways and Ethiopian Airlines as Case Studies, published by Verity Publishers.

Kaizer M. Nyatsumba is a senior business executive in Johannesburg. He writes in his personal capacity.

Posted on: 14 May 2019 | Author: Kaizer Nyatsumba