Necsa ruling highlights ministerial overreach

22 January 2020
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Background
On 15 January 2020 the remaining members of the Radebe appointed Necsa Board resigned citing a 'dysfunctional' relationship with Energy Minister Gwede Mantashe. This follows the 2018 axing of the previous Board led by Chairman Dr Kelvin Kemm and CEO Phumzile Tshelane, by then Energy Minister Jeff Radebe. Three of the Board members filed an application  to have this decision declared unlawful and set aside, which they won. Nevertheless, reputations and careers were needlessly destroyed. This article explores the background and the consequences of ministerial unlawful interference in state enterprises.

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On 4 December 2018, the former minister of energy, Jeff Radebe, fired the entire board of the Nuclear Energy Corporation of South Africa (Necsa). A day later, and with the immediate approval of Cabinet, he appointed an entirely new board.

Necsa had been a rare state-owned enterprise (SOE) that regularly – though not every year – posted a net profit, and on average contributed money to the fiscus instead of draining it. The minister accused the board of "ineptitude and deliberate defiance", and said it "failed to execute its statutory mandate in a satisfactory and prudent manner."

Three of the fired board members – non-executive chairperson Kelvin Kemm, CEO Phumzile Tshelane, and non-executive audit committee chair Pamela Bosman – filed an urgent application in the North Gauteng High Court to have the decision reviewed and set aside. The case was postponed when the minister dumped 800 pages of documentation on the judge's desk the day before the hearing. Urgent cases cannot be heard if the evidence on either side exceeds 500 pages.

The applicants argued that they were given an unreasonably short amount of time to respond to the allegations the minister had laid against them on 22 November 2019. Kemm and Bosman were only given five calendar days, which included a weekend, and Tshelane was given seven. They requested an extension of the deadline, but the minister did not respond to the request. They eventually filed a 2,000-page response on 3 and 4 December, after the deadline had passed. The minister responded within an hour by removing the board, declaring that the response "inherently fails to meet the required standard of proof". The matter had clearly already been settled in the minister’s mind.

Although Radebe cited numerous reasons for his action, the dismissed board members allege that the spark for the action was the board's resistance to alleged plans to sell the company's NTP Radioisotopes division to an American firm, Lantheus Medical Imaging. The trade union Nehawu has also been vocal on this point, although it has been strenuously denied by Radebe.

Finally, on 17 August 2019, Judge Mbulelo Mtati ruled in favour of the axed board, agreeing that the minister's action was unlawful and setting the decision to dismiss the board aside.1 Reinstatement was moot, since their terms of office had expired. 

The judge did not rule on the merits of the minister's claims against the applicants, the applicants' responses to the minister, or on whether the minister had ulterior motives in his actions. He did find the decision had already been made by the time the directors were notified, however.

The Nuclear Energy Act2 grants the minister the authority to appoint the board chairperson, the directors, and the CEO of Necsa. It also grants the minister the power to remove directors "if the director repeatedly has failed to perform the duties of that office efficiently".

According to the Companies Act3, the shareholders of a company – in this case, the minister as representative of the state as sole shareholder – may remove a director of the company for any reason, provided that director is given sufficient notice and time to prepare a response for presentation to the shareholder(s) before the resolution is put to a vote.

Notably, the Companies Act makes no provision for shareholders to order the suspension of executive board members. Suspension is only contemplated in cases in which the board itself acts against a director on grounds of having become ineligible, disqualified, or incapacitated, or has neglected or been derelict in the performance of the functions of a director.

The judge held otherwise, however, and found Tshelane's suspension two weeks before the board was fired not to have been unlawful, nor to have been subject to the same legal requirements as the dismissals of the other directors.

In the cases of Kemm and Bosman, the judge held that the minister did not comply with the requirements of the Companies Act, nor were the applicants granted sufficient time to prepare a response, nor was their response considered before action was taken. Radebe's actions therefore fell foul of both the Promotion of Administrative Justice Act4 and the general principles of legality.

As the Necsa ruling shows, the procedures outlined in law appear to be a mere formality in the case of board appointments to SOEs. Ministers are able to chop and change boards at their discretion. Recent history shows that this power can be, and often is, abused to make political appointments in the name of "cadre deployment" or to facilitate the capture of SOEs to serve corrupt, private interests.

In 2017, the State Capacity Research Project (SCRP), an inter-disciplinary, inter-university partnership that aims to contribute to the public debate about state capture in South Africa, released a report entitled Betrayal of the Promise: How the Nation is Being Stolen5. It implicated members of cabinet in several questionable political appointments to the boards of SEOs, including that of Dudu Myeni as chairperson of SAA, and Brian Molefe as CEO of Transnet and later of Eskom.

It documents several other cases, as well as attempted interference in several other SEO boards. The report states that Barbara Hogan was removed from her post as Minister of Public Enterprises, to be replaced by Malusi "Mr State Capture" Gigaba, shortly after she pushed back against alleged executive interference in SOE board appointments.
 
The report named several ministers as forming part of a "power elite" which was "responsible for establishing and maintaining patronage networks, which facilitate the distribution of benefits" of state capture.

Since the fall of president Jacob Zuma, the supposed good guys, like Pravin Gordhan, have also liberally exercised their power to summarily hire and fire SEO board directors, without much accountability or transparency. Even though the motive, intent and result of board changes can be positive, this power is dangerous in the wrong hands, and ought, therefore, to be curbed. 
The Dullah Omar Institute at the University of the Western Cape has criticised SOE board appointments as being politically driven. A Shareholder Management Bill is envisioned for the 2020/21 financial year, but it called for more urgency in clarifying the exact role government ministers ought to play in the governance of SOEs.

"For years, government promised to better regulate these appointments but after more than a decade, the legislation on state-owned enterprises governance remains deeply problematic," the organisation told Business Day6.

In a submission to the Zondo Commission of Inquiry on State Capture it argued that most SOEs, like Necsa, are governed by multiple, overlapping laws, which creates confusion and a lack of transparency.

Tracy Ledger, head of research at the Public Affairs Research Institute (Pari), told the Institute’s ParlyBeat publication7: "We need a separation between shareholder, regulator, the management and the board and must then see how we can meaningfully integrate the public into that.

Ledger concurred with the Institute’s research that more attention should be given to how people get fired in SOEs, telling ParlyBeat: "We found the way in which people get fired is almost more important than the way in which they get appointed, so we need as many checks and balances for dismissals as we have for appointments."

The Dullah Omar Institute at the University of the Western Cape has criticised SOE board appointments as being politically driven. A Shareholder Management Bill is envisioned for the 2020/21 financial year, but it called for more urgency in clarifying the exact role government ministers ought to play in the governance of SOEs.

"For years, government promised to better regulate these appointments but after more than a decade, the legislation on state-owned enterprises governance remains deeply problematic," the organisation told Business Day6.

In a submission to the Zondo Commission of Inquiry on State Capture it argued that most SOEs, like Necsa, are governed by multiple, overlapping laws, which creates confusion and a lack of transparency.

Tracy Ledger, head of research at the Public Affairs Research Institute (Pari), told the Institute’s ParlyBeat publication7: "We need a separation between shareholder, regulator, the management and the board and must then see how we can meaningfully integrate the public into that.

Ledger concurred with the Institute’s research that more attention should be given to how people get fired in SOEs, telling ParlyBeat: "We found the way in which people get fired is almost more important than the way in which they get appointed, so we need as many checks and balances for dismissals as we have for appointments."

The Dullah Omar Institute at the University of the Western Cape has criticised SOE board appointments as being politically driven. A Shareholder Management Bill is envisioned for the 2020/21 financial year, but it called for more urgency in clarifying the exact role government ministers ought to play in the governance of SOEs.

"For years, government promised to better regulate these appointments but after more than a decade, the legislation on state-owned enterprises governance remains deeply problematic," the organisation told Business Day6.

In a submission to the Zondo Commission of Inquiry on State Capture it argued that most SOEs, like Necsa, are governed by multiple, overlapping laws, which creates confusion and a lack of transparency.

Tracy Ledger, head of research at the Public Affairs Research Institute (Pari), told the Institute’s ParlyBeat publication7: "We need a separation between shareholder, regulator, the management and the board and must then see how we can meaningfully integrate the public into that.

Ledger concurred with the Institute’s research that more attention should be given to how people get fired in SOEs, telling ParlyBeat: "We found the way in which people get fired is almost more important than the way in which they get appointed, so we need as many checks and balances for dismissals as we have for appointments."
The Dullah Omar Institute at the University of the Western Cape has criticised SOE board appointments as being politically driven. A Shareholder Management Bill is envisioned for the 2020/21 financial year, but it called for more urgency in clarifying the exact role government ministers ought to play in the governance of SOEs.

"For years, government promised to better regulate these appointments but after more than a decade, the legislation on state-owned enterprises governance remains deeply problematic," the organisation told Business Day6.

In a submission to the Zondo Commission of Inquiry on State Capture it argued that most SOEs, like Necsa, are governed by multiple, overlapping laws, which creates confusion and a lack of transparency.

Tracy Ledger, head of research at the Public Affairs Research Institute (Pari), told the Institute’s ParlyBeat publication7: "We need a separation between shareholder, regulator, the management and the board and must then see how we can meaningfully integrate the public into that.
The Dullah Omar Institute at the University of the Western Cape has criticised SOE board appointments as being politically driven. A Shareholder Management Bill is envisioned for the 2020/21 financial year, but it called for more urgency in clarifying the exact role government ministers ought to play in the governance of SOEs.

"For years, government promised to better regulate these appointments but after more than a decade, the legislation on state-owned enterprises governance remains deeply problematic," the organisation told Business Day6.

In a submission to the Zondo Commission of Inquiry on State Capture it argued that most SOEs, like Necsa, are governed by multiple, overlapping laws, which creates confusion and a lack of transparency.

Tracy Ledger, head of research at the Public Affairs Research Institute (Pari), told the Institute’s ParlyBeat publication7: "We need a separation between shareholder, regulator, the management and the board and must then see how we can meaningfully integrate the public into that.

Ledger concurred with the Institute’s research that more attention should be given to how people get fired in SOEs, telling ParlyBeat: "We found the way in which people get fired is almost more important than the way in which they get appointed, so we need as many checks and balances for dismissals as we have for appointments."

According to her, the entire recruitment and employment process should be scrutinised to ensure people are not just dismissed with impunity and fired for "bad reasons".

According to ParlyBeat, Professor Riekie Wandrag, a member of the Institute’s research team, argues that too much power presently resides with the minister in board appointments. This centralisation of power results in an "untenable situation" where the government is the majority or sole shareholder, the policymaker and the regulator of these entities.

Wandrag reportedly added that the bulk of employment-related cases in court were as a result of interference by the minister. She said there should be a proper process and this power should not just be with one person. "There is no legal justification for the minister to be involved or rather in control of the appointment of executives."

Any new law on the relationship between the government as shareholder with SOEs ought to make boards more immune to the short-term political objectives of ministers, whether those objectives are good or evil. It would help a great deal if confusing and contradictory legislation on the process were unified, and if the process of board appointments was more open to public scrutiny. Only then can we begin to hold ministers accountable for their executive actions.

[1] Kemm and Others v Minister of Energy and Others (88891/2018) [2019] ZAGPPHC 350 (16 August 2019), http://saflii.org/za/cases/ZAGPPHC/2019/350.pdf

[2] Nuclear Energy Act, No. 46 of 1999, §16 & §17.
https://www.gov.za/sites/default/files/gcis_document/201409/a46-99.pdf

[3] Companies Act, No. 71 of 2008, §71.
https://www.gov.za/sites/default/files/gcis_document/201409/321214210.pdf

[4] Promotion of Administrative Justice Act, No. 3 of 2000.
http://www.justice.gov.za/legislation/acts/2000-003.pdf

[5] State Capacity Research Project, Betrayal of the Promise: How the Nation is Being Stolen, 2017.
https://pari.org.za/wp-content/uploads/2017/05/Betrayal-of-the-Promise-25052017.pdf

[6] Bekezela Phakathi, Business Day, Appointment process of SOE board members under scrutiny, 9 April 2019. https://www.businesslive.co.za/bd/national/2019-04-09-appointment-process-of-soe-board-members-under-scrutiny/

[7] Alicestine October, ParlyBeat, SOE Bill should be expedited: Deputy Minister, 8 July 2019. https://www.dailymaverick.co.za/article/2019-07-08-government-at-odds-with-civil-society-over-new-soe-law/


Disclosure: This article was commissioned by the Free Market Foundation.
The judge did not rule on the merits of the minister's claims against the applicants, the applicants' responses to the minister, or on whether the minister had ulterior motives in his actions. He did find the decision had already been made by the time the directors were notified, however.

The Nuclear Energy Act2 grants the minister the authority to appoint the board chairperson, the directors, and the CEO of Necsa. It also grants the minister the power to remove directors "if the director repeatedly has failed to perform the duties of that office efficiently".

According to the Companies Act3, the shareholders of a company – in this case, the minister as representative of the state as sole shareholder – may remove a director of the company for any reason, provided that director is given sufficient notice and time to prepare a response for presentation to the shareholder(s) before the resolution is put to a vote.

Notably, the Companies Act makes no provision for shareholders to order the suspension of executive board members. Suspension is only contemplated in cases in which the board itself acts against a director on grounds of having become ineligible, disqualified, or incapacitated, or has neglected or been derelict in the performance of the functions of a director.

The judge held otherwise, however, and found Tshelane's suspension two weeks before the board was fired not to have been unlawful, nor to have been subject to the same legal requirements as the dismissals of the other directors.

In the cases of Kemm and Bosman, the judge held that the minister did not comply with the requirements of the Companies Act, nor were the applicants granted sufficient time to prepare a response, nor was their response considered before action was taken. Radebe's actions therefore fell foul of both the Promotion of Administrative Justice Act4 and the general principles of legality.

As the Necsa ruling shows, the procedures outlined in law appear to be a mere formality in the case of board appointments to SOEs. Ministers are able to chop and change boards at their discretion. Recent history shows that this power can be, and often is, abused to make political appointments in the name of "cadre deployment" or to facilitate the capture of SOEs to serve corrupt, private interests.

In 2017, the State Capacity Research Project (SCRP), an inter-disciplinary, inter-university partnership that aims to contribute to the public debate about state capture in South Africa, released a report entitled Betrayal of the Promise: How the Nation is Being Stolen5. It implicated members of cabinet in several questionable political appointments to the boards of SEOs, including that of Dudu Myeni as chairperson of SAA, and Brian Molefe as CEO of Transnet and later of Eskom.

It documents several other cases, as well as attempted interference in several other SEO boards. The report states that Barbara Hogan was removed from her post as Minister of Public Enterprises, to be replaced by Malusi "Mr State Capture" Gigaba, shortly after she pushed back against alleged executive interference in SOE board appointments.
 
The report named several ministers as forming part of a "power elite" which was "responsible for establishing and maintaining patronage networks, which facilitate the distribution of benefits" of state capture.

Since the fall of president Jacob Zuma, the supposed good guys, like Pravin Gordhan, have also liberally exercised their power to summarily hire and fire SEO board directors, without much accountability or transparency. Even though the motive, intent and result of board changes can be positive, this power is dangerous in the wrong hands, and ought, therefore, to be curbed.

The Dullah Omar Institute at the University of the Western Cape has criticised SOE board appointments as being politically driven. A Shareholder Management Bill is envisioned for the 2020/21 financial year, but it called for more urgency in clarifying the exact role government ministers ought to play in the governance of SOEs.

"For years, government promised to better regulate these appointments but after more than a decade, the legislation on state-owned enterprises governance remains deeply problematic," the organisation told Business Day6.

In a submission to the Zondo Commission of Inquiry on State Capture it argued that most SOEs, like Necsa, are governed by multiple, overlapping laws, which creates confusion and a lack of transparency.

Tracy Ledger, head of research at the Public Affairs Research Institute (Pari), told the Institute’s ParlyBeat publication7: "We need a separation between shareholder, regulator, the management and the board and must then see how we can meaningfully integrate the public into that.

Ledger concurred with the Institute’s research that more attention should be given to how people get fired in SOEs, telling ParlyBeat: "We found the way in which people get fired is almost more important than the way in which they get appointed, so we need as many checks and balances for dismissals as we have for appointments."

According to her, the entire recruitment and employment process should be scrutinised to ensure people are not just dismissed with impunity and fired for "bad reasons".

According to ParlyBeat, Professor Riekie Wandrag, a member of the Institute’s research team, argues that too much power presently resides with the minister in board appointments. This centralisation of power results in an "untenable situation" where the government is the majority or sole shareholder, the policymaker and the regulator of these entities.

Wandrag reportedly added that the bulk of employment-related cases in court were as a result of interference by the minister. She said there should be a proper process and this power should not just be with one person. "There is no legal justification for the minister to be involved or rather in control of the appointment of executives."

Wandrag reportedly added that the bulk of employment-related cases in court were as a result of interference by the minister. She said there should be a proper process and this power should not just be with one person. "There is no legal justification for the minister to be involved or rather in control of the appointment of executives."
The judge did not rule on the merits of the minister's claims against the applicants, the applicants' responses to the minister, or on whether the minister had ulterior motives in his actions. He did find the decision had already been made by the time the directors were notified, however.

The Nuclear Energy Act2 grants the minister the authority to appoint the board chairperson, the directors, and the CEO of Necsa. It also grants the minister the power to remove directors "if the director repeatedly has failed to perform the duties of that office efficiently".

According to the Companies Act3, the shareholders of a company – in this case, the minister as representative of the state as sole shareholder – may remove a director of the company for any reason, provided that director is given sufficient notice and time to prepare a response for presentation to the shareholder(s) before the resolution is put to a vote.

Notably, the Companies Act makes no provision for shareholders to order the suspension of executive board members. Suspension is only contemplated in cases in which the board itself acts against a director on grounds of having become ineligible, disqualified, or incapacitated, or has neglected or been derelict in the performance of the functions of a director.

The judge held otherwise, however, and found Tshelane's suspension two weeks before the board was fired not to have been unlawful, nor to have been subject to the same legal requirements as the dismissals of the other directors.

In the cases of Kemm and Bosman, the judge held that the minister did not comply with the requirements of the Companies Act, nor were the applicants granted sufficient time to prepare a response, nor was their response considered before action was taken. Radebe's actions therefore fell foul of both the Promotion of Administrative Justice Act4 and the general principles of legality.

As the Necsa ruling shows, the procedures outlined in law appear to be a mere formality in the case of board appointments to SOEs. Ministers are able to chop and change boards at their discretion. Recent history shows that this power can be, and often is, abused to make political appointments in the name of "cadre deployment" or to facilitate the capture of SOEs to serve corrupt, private interests.

In 2017, the State Capacity Research Project (SCRP), an inter-disciplinary, inter-university partnership that aims to contribute to the public debate about state capture in South Africa, released a report entitled Betrayal of the Promise: How the Nation is Being Stolen5. It implicated members of cabinet in several questionable political appointments to the boards of SEOs, including that of Dudu Myeni as chairperson of SAA, and Brian Molefe as CEO of Transnet and later of Eskom.

It documents several other cases, as well as attempted interference in several other SEO boards. The report states that Barbara Hogan was removed from her post as Minister of Public Enterprises, to be replaced by Malusi "Mr State Capture" Gigaba, shortly after she pushed back against alleged executive interference in SOE board appointments.
 
The report named several ministers as forming part of a "power elite" which was "responsible for establishing and maintaining patronage networks, which facilitate the distribution of benefits" of state capture.

Since the fall of president Jacob Zuma, the supposed good guys, like Pravin Gordhan, have also liberally exercised their power to summarily hire and fire SEO board directors, without much accountability or transparency. Even though the motive, intent and result of board changes can be positive, this power is dangerous in the wrong hands, and ought, therefore, to be curbed.

The Dullah Omar Institute at the University of the Western Cape has criticised SOE board appointments as being politically driven. A Shareholder Management Bill is envisioned for the 2020/21 financial year, but it called for more urgency in clarifying the exact role government ministers ought to play in the governance of SOEs.

"For years, government promised to better regulate these appointments but after more than a decade, the legislation on state-owned enterprises governance remains deeply problematic," the organisation told Business Day6.

In a submission to the Zondo Commission of Inquiry on State Capture it argued that most SOEs, like Necsa, are governed by multiple, overlapping laws, which creates confusion and a lack of transparency.

Tracy Ledger, head of research at the Public Affairs Research Institute (Pari), told the Institute’s ParlyBeat publication7: "We need a separation between shareholder, regulator, the management and the board and must then see how we can meaningfully integrate the public into that.

Ledger concurred with the Institute’s research that more attention should be given to how people get fired in SOEs, telling ParlyBeat: "We found the way in which people get fired is almost more important than the way in which they get appointed, so we need as many checks and balances for dismissals as we have for appointments."

According to her, the entire recruitment and employment process should be scrutinised to ensure people are not just dismissed with impunity and fired for "bad reasons".

According to ParlyBeat, Professor Riekie Wandrag, a member of the Institute’s research team, argues that too much power presently resides with the minister in board appointments. This centralisation of power results in an "untenable situation" where the government is the majority or sole shareholder, the policymaker and the regulator of these entities.

Wandrag reportedly added that the bulk of employment-related cases in court were as a result of interference by the minister. She said there should be a proper process and this power should not just be with one person. "There is no legal justification for the minister to be involved or rather in control of the appointment of executives."

Wandrag reportedly added that the bulk of employment-related cases in court were as a result of interference by the minister. She said there should be a proper process and this power should not just be with one person. "There is no legal justification for the minister to be involved or rather in control of the appointment of executives."

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