FIN24 / 14 JANUARY 2019 2019 - 20.45 / PETER VOLMINK
The chickens have come home to roost for public procurement in South Africa — and what a lot of chickens there are!
All indications are that public procurement has been beset by peddlers of influence, venal vendors, rogue executives and delinquent boards. Without a doubt, those responsible must be held accountable for their ruinous conduct.
But more importantly, state-owned companies must extract every bit of learning they can from this calamitous experience. There is a wonderful Talmudic saying: "Don’t blame the mouse, blame the hole in the wall." The aphorism teaches us to not only focus on the transgressors, but to identify the systemic weaknesses that allowed the transgressions to occur in the first place.
I would like to highlight six areas that require focused attention.
1. The trouble at the top.
The most spectacular governance breaches were committed by individuals at the top levels of the SOCs. Yet, in the main, we tend to throw the book at junior employees for relatively minor transgressions.
It is at the top level that executives and board members tend to pay lip service to governance, but play fast and loose with procurement rules as it suits them. It is precisely this "cowboy" culture that has landed the SOCs in the mess they are in. There is little point to fiddling with "control improvements" directed at supply chain officials when we have not addressed the trouble at the top.
2. The corporate culture.
The flip-side of the "cowboy" culture is the compliant attitude that exists among senior managers. Managers are tasked with implementing decisions taken at the top level and are not known to buck the system. After all, their upward mobility depends on how "cooperative" they are perceived to be.
Yet, when top-level executives and board members decide to "move on" (usually a euphemism for getting fired!) it is left to managers to deal with the fall-out. Managers must therefore be empowered to uphold procurement and governance norms in all transactions, even if it means acting contrary to the wishes of errant board or Exco members.
3. The appointment of boards.
Two issues must be considered. First, the appointment of the boards of SOCs must follow a public and transparent process. It is no longer acceptable to have boards of SOCs appointed in secret, to do a minister’s bidding. Political interference in the functioning of a board is not made more acceptable by virtue of the fact that the appointing minister happens to be one of the "good guys".
SOCs must stand vigilant against the danger of overreach on the part of the executive, however well-intentioned. To adapt the words of a former Constitutional Court judge (with apologies!), our laws should not only protect us from kleptocrats and looters, our laws should also protect us from ourselves!
Secondly, the precise role of the boards in relation to public procurement must be clarified. At present, the boards of the SOCs are half-pregnant. Given the announcement of the President during the last SONA, they are not supposed to be involved in making procurement decisions but must perform an oversight function. Yet, their new "oversight" role is not well understood.
The lack of guidance from the shareholding ministry on the issue has not helped much either. The boards must be made to understand both the extent and the limits of their oversight powers in relation to public procurement, so that they do not overstep their boundaries.
4. The regulatory framework.
South Africa cannot complain about a lack rules and regulations governing public procurement. But there are at least two problems with the regulatory framework. First, it is highly fragmented and, for the most part, poorly drafted.
Secondly, it has done little to stop the scourge of corruption. In fact, corruption seems to thrive quite effortlessly alongside the elaborate procurement rules that are currently in place. This paradox must be analysed and understood, so that we do not make the mistake of simply throwing more regulations at our problems. A regulatory overhaul is sorely needed, but it is more important to capacitate the enforcement functions within the SOCs to ensure full compliance with the regulatory requirements.
Our recent past has taught us that noble ideals, such as empowerment and transformation, are all too often hijacked by villainous scoundrels masquerading as "radicals". But this deception should not detract from the importance of genuine empowerment initiatives. Empowerment must remain a key objective of public procurement. A programme of affirmative procurement, supported by enabling legislation and implemented within the discipline of the Constitution is pivotal to re-shaping our society.
6. Compliance and efficiency.
In our quest to ensure greater compliance in public procurement, we should not forget about the importance of achieving the most economically-efficient outcomes, such as best price and quality. A procurement system that places all the emphasis on compliance but which yields sub-optimal economic outcomes, ultimately destroys economic value and undermines the credibility of the system.
We must find a proper balance between compliance and economic efficiency.There are many supply chain practitioners across all the SOCs who want to ensure that the current crisis does not go to waste. Perhaps it is time for their collective voice to be heard.
Peter Volmink is a procurement lawyer, currently employed by a major public entity. He is chair of a special interest group on procurement law and is in the process of completing a PhD on procurement law at the Wits Law School. He writes in his personal capacity.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER