Should the PIC be placed under administration?

You can also listen to this podcast on iono.fm here.

JIMMY MOYAHA: In the last 137 days the Public Investment Corporation [PIC] has gone through some significant challenges.

The chief investment officer of the business parted ways with the PIC by mutual agreement; the chief executive officer has been placed on suspension; the interim chief investment officer has since been replaced; and two non-executive directors have since resigned.

To top that all off, the Financial Sector Conduct Authority [FSCA] has announced that it will be launching an investigation into the Public Investment Corporation.

Read:
PIC CEO Patrick Dlamini suspended amid whistleblower allegations
Two directors resign after FSCA launches PIC investigation
Batandwa Damoyi appointed as acting PIC CEO
Godongwana reviews PIC CEO suspension

We’re going to take a look at this and try to make sense of these developments with the founder and director at Corusca Consulting, Khaya Sithole. He joins me on the line now to see if we can understand this.

Khaya, lovely having you on the show, as always. Thanks so much for taking the time. What seems to be happening at the PIC beyond the conversations you and I have had around the institution?

KHAYA SITHOLE: What seems to be happening is that it’s yet another instalment of the governance crisis that seems to be a permanent feature of the PIC.

A couple of years ago that eventually led to an entire commission of inquiry that was focused on trying to understand exactly what keeps going wrong when it comes to the governance processes of the PIC.

That particular commission came up with recommendations, and the PIC went through some sense of stability in that they had a CEO who actually started and completed his term, and we thought that he essentially understood what it takes to govern an entity of this nature.

Unfortunately since then it’s all again fallen apart.

The CEO who replaced Abel Sithole – that is Mr [Patrick] Dlamini – has now been suspended on the basis, apparently, of a whistleblower report that says he has done something wrong.

ADVERTISEMENT

CONTINUE READING BELOW

But before we got there, there was indeed the dismissal of the chief investment officer, who also hadn’t been there for too long. There was then an interim CEO and then an interim CIO has also been removed.

So it sounds like it’s yet another episode of what happens to be a very frequent – far too frequent – occurrence at the PIC, where for some reason or other those who have the responsibility of managing its affairs simply either do not understand what it takes to do so, or they have far too many conflicts and far too many hostile entanglements that make it very difficult for them to really smoothly run this operation.

JIMMY MOYAHA: Speaking of individuals that have to make the relevant decisions related to this, we reached out to National Treasury to get comment on these developments, given that National Treasury is the key stakeholder in this case – and the chairman of the PIC’s board would also coincidentally be the Deputy Minister of Finance, Dr David Masondo. National Treasury has confirmed to us that they’re not speaking at this stage.

Khaya, I want to get your thoughts on National Treasury’s position in this particular context, given that we also seem to be hearing rumours that the deputy minister and the minister himself might be sitting at opposite ends of the table where it relates to this asset manager in particular.

KHAYA SITHOLE: Well, the first part is obviously the issue of what relationship National Treasury has with the PIC.

What the PIC’s model says is that obviously it has a board of directors, and the ANC government has decided that the chair of the board must be the deputy finance minister of the time – which is really something that a lot of people would express reservations about … the commission [of inquiry] particularly expressed reservations about that.

Be that as it may, they are the government of the day, and they’ve decided that the answer is that the chairperson of the board must be the [deputy] minister of finance.

But what also happens is that there is then the question of, well, beyond the board there is always a shareholder – and in this instance the shareholder is National Treasury itself – [which] is now represented by the finance minister himself.

So the question of whether the two political principals get along is an important one.

If there isn’t a meeting of the minds between the minister and the deputy finance minister it means there isn’t a meeting of the minds between the principal shareholder and the chair of the board of directors.

And you can imagine what the consequences of that divergence would be for any organisation, and in particular for an organisation as important as this one.

ADVERTISEMENT:

CONTINUE READING BELOW

The fact that they are not talking is not helping.

Bbecause obviously if they are not talking, it means they are either still deliberating on the issue or they have taken the view that if anyone talks, it will simply alienate or deepen the divide – ideologically or otherwise – between the two principals.

It’s perhaps in their best interest at this point in time to say this is possible; but that clearly is not in the best interest of the PIC, which is why even the Financial Sector Conduct Authority has said, well, we now want to be able to activate our ability to ask direct questions about what on earth is going on.

JIMMY MOYAHA: Khaya, speaking of things that are in the best interests, I want to look at the best interests of the beneficiaries of the R3.6 trillion that the PIC is the custodian of.

That is, of course, the public – mainly the Government Employees Pension Fund that represents the hard-working civil servants of South Africa.

At what point do we start to ask the question of placing the Public Investment Corporation under administration? Would that do anything to solve the problem and the challenges around governance that present the organisation?

KHAYA SITHOLE: No, of course not. The thing about administration in relation to governance in South Africa – at least the politicians’ understanding of administration – is that rather than have an entire board of overseers, you appoint one person who has unilateral powers to take all the decisions.

You’ve seen it happening at the National Student Financial Aid Scheme, and you’ve seen it happening in other government structures.

It is clearly a dangerous model, because you can imagine that for any company to have only one person being the ruler and a law unto themself is dangerous.

For an entity like the PIC, where R3.6 trillion is the number that gets bandied about – because that’s just one proxy of how big they are in terms of the assets that they own – the idea that one person could have unilateral authority to do absolutely everything is simply untenable.

The PIC’s solution is to find a governance model that enables those that have the executive roles to do their jobs, and those that have the governance oversight roles to exercise oversight in a manner that enables the institution to progress, [rather than] the idea of administration.

It sounds attractive to politicians, but it doesn’t get us anywhere.

JIMMY MOYAHA: Khaya, what are the risks that confront the Public Investment Corporation at this stage if these ongoing governance challenges continue to persist? R3.6 trillion, as we’ve rightly mentioned, is no small figure, and it means the livelihoods of a lot of South Africans [are affected]. What are the risks here if these governance challenges are not addressed?

ADVERTISEMENT:

CONTINUE READING BELOW

KHAYA SITHOLE: Well, the primary risk is the risk of paralysis, because the way the PIC is, is that the PIC is given money by the Government Employees Pension Fund in particular, and other smaller funds.

And its primary responsibility – in fact, its exclusive responsibility – is to make sure that those funds grow.

Now, the way to grow funds is not to keep them in a bank account, because you now know how low the savings returns are in South Africa if you simply put money to sit idle in a bank account.

So the answer is to take that money and invest it into projects, into ideas that will enable it to grow.

So when you have an institution that doesn’t have a chief investment officer and a chief executive officer, the type of decisions that are necessary on the deployment of funds – on the question of what to invest in, when to invest, and how much to invest – those decisions ultimately get delayed and deferred.

So it simply means that the primary reason for the PIC to exist – in other words, to invest money and grow money – is the thing that then ends up not happening.

That is as paralysing and as dangerous as it can be.

JIMMY MOYAHA: Certainly a lot of questions are being asked of the Public Investment Corporation, questions we have put forward as well.

We’re looking to speak to the Standing Committee on Finance in Parliament on the 4th of August, or after that, because that is when they will be summoning the Public Investment Corporation to a committee meeting to ask their own questions.

Hopefully some of the questions we’ve looked at here could be addressed there. We’ll see how that conversation unfolds. For now, we’ll leave this conversation on that note.

Founder and director at Corusca Consulting, Khaya Sithole, joined us to share some insights on the governance challenges that plague the Public Investment Corporation.

#PIC #administration