Public Entities Corporate Governance Bill - Minister's Second Reading Speech

PUBLIC ENTITIES CORPORATE GOVERNANCE BILL
MINISTER’S SECOND READING SPEECH

National Assembly, 19th December 2017

THE MINISTER OF FINANCE AND ECONOMIC PLANNING (HON. CHINAMASA): Mr Speaker Sir, it is my singular honour to move that the Public Entities Corporate Governance Bill [H.B. 5, 2017 be read for a second time.

Mr. Speaker Sir, Section 195 of the Constitution provides that companies and other commercial entities in which the State has a significant interest must conduct their business in order to ensure commercial viability and they must abide by generally accepted standards of good corporate governance

Hitherto, our State enterprises which could otherwise have been playing a vital role in contributing to the revenue realised by Government, presenting employment opportunities to our citizens, producing exports receipts as well as products for domestic consumption, have instead, been the proverbial albatross around the neck of our national economy.

Previous efforts to encourage compliance with sound corporate governance principles such as the Corporate Governance Framework for State Enterprises and Parastatals in 2010 and more recently, the National Code on Corporate Governance in 2015, have gone largely unheeded by most public entities and in equal extent, by their responsible line Ministers.

Resultantly, the Auditor General’s report on state enterprises and parastals for the year ending 31 December 2016 once again revealed ongoing deep-rooted and far reaching governance problems within the state enterprise sector and self evidently underlined the continuing failure by line ministers to meaningfully address those problems.

That notwithstanding, this Bill signals the latest step in Government’s ongoing efforts to bring order and rationality to the parastatals sector and to ensure that such entities once again make a positive contribution to national economic growth.

In many instances, management blames poor performance and unsatisfactory service delivery on the prevailing economic situation, even where the company they superintend has a virtual monopoly and Government support in the sector in which it operates. However, upon closer scrutiny, the reality that invariably emerges is that in a good number of the cases, it is the management itself which is the root cause of the problem bedevilling the company.

While primary responsibility for management of public entities lies with the boards and management of the public entities, it is also clear that line ministers under whose jurisdiction a parastatal falls have been failing to provide effective oversight over the entities which fall under their purview.

The Public Entities Corporate Governance Bill is designed to address these issues by bringing order, structure, transparency and consistency to this important sector of our economy. It also seeks to further empower line ministries to exercise far stricter oversight of their respective entities and to ensure that those entities operate in line with sound corporate governance principles and practices as enshrined in the Bill.

In essence, amongst other aspects, the Bill gives legal force and effect to the national code on corporate governance which is incorporated into the Bill as the First Schedule. I will now highlight the key provisions of the Bill.

Scope of Application

As far as the coverage of the Bill is concerned, in terms of Clause 3, as read with Clause 2 (1), the Bill shall apply to all ‘public entities’ which are identified as institutions whose operations or activities are substantially controlled by the State or by a person on behalf of the State, whether through ownership of a majority of shares in the entity or otherwise and these include –

a) a statutory body;

b) a public commercial entity; and

c) an entity established for the purposes of carrying out a project.

Save as otherwise provided for in the Bill, it shall therefore be mandatory, at law, for all institutions falling under this description to abide by the tenets of the corporate governance principles espoused herein.

Corporate Governance Unit

Clause 5 of the Bill will create a new Corporate Governance Unit as a department within the Office of the President and Cabinet whose functions shall be:-

·        to provide an advisory and centralised support mechanism for line ministries to ensure strict compliance by all public entities with the provisions of the Act;

·        to advise line ministries with regard to the regular evaluation of the performance of public entities and their boards and employees;

·        to oversee the discharge by line ministries of their responsibility to monitor compliance by boards and senior management with the performance contracts;

·        to establish and maintain up to date a comprehensive directory or database accessible to all line ministers and boards that will

·        enable them to identify suitably qualified candidates for appointment to boards of public entities and

·        to advise on the provision by line ministries of programmes for the professional development of board members and senior management of all public entities undr their purview, including board induction programmes and corporate governance training for board members, chief executive officers and other senior members of management.

In other words, the Corporate Governance Unit will offer continuing support to the line ministries and the public entities concerned to ensure compliance with the tenets of good corporate governance.

The appointment of board members must be carried out in the most transparent way possible and each appointment must be based purely on merit.

As such, it shall be incumbent upon the appointing authority to furnish the unit with the qualifications of the proposed appointee and to explain what distinguishes that appointee from the rest. I refer Hon. Members to Clause 11 (12) on this point.

Board appointees and senior management shall have a duty to declare their assets prior to assumption of office in terms of Clause 37. Declaration of assets will place a duty upon an appointee to explain the source of their income under circumstances in which there is an inordinate accumulation of wealth during, or immediately after their incumbency.

Remuneration of non-executive members of public entities and conditions of service of executive members of public entities

Clause 12 of the Bill addresses issues surrounding the payment of non-executive members of public entities. In short, the appointing Minister shall, in consultation with the Minister responsible for Finance, develop a ‘Remuneration Framework’ which shall form the basis upon which payment scales are formulated. That Remuneration Framework is in turn, submitted for Cabinet approval before it is implemented.

Issues such as the experience and qualifications of a member of the State entity, as well as prevalent salary scales amongst their peers will be of a persuasive value, but not in itself a benchmark upon which a board member can lay a demand. The crucial issue here is that the salaries will be paid depending on how a public entity is performing, and how profitable it is at a given time.

Clause 13 provides for the conditions of service of executive members of public entities. Similar to the above, the Minister responsible for the administration of the Public Sector Corporate Governance Bill shall develop model conditions of service for executive members which shall be adhered to and subject to revision where exigencies require so.

Restriction on remuneration of board members of public entities

Mr. Speaker Sir, Clause 14 is of vital importance in addressing the ludicrous remuneration that members of certain public entities have been awarding themselves. Under sub-clause (10), the Minister assigned the administration of the Act, with the approval of the Minister responsible for Finance, and after consultation with the line Minister concerned, shall by notice published in the Gazette specify the amount that may be received, by way of remuneration, allowances and other benefits, by members of the board of any public entity.

This clause will allow a ceiling to be set on the amount of remuneration board members may receive, or even specify an exact amount payable. If a member breaches the remuneration set in terms of this provision, they will become liable to a surcharge for the purposes of recouping the value of the money improperly paid out to such member.

Strategic Plans of public entities

Mr. Speaker Sir, each public entity shall be expected to draw up a carefully considered Strategic Plan that maps out their intended objectives over a period of two to six years, and how they intend on achieving such objectives. This is in terms of Clause 22 of the Bill. The strategic plan will include performance indicators against which the company can benchmark its own performance and will ensure that the entity strives for a commonly held and understood objective. These strategic plans will be available for public inspection.

Performance contracts with senior staff of public entities[

Closely related to this is the new concept of performance contracts that will be entered into by the Chief Executive Officer or a senior member of a public entity that clearly spell out his or her deliverables. These are provided under Clause 23. Where such CEO or senior member of the public entity fail to achieve the set out goals, they become liable to dismissal in terms of the contract. The motivation to succeed here is apparent, and these officers must ensure that they deliver on their key objectives.

Meetings of boards of public entities

Clause 23 will require boards to meet at least once every three months and to convene an annual meeting of stakeholders once a year to be known as the “annual general meeting”. They will also have to meet their line Ministers at least twice a year to provide feedback on operations and discuss any other such pertinent issues.

Additionally, in order to ensure that the Board continues to function if the membership of a board falls below a quorum, the board will be allowed to meet for up to 90 days pending the appointment of new members, but any decisions reached by the board during that time will be subject to ratification when a quorum has been formed in terms of sub-clause (2).

Conflicts of interest on part of board members and staff of public entities

Clause 34 will require members of boards and senior staff of public entities to declare conflicts of interest and prohibit them from taking part in their entities’ business where there is such a conflict. Failure to do so will result in the member or senior staff member ceasing to hold office as such.

Mr. Speaker Sir, with this presentation, it is now my honour and pleasure to move that the Public Entities Corporate Governance Bill [H.B. 5, 2017] be now read for the second time. I thank you.

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