These days State Owned Companies (SOCs) around the world have been getting a better press. Previously, the perception was that nation states were anxious to privatise these whenever possible. State capitalism has, however, since taken on a new relevance and importance, with governments now actively leveraging the skills and know-how of SOCs. For example, China's government finances much of its national commercial activity and the export of its products and services, many of which find their way to the African continent.
SOCs are generally managed at two levels:
Governments act as owners, investors and policy makers
Company directors are the operators.
In South Africa the Department of Public Enterprises (DPE) is the primary manager of nine such state-owned companies, which include Eskom, Transnet and South African Airways (SAA).
I live in France for part of the year and benefit greatly from the services and quality of many of the 57 French state-owned companies. These are much-admired entities and 1.75 million French citizens work for them.
This article reviews the different practices of managing SOCs, and in particular those of the French APE (‘Agence des Participations d'État,' or ‘Agency'). Some of the observations may be on the DPE's agenda for examination and action.
Top-end management – a brief background
In the past most SOCs were managed by the relevant sector ministry. I spent some years in Kazakhstan, helping to unwind its SOCs (in reality, government departments) under the then Ministry of Energy. It was all about engineering and the focus was industrial - the managers, and indeed the government ministers, were engineers.
The SOCs were seen as production enterprises, not as investments. In the Ministry there were experts in ‘infrastructure investment, its delivery and operational efficiency', but little emphasis on ‘financial and commercial viability'. Profit and solvency were not priorities, but production, full employment and skills training certainly were. All senior staff at the Ministry had work experience with the operating divisions.
As SOCs became seen as national investments, the Ministry of Finance or Economic Affairs became more prominent in the equation. This refocused the top level management of these state-owned assets towards an ownership and value-added view.
Few nations now have this one ministry approach, most using either a dual or centralised agency model. In the dual model, responsibility is shared between two ministries, with the first usually being the Ministry of Finance or Economic Affairs, and the second a sector ministry - such as the Ministry of Energy with which I worked. This is practised in a wide range of nations, including Italy, New Zealand and Turkey. Centralising the management role under one department or agency, such as in South Africa, has now become common. For example, Belgium even has its Ministry of State-Owned Enterprises and Participations.
SOCs are now seen as a portfolio of state assets, (a holding company in a way), rather than a series of individual enterprises or activities. As we will see, the French APE (‘Agence des Participations d'État'), their equivalent of South Africa's DPE, has strategic objectives that are well beyond just portfolio management.
The French state as a shareholder – hands off
One only has to travel in France to appreciate the success of the SOCs there. The superiority of the SNCF (French Railways) compared to the various small private-sector railway companies in the UK is an example of this policy. Also, road transport runs smoothly on SOC's operated auto routes and the lights never fail, as the SOC-managed nuclear power stations are famously reliable.
The importance of state entities is also of major concern to the government of the day. As noted earlier, in 2011 the French SOCs employed 1.75 million people. These are of course all voters too, making them doubly important to any government in power.
One of the first announcements of the newly installed socialist government in France was regulations to limit the salaries of SOC chief executives to twenty times the salary of the lowest staff salary grade. At just about the same time it created a ‘Ministry of Industry and Growth', with its role being to help keep afloat private sector companies in difficulties; even to the extent of taking up shares in them.
In France the APE reports to the Ministry of Finance and Economy and represents the state in 57 fully or partially owned listed companies. Names familiar to South African readers include Air France-KLM, La Poste, Renault, Électricité de France, France Télécom, France Télévisions, as well as certain casinos.
The Agency is more or less autonomous, and acts as the ‘advisor' to the Ministry of Economic Affairs on SOC strategy, investments, financing, mergers, acquisitions and equity transactions.
Each year it publishes a financial report that translates into English as the ‘The French State as a Shareholder'. This report consolidates the results of all the SOCs into an IFRS-compliant financial document. It's a form of balance sheet and commentary on state holdings performance that is available in English and well worth viewing on its website.
Interesting to note that, with all this responsibility, the APE itself has just 60 employees. With such a small staff and wide mandate, it cannot be involved in SOC operational details. For example, Électricité de France (EDF) alone has 119 000 employees (compared to Eskom's 41 000) and operates 78 nuclear power stations. SOC performance is evaluated through a scorecard approach, while the SOC directors get on with technical management.
France's SOCs prioritises two ‘overarching industrial visions':-
South Africa as a shareholder – more hands on
On its website, the DPE defines its management role as monitoring the performance of SOCs with regard to:
This requires a wide range of high-end technical and managerial skills at the DPE to cover such a range of dissimilar businesses. Infrastructure investment and delivery at Eskom must be very different to that of SAA, while operational efficiency in Transnet certainly has unique features not found in South Africa's other eight SOCs.
However, last year the DPE Minister, Malusi Gigaba, announced a new vision that included:
‘a strong emphasis on driving investment, productivity and transformation in our portfolio of State-Owned Companies and their customers and suppliers, so as to unlock growth, drive industrialisation, create jobs and develop skills.'
This is closer to the French approach of ‘framing industrial and business development strategy'.
A similar approach to the second French aim of ‘setting up strategic partnerships or tie-ups between publicly-held corporations' may, for example, motivate the DPE to partner its SOCs with those in China, Russia or Brazil to develop or share service markets. This would indeed deepen industrialisation and further create jobs. SOCs make up 80% of the value of the stock market in China, 62% in Russia and 38% in Brazil.
The French connection
I was most interested to observe on the French APE website that late in 2011 it was visited in Paris by a ‘Comité d'Evaluation Présidentielle sur les entreprises d'État d'Afrique du Sud', which must be the DPE, or a closely related entity. They doubtlessly shared experiences that I would have been delighted to personally observe, but in any event look forward to the next issue of ‘The South African State as a Shareholder'.
In 2005 the Organisation for Economic Co-operation and Development (OECD) published “A Survey of Corporate Governance of State-Owned Enterprises.' This is a good starting point for anyone wishing to study established practice for managing SOCs. The websites of the various national DPE equivalents get you up to date - if you can understand or translate the languages these are written in. asa
Author: Colin Sutherland CA(SA), CA(Zim), is an independent consultant based in France.