*Corporate Governance in the South African Public Agencies: Implications for Oversight… DOI: http://dx.doi.org/10.5772/intechopen.110391*

were also sourced to understand CG. Data were first organized and filtered to exclude all the irrelevant topics. Content and discourse analyses enabled the researcher to produce themes on the gaps in the application of CG. There is an advantage of using document analysis that adds value to this study because it evaluates physical and electronic documents to interpret them. Therefore, it improves the understanding of the content and context of information generated from secondary data and delivers them. Some of the significant steps in the document analysis of this study included the following:

This study followed a procedure that is tabulated in **Table 1**, with steps sourced from the analysis of documents and policies about the performance of SOEs in


*Source: Adopted from Bowen [6].*

### **Table 1.**

*Document analysis trajectory.*

post-apartheid South Africa. Policy analysis was built by Taylor [7], has subsequently built over a systematic theoretical framework, and elaborates on the content and context of the literature which must be analyzed and organized into themes that relate to facts about the policy implications. Government policies and reports on policy outcomes provide information about the outcomes of policy implementation and the application of CG. Users of information must share and disseminate information on CG with credibility. Scholars in the field of management studies and others interrogated the literature and provided in-depth analysis to be learned by other scholars and users of information worldwide. It has also been noticed that information has also been questioned and validated to allow scholars to analyze information from various standpoints to allow future research.

### **1.2 Oversight roles of executive institutions**

The term "oversight" refers to the informal and formal, strategic, vigilant, and organized examination and monitoring used by legislators to examine compliance to laws and accountability, budget requirements, and how strictly legal prescripts and the 1996 Constitution of the Republic of South Africa are followed. Legislative bodies are required by oversight to monitor the daily exercise of power by the national, provincial, and local executive branches. As part of the oversight, there is monitoring done of onsite inspections, ad hoc parliamentary and legislative inquiries, review and approval of municipal and government spending, the establishment of standing committees that cover a range of policy areas and are independent of the executive. The requirement that ministers regularly provide Parliament with information, such as annual departmental reports, and the provision of a question period for lawmakers during official proceedings are typical oversight mechanisms and techniques.

When it comes to SOEs, portfolio committees and executive institutions played a prominent role in the oversight of SOEs. Concerning the South African government, the oversight role is constitutionally arranged, among the three spheres of government. At the national level, the oversight is divided among the three powerhouses of the legislature, executive, and judicial houses.

### **1.3 Corporate governance conceptualization and application**

The concept of "corporate governance" has been framed as the act of how organizations direct and oversee their activities. CG is applied through systems of governance with various stakeholders and members of the board with diverse interests. Various activities include the functioning of the board, the council's arrangements for effective leadership, stewardship, auditing, administration, accounting, and performance to deliver services to clients while complying with policies and procedures. Executives' and nonexecutive members' responsibilities are specified with wellrounded values and cultures supporting the systems. Globalization has influenced the way corporates rule in the world through international standards, by macrolevel, to support the allocation of the nation's savings to its most productive use. Some investments and savings are expected to be achieved and be able to fund business activities, whether through equity or debt and returns that will eventually regulate national prosperity.

Lessons can be learned from the recent US experience with Enron, WorldCom, and other failures which reminds us of systemic implications for strategic investment

#### *Corporate Governance in the South African Public Agencies: Implications for Oversight… DOI: http://dx.doi.org/10.5772/intechopen.110391*

that may leak if sustainability is not accomplished, and business failures are adequately inescapable. Emerging economies like South Africa have a problem integrating government with business interests. The SOEs agencies and parastatals have applied CG with some reservations since there are disparities in handling business from a public and a private point of view; hence, at some point, public and private partnerships and contracts emerged.

In **Table 2**, key principles of corporate governance are highlighted. In 1994, King 1 Report was established and a few principles of CG. Later, there was a new version of the second and third reports that developed and refined the principles from the first one to the fourth report [9]. The fourth report summarized all the principles with additional ones that include more stakeholder involvement in IT governance and disclosure. The application of these principles in the governance of the SOEs implies the diverse representation of shareholders and interests from the public and private sectors. The interesting part is that there is an inclusion of ethics and other good governance principles, especially from King III to King IV. In the South African context, the inclusion of the New Public Management Principles (NPM) was made clear during the transformation of the public service and recognized the involvement of the private entities in service delivery through public and private partnerships and contrast.

#### **1.4 Agency theory and corporate responsibility**

The agency theory is fit to be aligned with CG as it is adopted to understand the relationship between the agency and the principal. In addition, the SOEs internationally and locally have adopted CG, with implications for the agency–principal relationship. Agency theory can be adopted in this study to understand the relationship between the principal and the agency. The focus of agency work in a business is how the agents protect the principal's best interests, without considering their own. The introduction of the new public management (NPM) in the South African public service implied that the government introduced new alternative ways of improving service delivery.

With the introduction of the NPM in South Africa, the government portrayed a new look at their marriage of convenience with the private sector and nongovernmental organizations. The government introduced new alternatives to improve service delivery such as public and private partnerships, management contracts, and leasing. All these new strategies were practised by integrating private interests with public interests. As absorbed by them, there was a thin line to differentiate the differences between public good and bottom-up since there was growing competition and rivalry among the SOEs and the nongovernment organizations. There was a growing conflict of interests and corruption in SOEs and resulting in nonallegiance toward the principal's best interests. Miscommunication and disagreement raised a variety of issues and strife inside government businesses.

The other interesting issue that emerges from the agency and principal relationship is that of patronage tendencies. Patronage is understood as the act of giving power to the agencies to make official bureaucratic appointments. Hollibaugh [10] notes patronage tendencies that emerge when public officials recognize certain traits such as loyalty and merits. Patronage appointees – often defined as those chosen for their campaign experience, electoral benefit, or other nonpolicy political benefits – tend to be assigned to low-priority organizations whose goals align with the president's and to positions where their influence on agency outcomes will be minimal. A case in point is


#### **Table 2.**

*King reports on the principles of CG.*

the investigation of the office of the public protector revealed malicious and corrupt tendencies between the state and the few businesses that were given contracts consistently by public officials to render government work [11].

*Corporate Governance in the South African Public Agencies: Implications for Oversight… DOI: http://dx.doi.org/10.5772/intechopen.110391*

#### **1.5 The strategic roles of SOEs in South Africa**

The emergence of CG in South Africa proceeded after the infusion of the NPM principles in the South African Public Service as part of the transformation agenda. The NPM welcomed the involvement of nongovernmental and private entities to partner with the government as service providers to improve the performance of parastatals and government departments. Therefore, the public and private sectors had to find ways to work together for convenience while having diverse interests. CG emerged as a convenient approach used by both private and public organizations to manage the operations of SOEs in Southern Africa. Public organizations have implemented and climatized King's corporate governance model in the absence of a law guiding them on how to operate in South Africa.

Global and national forces, such as the technical development of international markets, increased the size and complexity of businesses, compelled them to work together more frequently, and increased the amount of capital they needed to survive and contribute to the national economy. According to Balbuena [12], most of the governments in Southern Africa have taken a similar path in the development of SOEs by privatizing some of their shares to develop their economies. In most countries like South Africa and Botswana, governments have also bailed these entities financially during their economic downswing. It is, therefore, not easy to find sustainable growth in SOEs.

To accelerate development and transformation, the government had to implement measures like privatization, which involved asking the private sector to develop the South African economy and create job opportunities. The agency theory and privatization theory are used as avenues for investment and collaboration in projects for global development and transformation.

Privatization is the process whereby the entity sells some of its stake or shares to private organizations or people who own a business. Privatization has been associated with the market economy where the bottom line and profit-making are the keys to success in boosting the economy. However, in a mixed economy like South Africa, privatization is favored by the private sector, and the public sector is aligned with the state interest of serving the general welfare. With growing globalization in the fourth Industrial Revolution (4IR), SOEs are created to support the economy by producing goods and services, and job creation. It should be noted that some stakeholders like workers' unions and other political parties contested the privatization of some of SOE, especially in the transport and energy sectors. Privatization is blamed for increased costs of production and prices of services delivered by SOEs to their clients [12]. However, it should be highlighted that SOEs are required to focus their efforts on providing goods and services to their clients and consumers, as well as saving costs and increasing profits. This chapter can classify three types of public entities listed and endorsed by Public Finance Management. The first is composed of Schedule 1 entities which include constitutional institutions such as the *Independent Electoral Commission* and *Public Protector* among others. Schedule 2 entities are comprised of Major Public Entities with greater autonomy than Schedule 3 entities. Schedule 2 entities are listed below. The subdivision of Schedule 3 entities is as follows:

• **National Public Entities** – its purpose is specialized agencies or not-forprofit organization functions such as the *Companies and Intellectual Property Commission*, the *Human Sciences Research Council*, and the *Road Accident Fund*;


Governments around the world have long created SOEs with several public policy objectives in mind, constructing fundamental physical infrastructure; offering necessary services such as finance, water, and energy; producing essential goods and services, resource management, market failures addressed; and other benefits for the broader society. According to Sarika [13], the SOE's existence has long been directed toward the developmental state agenda to boost the economic needs of the society by pursuing job creation and production of essential services and operations, especially in the energy and transport sectors. The agenda for development and acknowledgment of human rights motivated the government to drive SOEs toward the right path aligned to the projects and infrastructure on roads and transport toward the fulfillment of the dream for sustainable economic prosperity and economic liberation in Africa, SADC, BRICS, and SA. Therefore, the government's role in balancing political, economic, and social sectors from the 1970s and 1980s from a variety of nations suggests an average low growth is yielded in Southern Africa. This suggests that the SOE's challenges are crippling diverse projects that could improve the Southern economic development and investments. In addition, it is not a train smash to balance the government's political will and the economic goals of these SOEs and private firms for their economic prosperity.
