The problems besetting the PIC lie at the intersection of the organisation’s expansion since its corporatisation in 2005 and the systematic capture of Board committees by senior executives, influenced by insatiable greed.
Behind the recent suspension of the Public Investment Corporation’s executive head of listed Investments Fidelis Madavo is an apparent disconnect between operational functionality on the ground, including the authorities and decision-making powers, administrative capacities, and staffing and technical capacity of the PIC’s line departments, and a centralised and evidently unaccountable executive.
To appreciate the scale and depth of the leadership and governance challenges in light of the current enquiry into allegations of impropriety at the corporation, let’s start with context.. The PIC’s stunning reversal of fortune has been years in the making, to be sure. Until 2005, when the PIC was ‘corporatised’, a large portion of funds was invested in equity and capital markets. Even though client mandates varied across asset classes, there was considerable coherence in the basic orientation towards listed equities and related targets. All 23 funds managed by the PIC had clear and explicit investment mandates to diversify their portfolios, with a focus on stable returns over the long-term.
However, with growth in the size of assets under management and expansion has come serious governance lapses and impropriety. It appears that the PIC’s senior executive management and its board have constantly failed to act in the best interest of its clients and the country at large. Critically, the Investment Committee has been embroiled in just about every scandal involving the PIC, given that it is responsible for over R2 trillion in assets under management. The much-publicised multi-billion Rand VBS bank scandal is recent testimony to the failure of the Investment Committee in their fiduciary duties. More than R280 billion was lost in the Steinhoff deal that “passed” their standards. It is government employees who are robbed and vulnerable. The combined impact of all these factors has placed in the public domain issues that need urgent redress in order to reassert the PIC’s reputation as a financial services provider of choice and enable the Corporation to attract and retain the best talent for the business.
It would appear that the PIC has been utilised to dish out patronage at the expense of its investors. How is it possible that over R200 billion is lost and nobody is held accountable? The PIC has, as a result, been serving as a till for some thieves to enrich themselves.
While the commission on state capture may have done a good job unearthing the scale of state capture, the PIC commission features corruption running in the billions of Rand. The common denominator in all these commissions, is that taxpayers’ money was being stolen and squandered with impunity. It is only after those complicit in looting the public purse have been brought to book that the road to economic recovery will begin. For as long as those that are implicated in corruption walk free, very little will be achieved. Resignations and suspensions are not enough. There must be consequences for all the wrongdoers.
Equally, the quality and alignment of skills, leadership and organisational capabilities of the PIC should match the current challenges the country faces.
To be sure, a number of weaknesses were recognised in a World Bank review of GEPF/PIC alternative investment activities as far back as 2011 following the GEPF’s review of its investment strategy and decision to introduce new asset classes and markets in an effort to further diversify its portfolio. This was compounded by the findings of a more recent Climate Survey by Deloitte and spate of negative media publicity on weak investment choices, “political interference” in the PIC, and “a decline in the motivation of the growing workforce which is the most significant asset in an asset management business, accounting for nearly 60 % of the costs of the organisation.”
The PIC’s own governance review pointed to loopholes in the system of governance and gross derelictions by senior executives, and along with it a complicated array of “suspicious” investments that have been thrown into sharp focus across a wide spectrum of deals and investment decisions, and, lately, allegations of corruption. Consider a 2014 governance review which stated that, “Although there were no reported material breakdowns, contingencies or uncertainties in the functioning of PIC systems, procedures and controls that came to the attention of the ARC, a prominent drawback and worrying potentate of the change mandate concerned the delegation of authority, where decision-making should necessarily mean greater adaptability, and therefore agility, in the governance model and related processes in a context of expansion.”
And therein lies the rub. In theory, as organisations such as the PIC grow in size, stature and complexity so too ought the degree of discretion and oversight, where compliance and risk management rules and systems, delegations of authority, reporting and compliance structures and processes, and the institutional and organisational capacity and human capabilities required to meet the PIC’s revised commitment are adapted to organisational levels exercising context-dependent decisions.
Instead, the governance practice has encouraged a rule by executive committee and therefore encouraged tensions between fiduciaries, diluted accountability, and fostered sub-optimal decision-making.
Such diagnoses elevate the importance of assessing the reasonableness and adequacy of policies and interventions that have recently impacted on the performance of the Corporation. Indeed, the fitness of the PIC – the quality and alignment of skills, leadership and organisational capabilities to these challenges –supports a complete clean-up of this critical institution. Information in the public domain points to a compromised board that has had oversight over several dubious transactions in recent years.
As Team South Africa is hard at work trying to attract investors in the economic sphere at the World Economic Forum in Davos, Switzerland, the often-asked question is, “What are you doing about corruption?”. The PIC Commission provides an opportunity for the PIC to start afresh with a team of qualified and able leaders who believe in South Africa and its potential. The past decade was wasted. Now is the time to grow a prosperous economy that will create jobs and improve the lives of our people.
Let the commission do its work. It’s only when the tide goes out that we’d lean who has been swimming naked.
Sizwe Mbele who is the Director of Strategy and Marketing at BLSA writes in his personal capacity