Eskom’s seven deadly integrity sins

Has the lesson been learnt?

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Eskom has yet again surged into the headlines and hyped the national angst with renewed load shedding, unbundling and the new business model happening at the same time. This calls for an in-depth look at what Eskom, in any shape or form, requires of its leadership going forward.

There are some key lessons to be learnt from scrutinising the report by the Portfolio Committee on Public Enterprises into the governance, procurement and the financial sustainability of Eskom, dated 28 November 2018. It is a must-read for everyone in South Africa who wants to understand exactly what occurred at Eskom and should be mercilessly rooted out if Eskom and the national power problem are to see any light in a reiterated form.

The report details the findings of the inquiry by the Portfolio Committee, following widespread concern about the Eskom Board’s ability to provide effective leadership to the national electricity utility and inability to discharge its fiduciary responsibilities, including the flouting of governance rules, laws, codes and conventions.

Each and every issue raised by the inquiry—from the Tegeta and Trillian contracts to the serving of the interests of private firms and individuals, to the then CEO’s resignation, pension saga, reinstatement and “early retirement”, to the board and shareholder’s failure to uphold anything approximating good governance and financial accountability and sustainability—speaks of the complete lack of one word: integrity.

Integrity covers a range of core qualities, including honesty, trustworthiness, ability, commitment and professionalism. Frankly, the lack of—and disregard for—integrity by Eskom’s leadership is damning and a word search for ‘integrity’ in the report has it coming up seven times, with carefully crafted words associated with it every time it is mentioned. The report references the King IV Code on several occasions and emphasises the paramount importance of integrity in governance. Unless integrity becomes the cornerstone of the new Eskom/s, we will plunge further into darkness.

No reinvention of the basics is required for Eskom going forward; instead, we require the diligent and non-negotiable application of them, and the never-to-repeat Eskomgate, which has knocked South Africa sideways. The report refers, inter alia, to irregular procurement, mismanagement and non-compliance with existing policies and the purging of highly qualified, experienced and skilled senior staff members in violation of human resource management policies and procedures. In some instances, these purged staff members were replaced, without due consideration for, or compliance with, established recruitment policies. That these were done with impunity and for as long as they did, defies belief.

The Portfolio Committee recommended that Parliament hand over this report, together with the documentation and the entire record of evidence collected in the course of its inquiry, to the Zondo Commission of Inquiry for further investigation.

One of the challenges with the word integrity is that it has been bandied about and overused on paper to the degree that it has lost its real-life impact. Which leads me to question how many people in positions of leadership, accountability and responsibility at all levels actually understand what this word means and live this ethos. The lack of integrity in so many sectors of South African business and society and globally is surfacing in a number of ways, including at Eskom and the Zondo Commission. It calls for a profound relook at integrity.

This is well-articulated in an article published in September 2018 in the African Journal of Public Affairs titled Recovering Responsibility and Integrity in Public Service: A Focus on Fundamental Principles and Values of Governance.

It is authored by Professors Raymond Cox III and Peter Haruna, respectively from the University of Akron, Ohio, and Texas A&M International University, Texas, who are both Research Associates at the School of Public Management, Governance and Public Policy at the University of Johannesburg.

They explain that, especially in public service, the norms and values that support organisational integrity are social and cultural. First and foremost among these social and cultural values is the idea of professionalism.

Quoting Frédérique Six and Leo Huberts, Professors of Public Administration and Public Governance at Vrije Universiteit Amsterdam, who have authored books on world cities fighting corruption and safeguarding the integrity of governance, they explain that for organisational integrity to thrive, it is not simply enough to have good people making good decisions that reflect norms and values. It requires the reinforcement of ethical frameworks at the macro- and micro-levels. It is through the expectation and actions of behaving with integrity, aptitude, responsibility and trustworthiness that a truly professional public service emerges.

As Six and Huberts emphasise, integrity is based on a “relevant set of moral values, norms and rules, not what I, personally, may hold as values and norms, not my personal interests”.

Going back to the actual Eskom report, it is worth looking at all seven references to integrity to get the full picture of Eskom’s failure to behave in anything approximating a professional public service.

The first reference to integrity in the Eskom report (pg.108) reads as follows, and addresses the role played by the former Minister of Public Enterprises, Lynne Brown, in Eskom’s downward spiral:

“The damage to Eskom’s integrity was made evident in its appointment of Mr

Khulani Qoma (“Mr Qoma”). He explained the motivation for his appointment to the Committee: Consequent to Ms Thuli Madonsela’s […] State of Capture report, [the] Eskom Board, through Mrs Venete Klein, approached me to come in as reputation adviser and a spokesperson for the Board of Directors of Eskom… However, Mr Qoma points to the actions of Minister Brown that prevented him from doing the job he was appointed to do. He referred, specifically, to the television interview in which Mr Koko [Matshelo Koko was the former acting CEO of Eskom at the time] denied having signed any prepayment to Optimum Mine: Notwithstanding the appearance on Carte Blanche, where he was caught out publicly lying, and other serious allegations of corruption, Minister Brown appointed Koko as acting GCE. Expectedly, media and commentators protested this reckless appointment. It was an irrational decision with a scarce demonstration of the requisite duty of care. The Minister was somewhat oblivious of the septic boil caused by the revelations of the State of Capture. Her appointment of Koko served to fast-track Eskom’s reputational downward spiral.”

The second reference to integrity in the Eskom report (pg. 116) reads as follows and addresses the then Minister Malusi Gigaba’s failure to assess the integrity of Eskom’s Board members.

“Minister Gigaba did not consider how his choice of Board appointees faired in their roles, notably Ms Mabude was removed by Minister Brown in 2017 and Mr Matjila both of whom were linked to the Gupta family businesses in the #Guptaleaks emails. Minister Gigaba also did not address how the integrity of Board members was assessed at appointment and during their tenure. The Minister also spoke to the constitution of Board subcommittees, given that the role of the BTC in the Board he appointed has been questioned, especially in relation to the Koeberg steam generators’ procurement and TNA.”

The third reference to integrity (pg. 119) cites the Committee’s observations of ministerial mismanagement and questions the board’s integrity and ability:

“Minister Gigaba’s overhaul of the Eskom Board and appointment of one made up of almost entirely new members. It appears that Minister Gigaba’s overhaul of the Eskom Board introduced patterns of instability. It is not apparent that the Board appointed by Minister Gigaba had been sufficiently vetted in terms of integrity, collective skills and experience to govern Eskom and execute their fiduciary responsibility.”

The fourth reference to integrity (pg. 120) cites the Committee’s observations of Minister Brown’s responsibility and accountability, and once again questions the board’s ability:

“It is not apparent that the successive Boards appointed by Minister Brown had been sufficiently vetted in terms of integrity, collective skills and experience to govern Eskom and execute their fiduciary responsibility. Minister Brown’s oversight over the actions of the executive and non-executive directors was inadequate, leading to gross breaches in fiduciary duty and potentially illegal acts.”

In any public enterprise or corporate context, the first rule of good governance is that the leadership and/or directors of the company are people of integrity. And that’s the point coming through loud and clear in the Eskom report: two key ministers did not vet the board on their integrity. The report raises a burning flag about the role of the two ministers in question, and this is why the people of South Africa have become cynical.

Back to the Eskom Report, and the fifth reference to integrity is on pg. 122. The Committee reports on the corruption and abuse of public resources for private interests and the failure of key, entrusted personnel to do their jobs:

“Evidence paints a disturbing picture of capture and repurposing of Eskom. The Committee heard evidence, which illustrated the extent to which public procurement processes at Eskom and the exercise of public power had been used to serve the interests of private businesses and individuals. The abuse of public resources to benefit these private interests stands in direct contradiction to Eskom’s constitutional obligation to ensure that its procurement processes are equitable, transparent, fair, competitive and cost-effective. The Eskom Board failed dismally in its responsibility to ensure that Eskom complied with the applicable laws and SCM processes. In addition, various Eskom Board members were conflicted in their dealings with some of the private businesses and may have acted unlawfully together with senior management to benefit a network that sought to achieve the capture of Eskom.

“Evidence was placed before the Committee that various Eskom directors and senior employees acted inconsistently with their responsibilities in terms of various legislation, including the PFMA. It appears that such persons abused their positions and may have exploited confidential information for personal gain or to benefit other persons improperly. As set out above, key Eskom personnel failed to act withfidelity, honesty, integrity and in the best interests of Eskom. Various responsible persons, including Eskom Board members, failed to investigate allegations of corruption, improper conduct, or failure to comply with the supply chain management system and failed to take appropriate steps in relation to such allegations. Evidence before the Committee also showed how persons entrusted with key public powers acted inconsistently with their responsibilities.”

They go on to say:

“The corruption at Eskom has undoubtedly contributed to the substantial loss of public funds and in various instances resulted in severe job losses in some companies competing with the Gupta family-owned companies, hampered transformation and may have caused environmental damage. Judging whether individuals [Leadership of Eskom Board and Executives] or entities have displayed ethical and effective leadership can be done with reference to the definition provided by King IV: Ethical leadership is exemplified by integrity, competence, responsibility, accountability, fairness and transparency. It involves the anticipation and prevention, or otherwise amelioration, of the negative consequences of the organisation’s activities and outputs on the economy, society and the environment and the capitals that it uses and effects.

“Based on the evidence before the Committee, it is patently clear that individual and collective actions taken by the Board and executives at Eskom have allowed successive unusual or irregular procurement.”

Then on pg. 133/4, the sixth reference to integrity addresses the entering into contracts with specific entities such as McKinsey, which contributed a guise of legitimacy and which is deeply problematic.

“The Committee refers to the ‘Questionable awarding of Contracts’: The Inquiry has revealed that the corruption of procurement processes at Eskom would not have been possible, if not for the guise of integrity and legitimacy that some erstwhile reputable entities afforded certain Eskom decisions. Such entities benefited greatly from the tainted contracts and enjoyed advantageous relationships with the implicated companies.

McKinsey’s Partnership with Regiments & Trillian are then listed:

  • McKinsey partnered with Regiments and Trillian under questionable circumstances;
  • McKinsey employees worked alongside Trillian ahead of any completed due diligence, which was only undertaken in response to media reports (initiated by Dr David Fine);
  • McKinsey authorised Eskom payments to Trillian despite having no contract with the company;
  • McKinsey benefited from an unusual sole proprietor status for various financial andstrategic matters;
  • McKinsey was allowed to determine—with the programme Steerco—what fees it and Trillian would earn on an irregular, unjustifiable and unlawful risk-based remuneration model which had not been approved by Treasury;
  • McKinsey was paid ~R 1 billion for a contract that should have never been actioned as it seemingly never entered into force (a number of conditions were not met before the Conditions Precedent expired on 31 March 2016) and there is some question as to whether it was duly authorised;
  • Numerous reports (Oliver Wyman, G9, Bowmans) raised questions over the value for money of the deals McKinsey was involved in—specifically, that McKinsey was allowed to charge fees in excess of market rates;
  • McKinsey’s role and the roles of its senior employees, Vikas Sagar, Alex Weiss and Lorenz Jungling are highly questionable, and warrant further investigation, including for potentially serious criminal conduct.

3.11.2 The Committee welcomes the payment to Eskom of the amount of R902million McKinsey earned for the contract, which was never approved by the Treasury. The commitment to pay back this amount was made by a representative of McKinsey in the Inquiry. The Committee also welcomes the confirmation of the payment of R99.5million in interest from McKinsey to Eskom.”

Finally, onto the seventh reference on pg. 140/141, which poses a monumental challenge in the context of what we are trying to achieve in our country, is where policies and procedures are applied in bad faith.

The Committee reports on the following at Eskom:

“4.9 The loss of experienced leadership and staff with integrity.

4.9.1 The Board of Eskom must improve the entity’s Human Resources management in order to attract and retain staff and managers who are capable and not prone to corruption and capture by private interests.

4.9.2 The Eskom executive management must reverse the culture whereby internal labour relations policies and procedures have been applied in bad faith to victimise or side-line long-standing, competent and/or law-abiding executives, senior staff and experts.

4.9.3 The Board must ensure that disciplinary measures are taken against professionals such as scientists and engineers who acted unethically, and who through their willful and/or grossly negligent actions, caused financial losses and reputational damage to Eskom.”

For the Eskom Board to have allowed the situation to support the use of tactics designed to remove people or using company resources to have them evicted or sidelined without ever questioning why, culminates in the conclusion as to how the lack of integrity led to things getting as bad as they have.

The only way to change the rot is to get rid of everyone who was involved in it and sweep clean because, as King points out, if you knew what was going on but you didn’t raise any concerns or note them in the minutes, or resign, it demonstrates that you must have been complicit. It allowed powerful figures to hold the institution to ransom and it spread the cancer by short-circuiting processes.

On a more positive note, the report concludes with the Committee making some recommendations. There is no doubt that all stakeholders who have a vested interest in a strong and sustainable Eskom want to see swift movement on these.

The Committee recommended that “investigations currently underway at Eskom and/or undertaken by other institutions including all reports presented to management or the Board prior to final Board approval must be presented to the Portfolio Committee. This recommendation is based on the detailed findings that reveal the failure of successive Eskom Boards to fulfil their statutory responsibilities set out in the Companies Act 2009 and the Public Finance Management Act 1999, as well as failure to adhere to the King Code on Corporate Governance and other regulations”.

The Committee recommended that the government “request the National Treasury to review and strengthen the regulations on procurement, pertaining to state-owned companies, particularly those with large procurement budgets such as Eskom”.

The Committee said: “Criminal investigations into possible cases of fraud, corruption, and/or other unlawful conduct must be pursued by the South African Police Service, Directorate for Priority Crime Investigation (DPCI), Special Investigative Unit (SIU), National Prosecuting Authority (NPA) and other law enforcement agencies.”

What has happened at Eskom poses a huge systemic risk to our country. All of us need to reflect on what integrity means and anyone being considered for a position needs to be comprehensively vetted on their integrity. There are urgent lessons that need to be learnt and it is a case, as Nelson Mandela said, of “never, never and never again”.

Professor Owen Skae,
Director of Rhodes Business School

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