Futuregrowth Asset Management has raised serious concerns about the slow pace of filling critical positions in Transnet’s board of directors.
Transnet board was appointed in May 2018 made up of 12 independent non-executive directors and two executive directors, but has since shrunk to eight members after six directors resigned or retired without being replaced since February 2019.
In a report released yesterday, Futuregrowth said it has observed significant operational challenges at Transnet and evolving governance weaknesses over the ensuing five years since the current board was appointed.
Futuregrowth investment analyst for Listed Credit Lindani Vezi said a company of the size and complexity of Transnet needed a larger board, with a broader array and depth of skills than it currently has.
“We believe that the shareholder (as represented by the minister) should be speedily filling the vacancies with appropriately qualified, skilled, ethical and suitable people,” Vezi said.
“That these key positions remain unfilled at this moment in Transnet’s history, and with the significant operational challenges it faces, disturbs us as investors in Transnet, together with its implications on the broader South African economy.”
Transnet board is chaired by non-executive director Popo Molefe, while executive directors Portia Derby and Nonkululeko Dlamini sit on the board since they are CEO and chief financial officer, respectively.
Other remaining members are attorney Ursula Fikelepi, engineer Dimakatso Matshoga, Mpho Letlape, engineer Percy Ramabulana, and Dr Sydney Mufamadi.
The terms of the remaining six non-executive directors, bar for CEO and chief financial officer, will all expire in May 2024.
Vezi said this created a real risk of a sudden and immediate loss of continuity and institutional knowledge in a year’s time.
He said that Futuregrowth, which manages clients' assets of around R185 billion, was also concerned that the reduced board size has left Transnet with three key sub-committees (viz. the Audit Committee, the Finance and Investment Committee and the Risk Committee) with critical skills missing.
“The gradual reduction in the board size over the past five years, coupled with the skills mismatch to provide oversight, has occurred over the same time as an observable deterioration in Transnet’s financial and operational performance,” Vezi said.
“Financial covenants are being breached, revenues, profitability and cash flow is reduced – and, for the first time in years, Transnet has required shareholder support in the form of a R5.8 billion bailout provided in the October 2022 Medium-Term Budget, as announced by the minister of finance.
“On the operational front, Transnet Freight and Rail continues to experience a shortage of locomotives, persistent cable theft and underinvestment in infrastructure. All of these remain significant headwinds facing Transnet and need urgent resolution to ensure that Transnet returns to stand-alone sustainability and our economy starts to recover and grow.”
The Department of Public Enterprises (DPE) did not reply to requests for comment on Futuregrowth’s concerns yesterday.
Vezi said the governance shortfalls observed at Transnet further brought into question the nature of governance oversight performed by the DPE as the shareholder responsible for oversight at Transnet.
“We believe that the DPE has a state-owned company Governance Assurance programme, staffed by 25 employees and a total budget allocation in this fiscal year of R60.6 million (R31.6 million allocated to compensation of employees), yet they have seemingly failed to identify and address basic governance issues timeously,” he said.
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