A compliance index to improve the performance of major state-owned companies in South Africa through differentials and drivers

Abstract

South Africa lacks a comprehensive performance compliance index (PCI) to assess and improve the performance of state-owned companies (SOCs). The existing performance frameworks predominantly focus on two indicators, financial and non- financial, and barely use the developmental performance indicator. Considering this, the primary aim of this study was to develop a comprehensive PCI aimed at assessing and improving the performance of major SOCs in South Africa. In addition, the performance levels of major SOCs were assessed herein. This study further compared and analysed the performance differentials of wholly and partially owned SOCs, as well as SOCs that fell under the Department of Public Enterprises (DPE) and those that did not. A pragmatic philosophy was adopted as the research paradigm for this study. In addition, an explanatory sequential mixed research method was used and conducted in two phases. In the first phase, the qualitative approach, consisting of a Delphi technique, was employed to develop a PCI by administering structured questionnaires. Experts assessed the comprehensiveness of the performance checklist. This method entailed soliciting expert opinions regarding the comprehensiveness and completeness of the performance checklist. The second phase consisted of a content analysis of annual reports from Schedule 2 major SOCs for a period of 10 years, from 2013 to 2022. In the same phase, the t-test method was applied to the quantitative data to determine the performance level and performance differentials of the 18 SOCs under study. The application of the PCI revealed that the Z-score index and developmental performance index (DPI) had a negative effect on the performance level of SOCs. In contrast, the Public Financial Management Act Index (PFMAi), the Corporate Governance Index (CGI), and the Human Capital Index (HCI) were found to have a positive effect on the performance level of SOCs. The analysis indicated that the vast majority of results (95%) showed no significant differences in performance between wholly owned and partially owned SOCs. Only a small proportion (5%) suggested the presence of performance variation between these two ownership structures. Further analysis revealed that, in the majority of results (75%), there were no performance differentials between the SOCs under the DPE and those not under the DPE, although some results (25%) reported that there was a performance differential between the two sets of clusters. Lastly, the analysis suggests that political interference, corruption (PIC), CEO remuneration, and transparency were not statistically significant drivers of SOC performance in South Africa. Thus, this study contributes to the body of knowledge in three multiple dimensions: empirical, theoretical, and methodological. From an empirical perspective, this study provides empirical evidence related to the development and application of PCI as a tool for assessing and improving the performance of SOCs. The research employed a complementary approach, utilising an integrated framework from multiple theoretical perspectives to elucidate the hypothesised relationships between the variables. However, despite this multidimensional approach, the legitimacy theory has emerged as the predominant theoretical lens for analysing and explaining the performance dynamics of SOCs. This is one of the first studies that constructs a PCI using the Delphi technique, thereby contributing to the refinement of performance measurement frameworks in this discipline. The findings of this study may be useful to the national treasury, government institutions, policymakers, researchers, and citizens by creating better governance, governmental policies, and performance management approaches in SOCs. A key recommendation emanating from this research is for SOCs to formally adopt and institutionalise the PCI to enhance SOC performance.