The impact of regulatory pluralism and complexity on the governance of state-owned companies in South Africa

• Citation: (2023) 35 SA Merc LJ 49
• DOI: https://doi.org/10.47348/SAMLJ/v35/i1a3
• Published date: 27 February 2024
• Pages: 49-73
• Author: Thabane, T.
• Date: 27 February 2024

THE IMPACT OF REGULATORY PLURALISM

AND COMPLEXITY ON THE GOVERNANCE

OF STATE-OWNED COMPANIES IN SOUTH

AFRICA

TEBELLO THABANE*

Senior Lecturer, Commercial Law Department, University of Cape Town

Abstract

This article outlines and critiques the regulatory universe applicable to

state-owned companies (SOCs) in South Africa. It argues that the

governance of SOCs occurs within a plural regulatory universe

characterised by an intricate system of norms, principles, and practices

that are engendered, monitored, and enforced by state and non-state

actors. The article further argues that the complexity of the regulatory

universe is one of the main causes of weak governance in SOCs. This

argument is premised on the realisation that a coherent, predictable,

efficient, and accessible regulatory universe enables compliance and

sound corporate governance. In evaluating the regulatory universe, this

article follows two lines of inquiry: the first is a doctrinal and

principled approach, and the second is an instrumental, policy-

orientated, and forward-looking analysis. The article concludes that

the regulatory universe of SOCs is not only plural and complex but

also incoherent and fragmented, resulting in onerous over-regulation,

regulatory quandary, and uncertainty, which collectively negatively

impact the quality of governance.

Keywords: state-owned company; regulation; regulatory universe; corpo-

rate governance

I INTRODUCTION

The conversion of government service departments into corporatised

state-owned companies (SOCs) was initiated over two decades ago to

increase operational eff‌iciency by distancing government from routine

operations to minimise political interference. With corporatisation

came ‘regulatory dualism’, wherein SOCs are governed by the same

* BA LAW, LLB (NUL), LLM (UP), LLM (UFS), PhD (UCT).

49 https://doi.org/10.47348/SAMLJ/v35/i1a3

(2023) 35 SA Merc LJ 49

© Juta and Company (Pty) Ltd

corporate laws (for example, the Companies Act 71 of 2008) as other

companies, but are also subject to laws and protocols that apply only to

state entities, such as their corporatising statutes, namely the Public

Finance Management Act 1 of 1999 (‘PFMA’)

1

and the Protocol on

Corporate Governance in the Public Sector (‘Protocol’).

2

This dualism

in regulation allows for ‘regulatory diversif‌ication’. The rationale for

regulatory diversif‌ication is that ‘actors being regulated are not homog-

enous in their needs for regulation’ and thus require ‘two or more

parallel forms of regulation, with each form designed to deal with the

characteristics of a distinct set of actors’.

3

The duality and diversif‌ication

of regulation have resulted in a highly plural regulatory universe for

SOCs. This article examines this dual, diverse and plural environment

and ref‌lects on its impact on the quality of corporate governance in

SOCs.

IITHE NATURE OF THE REGULATORY UNIVERSE

Regulation can be understood simply as an activity aimed at ‘inf‌luencing

the f‌low of events’.

4

In reality, however, the exerting of inf‌luence on the

f‌low of events in a regulatory sense is a far more intricate process, which

often involves state-centred legislative action with administrative

enforcement, otherwise known as command-and-control regulation.

5

But the f‌low of events particularly in the corporate setting can also occur

through a ‘corporatist arrangement’ where the corporate sector regu-

lates its affairs without state intervention.

6

This form of self-regulation is usually driven by market dynamics that

1

Other legislation applicable to SOCs by virtue of them being state entities includes the

Promotion of Access to Information Act 2 of 2000; the Promotion of Equality and Prevention

of Unfair Discrimination Act 4 of 2000; the Promotion of Administrative Justice Act 3 of

2000; the Preferential Procurement Policy Framework Act 5 of 2000; and the Intergovern-

mental Relations Framework Act 13 of 2005. These Acts are not examined in this paper as they

do not have a direct bearing on corporate governance issues in SOCs.

2

Protocol on Corporate Governance in the Public Sector (2002) (‘Protocol’).

3

See Gibson, Hansmann & Pargendler, ‘Regulatory dualism as a development strategy:

Corporate reform in Brazil, the US and the EU’ (2011) 63 Stanford Law Review 475–538 at

480.

4

Regulation encompasses both binding laws and non-binding instruments. For a

comprehensive account of the theory of regulation applied in diverse contexts, see Drahos

(ed), Regulatory Theory: Foundations and Applications (Australian National University Press

2017). See also Parker & Braithwaite, ‘Regulation’ in Tushnet & Cane (eds), The Oxford

Handbook of Legal Studies (Oxford University Press 2012) 119.

5

For a general overview of command-and-control regulation, see Parker & Braithwaite,

(Oxford University Press 2012) 126–127. See also Orbach, ‘What is regulation?’ (2012) 30 Yale

Journal on Regulation 1–10.

6

Black, ‘Constitutionalising self-regulation’ (1996) 59 Modern Law Review 24–55 at 27.

https://doi.org/10.47348/SAMLJ/v35/i1a3

(2023) 35 SA MERC LJ50

© Juta and Company (Pty) Ltd