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 / Winter 2006 / Issue 45(originally published by Booz & Company)


The Company That Anticipated History

When the utility made plans to erect five coal-fired power stations, Dr. Ian McRae, then the head of power station operations, saw a large problem ahead: a shortage of white workers with the skills needed to staff those plants. “We realized we had all these new power stations coming on and we didn’t have the people to operate them,” recalls Dr. McRae.

His solution was to begin training blacks to fill these positions, even though most were illiterate and apartheid outlawed them from being anything more than unskilled laborers. At the time, the laws reserved certain jobs for whites, and white trade unions jealously guarded those rules. (Black trade unions were illegal until 1979.) Breaking the law, though, wasn’t what most concerned Dr. McRae; rather, he worried whether Escom’s employees would support such radical measures. So he set up meetings at each power station with trade union representatives, plant managers, and black laborers to discuss the idea of blacks’ doing jobs traditionally performed by whites. Reassured that there would be minimal resistance, Dr. McRae started introducing blacks into the ranks in the new position of “operating assistant” and providing them with the training to develop their technical skills. He removed the existing educational barriers so that nonwhite operators could move into the position of shift supervisor. “I got people to agree that a good operator, with some experience, could move up,” says Dr. McRae.

By the late 1970s, worldwide condemnation of apartheid had left South Africa isolated, and its economy was stagnating. Demand for power plummeted, and it soon became clear that the power stations Escom had committed to build were no longer needed. After the company jacked up prices to offset the costs of construction and operational misfires, it found itself in financial difficulty.

That’s when the government stepped in. In May 1983, a commission appointed by the Minerals and Energy Ministry and led by mining executive W.J. de Villiers found fault with Escom’s management of forecasting, governance, accounting, and investment. Amid the commission’s inquiry, a scandal broke concerning a company accountant who had defrauded Escom of nearly $4 million; he was convicted and the finance chief was forced to resign. Escom was now a national embarrassment. The De Villiers Commission replaced its existing hierarchy with a new two-tier governance structure. An Electricity Council, appointed by and reporting to the government, represented the stakeholders, including consumers and unions, and set policy. Below that was the management board, which ran the company. For the first time, Escom would be accountable for profits and losses.

In 1984, the De Villiers Commission nominated Dr. McRae to be Escom’s chief executive. For chairman of the new management board, South African President P.W. Botha chose Dr. John B. Maree. The two men, temperamentally quite different, took on financial and cultural reforms together. Dr. McRae was the consummate company man. Soft-spoken and professorial in demeanor, he had started at Escom as an artisan’s apprentice in 1947. He was well-liked and respected inside the company and in the industry. Dr. Maree, a turnaround specialist, was renowned for his shrewd political instincts and his blunt management style. A former divisional chair at Barlows Ltd., one of the country’s oldest and largest conglomerates, Dr. Maree came to Escom following a three-year stint as the chief executive of Armscor, South Africa’s defense parastatal.

Drs. McRae and Maree began by looking inward. Using Dr. McRae’s signature “walkabouts,” a technique he had developed years earlier to make sure he never lost touch with his employees, they met with small groups of senior and middle managers in regional offices, power stations, and distribution and service departments. Morale was low. Consumer criticism had hurt, and Escom-bashing in the press made it worse.

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  1. Anton Eberhard, “The Political Economy of Power Sector Reform in South Africa,” working paper no. 6, Program on Energy and Sustainable Development at the Center for Environmental Science and Politics, Stanford Institute for International Studies, April 2004: Context for Eskom’s challenges as the primary electricity supplier in South Africa. Click here.
  2. Linda A. Hill and Maria Farkas, “A Gentler Capitalism: Black Business Leadership in the New South Africa,” Harvard Business School working paper no. 06-057, 2006: An informative profile of another South African company’s effort to recruit and develop black managers. Click here.
  3. Charlayne Hunter-Gault, New News out of Africa: Uncovering Africa’s Renaissance (Oxford University Press, 2006): The respected American journalist provides fresh perspective on pre- and post-apartheid South Africa, and prospects for the continent.
  4. Reuel J. Khoza and Mohamed Adam, The Power of Governance: Enhancing the Performance of State-Owned Enterprises (Pan Macmillan, 2006): The former chairman of Eskom offers views on governance of state-owned enterprises and on the narrowing gap between public- and private-sector management.
  5. Ian McRae, The Test of Leadership: 50 Years in the Electricity Supply Industry in South Africa (EE Publishers, 2006): Eskom’s former chief executive tells his story. Click here.
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