A few years ago, when tenders were announced for members of supervisory boards in state-owned companies, I applied. I ended up with a company whose activities I knew almost nothing about. I expected that the relevant ministry would tell us what we should demand from the management of that joint-stock company. We received no instructions, and the management did not devise a medium-term plan. So, until another government came that appointed its people to the supervisory board, we pretended to be mushrooms for a decent fee.
>>> Tipurić: Can the state be efficient in Croatia?
The owner cannot set KPIs. Neither the government nor the ministries have them. Which is great for avoiding clear political responsibility. When you add factional staffing, various business lobbies that pressure managers of state companies through ministers, the results are still quite good overall.
This was recounted by one of the participants during the break of this week’s Lider conference ‘State-Owned, but Efficient – What Kind of State Companies Do We Need?’. That nothing has changed for the better in corporate governance (the relationship between the owner – the state, the supervisors, and the management) to this day was demonstrated by conversations with the leaders of about ten companies that are wholly or partially state-owned. With honorable exceptions, considerable chaos still reigns. In which selected managers try to navigate as best they can. When Professor Darko Tipurić presented the thesis at the conference’s opening that state companies can be efficient, but the question is whether that is possible in Croatia, it seemed like an exaggeration. It turned out it was not.
Managers Without Goals
Ambitiously, in designing the conference, we wanted to see what KPIs (key performance indicators) are set for the management of state companies. No matter how diplomatically they tried to respond (understandable when speaking about the owner, i.e., the state), it quickly became clear that managers of state companies actually do not have clear goals set that they need to achieve. And that they would actually like to receive them. Among other things, so they could not just be dismissed if they achieved what the owner requested.
>>> Vuić: Statistically, private companies are more efficient, and that is not a coincidence
The owner (read: the government, or the relevant ministry, i.e., the minister) cannot set KPIs either. They do not have them for themselves. Which is great for avoiding clear political responsibility. Subsequent attempts to find corporate governance at least in traces also yielded no results. In every state budget, there is an item for how much is planned to be withdrawn into the state treasury from the profits of state companies. A naive person would expect that this is the sum of profits verified at the assemblies of state joint-stock companies. However, informed sources confirm that the total amount is most often determined by estimation.
It is incredible that large state companies do not have medium-term plans. When you add factional staffing of the ruling party (‘Your CEO can stay, but then I want two board members…’), various business lobbies that pressure managers of state companies through ministers, the results overall are still good. It can be understood that more capable managers in such circumstances try to survive by actually choosing members of the supervisory boards.
>>> State-Owned, but Efficient: Maximizing Profit is Not the Exclusive Goal for State Companies
Unused Space
It is not possible to privatize everything. There remains a persistent effort to sensitize the current or some future prime minister to the importance of corporate governance in state companies. Those who systematically dedicate themselves to this, and not just when some excess occurs, will even gain the most precious thing – a few more votes in elections.
All in all, it becomes clear how much unused space there is for more efficient operations in state companies. Where, of course, maximizing profit must not be the only criterion for companies like HEP, Croatian Forests, or Lottery. The conference included representatives from the more successful part of state companies. While we were seeking solutions, another discussion was taking place about the state of Croatia Airlines. In the absence of corporate governance, the role of the concerned owner had to be taken over by the unions! Although there is an example of a successful restructuring of a state-owned company (Badel 1862), the ‘century-long’ torment with Petrokemija shows the extent of the incapacity of Croatian governments to solve problems.
Where is the solution? The simplest seems to be to privatize everything. Which is politically impossible to expect. And global experiences show that some activities are not wise to privatize. The insistence on corporate governance remains. On establishing a system. As one of the ways, informed sources mention allowing institutional investors like the EBRD as minority shareholders. They would insist on clear rules and goals. But here the public begins to doubt that this is the beginning of handing over strategic companies to foreigners.
>>> Mario Musa: The challenge is how to offer programmers higher salaries than management
There remains a persistent effort to sensitize the current or some future prime minister to the importance of corporate governance in state companies. Those who systematically dedicate themselves to this, and not once every few years when some excess occurs, will even gain the most precious thing – a few more votes in elections.
