These institutions are supposed to generate their own revenues and cover their expenditures.
Some of these entities face competition from private companies and have the obligation to pay dividends to the government.
To ensure that these institutions flourish, decision-making power must be entrusted to those who are responsible and accountable for the running these firms on a day-to-day basis.
I did my PhD during Tanzania’s period of massive privatisation of public entities.
My study involved firms that were state-owned and those that had been privatised.
The findings of my research rejected the idea that privatisation alone improves the welfare of stakeholders interacting with firms that were formerly state-owned.
Instead, the results emphasised the importance of competition and managerial characteristics over ownership status.
That was 19 years ago. From 2015 to 2024, I had the opportunity to lead two business entities – one was a private firm and the other a state-owned enterprise.
My prior teaching at universities also involved leadership roles, first at a private university followed by a public university.
The experience provided me with additional insights, and I discovered that it is not only competition and managers’ characteristics that matter.
There are also fundamental governance issues that need to change for state-owned firms to perform well, whether or not they face competition.
These prepositions stem from my own experience and from what I learned through interactions with other leaders of state-owned and private entities.
One fundamental factor that hinders the prosperity of state-owned firms is interference from other entities in decision-making.
Along with that are the prolonged procedures involved in public entities such as procurement, employment, organisational restructuring, budget approvals and employee remuneration.
A critical concern is lack of competition in the appointment of CEOs, board chairpersons, and board members.
Additionally, there are constant demands for managements of state-owned firms to attend various meetings, some of which hold little or no relevance at all to their operations.
In private entities, decisions are made by management or boards of directors.
However, in state-owned entities, many decisions must be submitted to other government organs for approval. This is despite having boards of directors, which are supposed to be independent.
The extent of this interference can depend on the leadership of these organisations and the strength of their boards.
To overcome these obstacles, fundamental changes are needed in the laws governing these entities.
One may ask how long it takes to change the organisational structure at all levels in a private company in comparison with the same in a state-owned entity.
In a private company, changes are usually made by getting approvals from the board of directors, typically only for the upper part of the organisation structure, those involving the board, the managing director (MD) or CEO and those reporting to the CEO.
The rest is left to management to decide.
This makes sense, as the lower positions fall under the authority of senior officers who report to the CEO, and they are granted the independence to adjust their structure to meet business needs.
In private companies, decision-making power is entrusted to those who are directly responsible and accountable.
The situation is different with some state-owned firms.
The process begins at the management and board level, followed by presentations of the proposal at the ministerial level.
After that, the document is submitted to the Commission for Work for further discussion and final approval.
In some cases, this process can take one to two years, and in certain instances, the approval is obtained when the structure is already outdated.
Additionally, changes are sometimes made contrary to what the management and the board initially proposed.
The approved organisational structure often covers all positions, from the top to the bottom.
For someone leading such organisations, it becomes very difficult to compete as rivals in the industry move forward with time.
The entity is required to strictly follow the approved structure for all the positions, with absolutely no flexibility for changes.
If management takes an initiative to introduce quick changes based on business needs without approvals, which often takes a long time, they attract audit query and in some cases, management is subjected to interrogations by other government organs.
Why not decentralise decision-making to those who are responsible and accountable? If the structure does not work in this case, who should be blamed?
In the next part of this series, I will continue to explore various situations and their implications with regard to improvement and changes required in order to improve the performance of state-owned firms.
Dr Muhsin Salim Masoud is a seasoned banker and academic, who has also served as managing director of the People’s Bank of Zanzibar and Amana Bank.
