Governance changes key to sustaining state-owned firms – 2
By Muhsin Masoud
Last week’s part of this series ended by highlighting procedures that are usually followed in state-owned firms in getting approval of organisational structures.
Other lengthy processes in state-owned firms are employment procedures. In private entities, boards usually approve budgets for new employees alongside annual budgets and the responsibility for recruitment is entirely left to the management, which is accountable for the employees they hire.
In contrast, state-owned firms usually must obtain government approval before they proceed and in some cases, even the recruitment procedures and the interviews are conducted outside the entities’ domain.
When management wishes to recruit a promising talented candidate from the industry to a state-owned firm, the process often takes too long, usually around six to nine months to complete.
In the private sector, the difference is stark. The candidate is approached and the recruitment process is often completed within a month or less, leading to more efficient operations and better performance.
In state-owned firms, it is not unusual for the entire recruitment process to be completed, only for the management to receive a call from a senior government official questioning why a certain candidate was recruited or why someone else wasn’t.
If the chief executive is not strong enough, the entire process might have to start all over again, adding another six months of delay. How can these entities compete under such circumstances?
As an example from one case well known to me, one CEO faced a situation where, even after obtaining all the necessary approvals, the process was halted by interference from another government organ without any valid reason and letters of appointment were withheld, preventing the candidates from being officially hired. As a result, services and operations were disrupted and management, not surprisingly, took the flak.
Even remunerations and incentives are dictated by government-approved salary scales. Bonuses in some cases, must also be approved by shareholders even when performance targets have been significantly exceeded.
The situation differs significantly from companies with which these state-owned firms are competing. How can state-owned firms attract top talent and deliver better services when their incentives are controlled and significantly lower compared to those of private competitors?
Most of the time, complaints are directed at management, criticising poor service quality compared to private competitors and employees’ performance being below industry standards.
There was an instance that I am aware of where the head of a certain state-owned firm received instructions from the ministry to abolish certain incentives granted to managers despite the entity’s strong performance.
He objected, risking his position to defend the decision. This overlooked the fact that the industry these employees worked in involved significantly higher risks and more demanding duties than those in other government departments.
These are just a few examples of obstacles that state-owned firms face in human resource management due to lack of decision-making power granted to those who are entrusted and accountable for running these organisations.
These kinds of interferences often persist due to the perception that these entities are merely extensions of ministries. At times, heads of department in ministries may believe that they have the authority to instruct CEOs to take certain actions.
One CEO was once summoned by a department head in a ministry and instructed to contact managers from other institutions to arrange for a meeting. Instead of focusing on core responsibilities of the entity, the CEO was expected to perform secretarial tasks.
A colleague once told me that, in reality, the heads of these independent entities are comparable to permanent secretaries because they are also accounting officers sometimes managing budgets larger than those of ministries.
Unfortunately, this fact is often overlooked.
A colleague leading a large public entity once shared with me that he was summoned to a ministry with only an hour’s notice, without being informed of the meeting’s agenda.
He declined to attend, demanding proper notice and details of the discussion. He was bold.
I remember a similar experience when I was in the middle of a meeting and was urgently summoned to attend another one, with warnings of repercussions if I didn’t comply.
When I arrived, I found that the meeting was entirely irrelevant to my role. After half an hour, I decided to leave and return to my office to continue with the duties that I was primarily responsible and accountable for.
The next article will highlight further the downside of regarding state-owned firms as departments within ministries as well as other prolonged approvals and their impact on performance.
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.
