Everything about Boards of Directors. How does political favoritism manifest itself in the management of state-owned companies?

Print
sursa foto: lapunct.md sursa foto: lapunct.md
Publishing date: Wednesday, 30 May 2018
Views: 496

 The proximity of state-owned companies to political factors and economic interest in public assets create a favourable environment for corruption, which justifies a rigorous and uniform approach to everything related to state-owned companies. The State may participate directly in the economic life by means of two legal forms of organisation – state-owned enterprise and joint stock company (hereinafter, the state-owned enterprises and majority state-owned or wholly state-owned joint stock companies will be referred to as state-owned companies, except when a particular legal form is referred to). Although the activity of state-owned enterprises and joint stock companies is governed by separated laws, the management bodies of these companies are largely structured similarly and share the following elements[1]: board of directors, manager/executive body, audit committee.

Rigorous control mechanisms have to be implemented in management of state-owned companies, since these are often established to provide a public service or to operate in an industry prone to a natural monopoly. The division of state-owned companies into state-owned enterprises and joint stock companies makes the management of public assets more complicated. If the State prefers the joint stock companies as an organisational form, these companies should be managed according to the most stringent principles of transparency and corporate governance, going beyond the legal framework set up for private joint stock companies.  

For state-owned companies to be effectively monitored, the natural step would be to apply a single and rigorous standard both to the management of state-owned enterprises and majority state-owned joint stock companies, taking into account the specifics, the objective and the industry in which the enterprise operates. In other words, management procedures, including criteria for appointment of representatives in management bodies and their duties, standards on disclosure of information, etc. should be the same for all state-owned companies. The proximity of these companies to political factors and economic interest in public assets increase significantly the risk of corruption, which justifies a rigorous and uniform approach to everything related to state-owned companies. 

The main structure by which the State can play an important role in the activity of state-owned companies are the boards of directors. The purpose of a board of directors is to represent the owner’s interests (in this case – of the State) in order to ensure the strategic direction and good operation of the enterprise. The existence of two different approaches, between state-owned enterprises and joint stock companies, creates conditions for perpetuating obscurity in the supervision of these entities. Whereas the Law on joint stock companies has as primary objective to regulate private sector entities, the powers provided to the boards of directors of joint stock companies are narrower than the powers of boards of directors of state-owned enterprises, such elements as setting performance indicators being left at the discretion of joint stock companies. For this reason, given the increased interest in protecting public assets, if the State establishes a joint stock company, its activity should not be limited only to the fulfillment of the applicable legal framework, but should pursue a high level of transparency and corporate governance, also being a role model for private sector entities.

Read the report (en)  Infographic (ru) Read the report (ru) 

Tags: Natalia Chitii

test

Website: test
Print

Access the monitoring application

apl1 en

apl2 en

apl3 en

aplicat4

Projects

scoala en

lapunct en

budget en