PERFORMANCE BASED CORPORATIZATION OF

PUBLIC SECTOR

Mohammad Iqbal Ghori FCMA

Business Professional ConferenceCorporate Pakistan 2013

Institute of Cost and Management Accountants of Pakistan

Corporatization

Transformation of state owned enterprises, local, provincial, and federal organization into autonomous corporation.

Process to make over the state owned organization and business interest into commercial oriented companies to introduce corporate governance to safeguard the interest of all stakeholders.  

Corporatization is a precursor to partial or full privitization, which involves a process where formerly public functions and public enterprises are sold to private business entities.

Building “Firewall” between the Government's policy making role and ownership role.

Strengthening of BoDs as envisioned under the Companies’ Ordinance

Professional and commercially oriented management selected by the BoDs

GoP

BoD

Management

ROLE OF GOVERNMENT

Corporatization

Corporatization results improved transparency

and accountability.

Proper records of operations and business

affairs.

Disclosure requirements.

Corporate entities gives rise to a well-

regulated and well-documented economic

sector.

Corporatization in Pakistan

Corporatization was started on 8 October

1984 in a vision to promote corporate

sector.

The program was integrated in Privatization

program of Prime minister Nawaz Shairf.

Political intervention. Powerful Trade unions. Political CEOs. Uninformed Boards lacking

competencies and required experties. Personal or political interest of BoD. Immature and stubborn regulators.

DIFFICULTIES IN CORPORATIZATION

Rubber Stamp Board Operational Board Symbolic Board

Approves without contest or consideration Does not consider alternatives Limited role of non-executive board members Dominated by executives Relies on information fed by executives Does not see its role as adding value

Board makes operational decisions Board has dedicated offices in the PSE Board functions as an extension of a governmental department Focus on state expectations versus needs of the PSE Limited strategic focus Limited role of non-executive board members

Circumvented and powerless Not consulted on decisions by either management or owners Not privy to key discussions between owners and management with all decisions taken by owners Often de-motivated for lack of recognition, influence and impact

Source: Internet

BOD is devastating organizational hierarchy BoD is unaccustomed with PSE’s rules of

business Unwarranted discussion in BoD meeting Short term view Conflict of interest BoD compromises the opinion of professionals Undue dependency on consultants Uninformed BoD even ignorant of good

practice of Board room.

DIFFICULTIES IN CORPORATIZATION

Expected Role of PSE’s Board

Responsibility for the organizational performance.

Elimination of lethargic and bureaucratic behavior in the organization.

Regulatory Compliance Articulation of Business plan Performance monitoring system Performance based compensation in lieu of

national BPS. Hunting and retention of Professionals Succession Planning Inculcation of transparency and accountability

culture.

Role of PSE’s Board Cont…..

Finalization of Vision and Mission statement. Manages potential conflicts of interest. Avoid involvement in operational activities. Formulation of policies. Preparation of Financial Statement as IFRS. Ensures financial statements are prepared. Commercial oriented decision making

process. Corporate Social Responsibility. Engagement of Stakeholders.

RECOMMENDATIONS Political orientation toward the role of board

and its best practice. Training of line Ministries officers i.e.

Secretaries, Additional Secretaries. Orientation session by SECP before

nomination. Excellent communication between

bureaucracy and Politician. Recruitment of effective boards to attracts

leadership.

Performance Contract between BoD and GoP.

Implementation of Integrated Reporting in Public Sector

Entities.

Mandatory Third Party Corporate Governance Audit.

Establishment of Holding Company to formulate Policy and

monitor Performance.

Help construct talent pool for all sector

Public Transparency thru disclosure of results.

Articulation of Business plan and approval after negotiation in

first three meeting of Board of Directors.

RECOMENDATIONS

Transparent and merit based selection and appointment of

Board of Directors.

Skilled Based Nomination Process.

Sector Specialist instead of Generalist.

Professional from at least Accounts/Audit, Law and H.R

Discipline .

Independent performance evaluation to eliminate conflicts

of interest.

RECOMENDATIONS

Great governance is a journey, Not a destination.

Past performance is, as the saying goes,

No guarantee of future success.

The board that becomes self‐satisfied Is a board that may underperform

Its full potentialAnd the organization’s needs.

Barry S. Bader

Thank You