SOEs: Do they have the right objectives?

One of the most interesting books I have come across is ‘Who says elephants can’t dance?’ My favourite part of the book was right at the beginning – the way Louis V. Gerstner Jr was hired to IBM. He never applied for the job. In fact, IBM kept on approaching him while he was reluctant for the longest time. It was the persistent effort that finally convinced Louis V. Gerstner Jr to accept the offer. 

What happened thereafter is history. He is known to be the one who rescued IBM from near death in mid 1990s to become a strong entity yet again by early 2000s. 

Right people may not apply

It teaches something very precious. If there are critical vacancies, don’t just rely on the people who apply for it. One needs to have a very clear understanding of the role and what kind of person is best suited for it. Then find someone like that and go that extra mile to convince him/her to take up that task. Humility of the employer is well worthwhile, simply going by the above example of IBM. This is something pertinent in Sri Lanka right now. No doubt it’s good that the Government has called for applications from the public for the top Government posts. But it’s important to realise that sometimes, the right person(s) may not have applied. It’s a challenge for the leaders to find the right people whether they apply or not.

Private sector or Government sector, it doesn’t matter

It was interesting to note that prominent private sector personalities have been appointed to lead some key State entities. The Board of Investment, SriLankan Airlines, Sri Lanka Tourism Development Authority, Export Development Board, etc. There could be merits of appointing private sector personalities, although in my opinion it doesn’t really matter. 

What is more important is whether the person is capable of giving leadership to the entity so that it operates to achieve the best for the country as a whole.

As for private sector personalities, it would be important to handpick the ones who have created value over time. The kind of people who have developed something over time that has reached global standards. 

One has to bear in mind that the ones who have made the most profits, through “rent-seeking” type operations, may not be the most capable. The majority of the private sector has historically simply engaged in importing and reselling at a margin, with little effort to advance in the value chain, despite making significant profits for decades.

Grand plan should be made by the right team

The book ‘Good to Great’ comes up with an insightful finding. It says the best companies don’t set the objectives and then hire people. In fact, they hire the right people first and then let them figure out the best course of action.  However for that to work, the entire team should communicate with each other and then formulate a grand plan and then trickle down to the role of each entity in the big picture. Instead, if each entity goes its own way, there could be repercussions on the big picture.

Conflicting objectives in the short run

 Ideal cases in point are SriLankan Airlines and the Sri Lanka Tourism Development Authority. 

Clearly, SriLankan Airlines plays a pivotal role for the development of the tourism industry. If SriLankan Airlines operates with a pure financial motive, it could have negative consequences on the tourism industry. To be even more specific, certain routes that are operated by SriLankan Airlines could be loss-making. However, operating those routes may be generating substantial tourism earnings which are trickled down to the broader economy. 

Until the tourism industry develops to a certain level, SriLankan Airlines may have to provide that support. Once the industry reaches a certain scale, those routes could become financially viable. Hence, SriLankan Airlines would have to tolerate such short-term financial challenges for the long-term benefit of the tourism industry and the economy at large. One could hope the heads of these entities and the experts driving the overall economy would be cognisant of these factors.

Even the right person can’t do miracles

The key to attract FDIs is not who is heading the Board of Investment. Of course the person matters, but what is more crucial is whether the right environment is in place to attract the desired investments. Since the ending of the war, the FDIs we have been receiving are predominantly leisure and real estate related. Investments into real estate could be a double-edged sword. World over there are examples of gluts in real estate, with high vacancies which results in steep reductions in property prices and repercussions on the wider economy.  The objective should be to attract more desirable investments into technology and other areas of value creation which could result in more employment, transfer of technology and an advancement in the global value chain. For that, the right environment should be in place. The required skilled labour force should be available, tax concessions for such sectors should be provided and whatever other required infrastructure should be available. 

These factors could be facilitated by Government policy. That should happen first and with such factors in place, a dynamic head of BOI could pitch the attractiveness of these sectors in Sri Lanka to investors globally and embark on a FDI attracting journey. 

One shouldn’t expect miracles, even from the right person.

  

(The writer can be contacted on [email protected].)