Public enterprise management: Need for change

Tuesday, 24 September 2013 00:00 -     - {{hitsCtrl.values.hits}}

While the majority of the population in probably any country is highly critical of public enterprises, Ministry of Finance and Planning Deputy Secretary to Treasury Dr. B.M.S. Batagoda attempted to find out if the ownership of an enterprise has an impact on its performance. Having analysed the performance of both, the public and private enterprises in a number of sectors such as finance, aviation, plantation, and utility, he said ownership didn’t matter. “The ownership of an enterprise shouldn’t matter. What matters is the management. If management is in place, any organisation, be it state owned or private, will perform better.” Speaking during the session on ‘Public Enterprise Management – Need for Change,’ Dr. Batagoda said that people are quick to criticise public enterprises by calling it inefficient. Public enterprises are not like private companies as they have a social responsibility as well which is not captured in the balance sheet, noted Batagoda. Despite this additional responsibility, he said the Government has performed better than the private entities in some sectors. However, in areas such as aviation he said the Government has failed to show growth. The performance of enterprises mostly depends on the capability of the CEO, the management style, the commitment of the board, and the supervision of the line ministry, said Dr. Batagoda at the session which was chaired by Public Administration Ministry Secretary P.B. Abeykoon. Acknowledging that the Government plays a major role in the society and its expenditure forms a significant part of GDP, former Auditor General and currently Director of Commercial Bank Plc S. Swarnajothi stressed the importance of an audit in this sector. According to Swarnajothi, acting in the public interest requires strong commitment to integrity, ethical values and the rule of law. In addition to this he said there should be openness and comprehensive stakeholder engagement. The management should define the outcomes in terms of sustainable economic, social, and environmental benefits while determining the interventions necessary to optimise the achievements of the intended outcomes. The management should also develop the capacity of the entity, including the capability of its leadership and the individuals within it. Risks and performance should be managed through robust internal control and strong public financial management practices. Moreover, the management should deliver accountability by implementing good practices in transparency and reporting. To shed light on how management audit could help create efficiency in public enterprises, Swarnajothi said that the audit should review periodically all business units to ascertain the branches and departments carry out businesses in compliance with the laid out guidelines along with following other applicable regulations and procedures. “Management audit can help benchmark against best practice standards of service quality, effectiveness and efficiency which delivers value added assessment and reporting of the organisation’s risk management controls and methodologies. It will help improve their ability to respond to new and evolving risks and contribute to the enhancement of the entity’s control culture,” explained Swarnajothi. He elaborated that effective management audit in public enterprises encourages better decision making and the efficient use of resources while it helps to strengthen accountability for the stewardship of those resources. “I believe that management audit should not only think about statuary obligation of reporting or the compliance aspect of internal auditing, but should be persuaded to see the strategic importance towards contributing to create efficiency in public enterprises to meet the expectation of the public,” expressed Swarnajothi.  Focusing on ‘Public Policy Management and the Need for Change,’ the PIM Program Director Public Policy Dr. Lloyd Fernando pointed out that the public policy is an amalgam of Government’s objectives approaches and methodologies. Although the policy is implemented by ministries, provincial councils, local authorities, and is usually supported by financial allocations from the Government budget, he stressed that the private sector should be “bothered” with this as well. “Private sector normally is a recipient of public policy. It has to conduct business within the framework of public policy. It is important for the private sector to understand the dynamics of the public policy and should influence this through democratic institutions and by acting collectively via business chambers,” stressed Fernando. Pointing out that the Mahinda Chinthana aims at an annual average GDP growth of 8% per annum with a view to increasing GDP per capita from US$ 2,923 to US$ 4,000 in 2016, he questioned what are the basic conditions for achieving this target. He explained that with an Incremental Capital Output Ratio (ICOR) of 4.5, which is the average achieved over the last five years, the investment required is 36% of GDP. According to Fernando, the investment requirement could be reduced by lowering the ICOR, for example to 4, which will lower the investment requirement to 32%. To achieve these targets he said changes are required. “Increase in investments on current conditions is possible only through FDI. ICOR could be reduced through higher productivity of investment which will in turn promote FDI,” he said. Exploring the relevance of good governance to public policy, Fernando said it is a technical imperative of development. According to him, it is the foundation of policy and administration that promotes development through a productive public-private partnership based on the principles of equity, transparency, accountability, and rule of law.