Governance at PSEs

In the aftermath of the meltdown of once great companies such as Enron, Tyco, Adelphia and WorldCom, the paradigm of corporate governance has shifted from the formulation and implementation of rules and regulations to paying greater attention to how people work together.
In the United States, the realisation that CG needed to be revisited, legislators passed the Sarbanes-Oxley Act. By comparison, in Pakistan the SECP itself devised and implemented the Code. However, the local regulator had been benefited, learning from the experiences of other countries and has devised a code which is generally considered quite thorough and effective.
However, public sector enterprises (PSEs) continue to be dragged into controversies, often over the appointments of senior management officials and their decisions. While some of the cases brought against individuals are worth inquiring, there are also cases of political jostling. Across the board replacements of individuals in high-ranking positions at PIA, Pakistan Steel Mills, Pakistan Railways and other PSEs, with a change of guard in the assemblies, are not uncommon.
Besides impacting the strategic management of these institutions, the seemingly unending barrage of inquiries and controversies also deteriorates the morale within these organisations and tarnishes the public perception of these institutions. Restoring the image, credibility and performance of these entities must be a paramount concern for treasury and opposition benches alike.
"Law makers should introduce a Constitutional Amendment that formulates a transparent mechanism for the appointment of the boards of directors at public sector enterprises. They should also chart out a comprehensive methodology for the appointment of senior managers by the board and other decision making," Najam Ali told BR Research, when questioned about how government should respond to the dismal performance of PSEs.
The capital market veteran pointed out that in recent times, the appointments against many high profile positions at PSEs have been tainted by controversy and added that "this would not be the case if these appointments were made through an oversight body comprised of unbiased and professional individuals".
Even if some of these companies are to be privatised, their sale without addressing such fundamental issues will limit their marketability and will fetch pennies on the dollar from international investors. Former finance minister Shaukat Tareen had pushed for the creation of a supra-board that would oversee the restructuring of PSEs. Unfortunately, his sudden departure from the ministry left this plan in the lurch.
While it is true that the government has many potatoes to peel besides this one, the constant hemorrhaging of PSEs is costing the government more than a pretty penny. In fact, independent estimates put the cumulative losses of the three PSEs named above at par with the countrys defense spending.
Accountability, transparency and efficiency are key deliverables for all enterprises; and in the case of the countrys PSEs, adherence to these principles at the top can manifest significant improvements at the grass roots.