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Need to reform public sector – II

By and large all the companies in the public sector (Public Sector Enterprises) are a victim of poor governance – be it large organisations like PIA, Pakistan Steel Mills or medium-sized companies in the energy sector, industry and similar. There are over 25 high value PSEs and majority of them are operating in loss over the years and living off government subsidies, aimlessly granted year after year, more on political considerations. The IMF, while granting an over $6 billion loan facility to the government in 2013, laid down the condition that these loss-making PSEs have to be privatised on priority to stop the drain of public money and bring a positive change in the economy and social sector of Pakistan.

In the beginning, many of these PSEs operated efficiently and profitably and were globally recognised as a benchmark of good governance. But over the years corporate governance in PSEs started sliding down and reached its bottom during the last regime of PPP. Setting aside all rules and fair business practices the company’s non- executive boards and heads of organisations were randomly appointed based on nepotism, cronyism, political affiliations and ones who could be subservient to the dictates of the ruling party. This totally destroyed the corporate governance structure in PRE from which the country never recovered. The rampant poor governance escalated to such a level that the Supreme Court had to intervene and issue unprecedented instructions regarding transparency and mode of appointing the head of a PSE.

For Corporate Governance two levels of management cadre make or break the organisation. The first level is the Chairman and the non-executive supervisory board of the company and the second level is the Chief Executive Officer of the company. While in the last column the writer dealt with the issues related to the Non-Executive Supervisory Board of the Organisation, this column seeks to deal with issues related to the Chief Executive Officer of a PSE.

Following the 2013 general elections, the government of PML-N started on a promising note as it strongly underscored the need for appointing the company boards and heads of the public sector enterprises based on merit and through a transparent and fair system. Based on the recommendations of the Supreme Court earlier made, the Cabinet Secretariat of Establishment division issued a notification in July 2013 by virtue of which all appointments were to be made on merit and merit alone. For this purpose, a few reputable HR recruiting companies from the private sector were delegated the job to widely advertise, select and forward their recommendations to a three-member committee of high repute personalities who would make the final selection and submit their recommendations to the establishment division.

Seeing merit at play in Pakistan, after a long time, it is reported that in response to widely published call for application a good many talented professional applied with a sincere will to serve the nation. But, their joy to serve the nation proved to be short-lived. All the recommendations made by the experts appointed for the job were set aside by the government and public money, time spent and talent motivation put to waste.

Soon corporate governance in public sector companies became business as usual with rampant violations of the rules laid down by the regulators – Securities and Exchange Commission of Pakistan (SECP) and that by the Establishment Division, the government of Pakistan.

SECP guidelines of 2015 on appointment of a Chief Executive Officer (CEO) in public sector companies state: “The principles of Transparency, Merit and Equal opportunities shall be followed while making appointment to the position of the CEO. The laid out criteria to be followed. The board shall initiate the appointment process at least three months before the term of the incumbent CEO is going to expire by issuing a public advertisement in print media. Responsibility for the selection lies with the board who shall recommend to the competent authority (Ministry) the option of three candidates to choose from”.

Whereas, the notification of October 2014, issued by the Cabinet Secretariat of the Establishment Division, GoP, related to recruitment policy for the federal services/autonomous bodies/corporations underlines: “The vacancies in each corporation shall be advertised widely with a minimum 15 days time limit for receipt of applications. The principle of merit, equal opportunity for all and transparency of selection process to prevail.”

How much of these cardinal rules of the state related to corporate governance in public sector are being truly implemented or intelligently engineered to suit vested interest is something where one needs to have a closer look at the appointments made of the CEOs in the public sector since 2013. With a few exceptions, by and large there appears to be violations of laid out rules. Nepotism, cronyism and political localities enjoyed precedence over merit and national interest. The result of the same can be judged from the end result. The present government, perceived to be business-friendly, has not been able to turn around the loss-making public enterprises. They could not install good governance in these state-run enterprises.

The case of the retirement of Chairman of Ogra, presently under media focus, is a classic case. It is reported that he is due for retirement in April 2016 while his successor has not been selected as yet. Let’s see how the government will solve this riddle which is not a new one for the government. ‘Shortcut’ is always a preferred option.

It has now become quite apparent that the political governments are not comfortable with professional managements appointed on merit. They find this independent-minded cadre difficult to handle and difficult to be made subservient to their dictates. They want a management cadre that can be made subservient to their dictates. There is there no hope for the talent to serve the nation and no hope for the public sector enterprises to turn around. Now even the option to privatise and get rid of them appears remote.

Farhat Ali, "Need to reform public sector – II," Business Recorder. 2016-03-12.
Keywords: Economics , Political participation , Social policy , National interest , Public welfare , Transparencies , Pakistan , CEO , SECP , PSE , Pre , PIA