The economic crisis has turned upside down all areas of public administration in Greece. Publicly owned or controlled companies are not excluded from the frame of the attempted changes. Changes to their operation are based on two main pillars: Organizational restructuring and model of management. In this article we will refer to the need for changing the administrative model in public companies. First, we will define the entities we are dealing with. Then we will examine the basic differences with their counterparts in the private sector. Finally, we will study ways to control the administration’s acts and omissions.
Definition and characteristics
According to a recent recording from 2010 there are approximately 1000 public companies. This number does not include about 1100 companies funded by the decentralized state, e.g. municipalities; however this number has decreased significantly with the latest administrative reform. Public companies mainly operate as limited companies, legal entities under public law or private legal entities. As regards the types of public companies, these may be utilities, banks, social security organizations etc. The public nature of these companies is mainly assumed through state participation in their share capital (over 50%) or through appointment of their administrative body (e.g. board of directors).
A private company usually aims to improve its products and services for its customers, while reducing operational costs, in order to increase its turnover and, ultimately, its profits. In theory, the goals of public companies may correspond with those set by private ones. Reality, however, shows that during the last three decades Greek public companies mainly acted as the long hand of the Government in its development and social policies. The result was the accumulation of huge debts, which the state budget had to absorb.
Differences between public and private sector management
Running a company is a difficult task. But when it comes to a public company, it results to additional degrees of difficulty. Many managers believe they can, in one way or another, implement in full the management principles and methods from the private sector. Notable private sector managers have tried their hand at a public company and have failed miserably. This can be attributed to the fact that they failed to take into account chronic problems and the specific internal conditions of public companies. Freshly appointed managers are often taken by surprise once they realize the true dimensions of their work.
In the private sector the management has a free hand in the strategic planning of a company following some general guidelines of shareholders. On the other hand, the management of a public company has to take into serious account several internal and external parameters, among others:
- The frequent changes in the political leadership of the relative Ministry.
- The company’s organizational and structural maze.
- The requirements of the powerful unions.
- Lengthy recruitment procedures that cannot cover extraordinary or specialized needs.
This means that the management must aim at constantly changing targets having a static and unmotivated staff at its disposal, thus reducing the effectiveness in the implementation of decisions.
The two cornerstones of human capital management are reward and punishment. Reward, when the outcome of an employee is higher than expected and punishment, which in an extreme case can result in job loss, when the performance indexes are negative. In most cases, the management of public companies has its hands tied both ways. There is no possibility of individual rewarding towards achieving specific objectives (bonus), while no penalties can be practically set. Increases in wages are horizontal, resulting in huge operational costs, which of course are not accompanied by a corresponding increase in the productivity of all employees.
Controlling of public companies
Depending on the type of the public company various forms of control have been implemented by the central administration. The most important are:
- Ministerial control. Ministers appoint the management of public companies. Therefore, they are politically accountable for their actions and can terminate the manager’s term at any time.
- As required by law nr. 3429/2005, financial oversight of public companies is conducted by the Interministerial Committee of Public Companies and Organizations. This committee approves and amends operational plans drawn up by every public company, although, unfortunately, rarely is an effective assessment performed. The same committee may impose sanctions on companies and replace their management.
- At the highest level the control of public companies is conducted by the Committee under Article 49A of the Rules of Procedure of the Hellenic Parliament. The so-called “public utilities commission” issues an opinion on the suitability of senior managers of public companies. The same committee may call the managers of public companies to special hearings (Article 49B).
The management of public companies is too serious an issue to be ignored in the attempted restructuring of the state. Practices from the past that resulted in the appointment of unsuitable or indifferent managers should remain there. Today more than ever it is necessary to implement management methods applied successfully in the private sector, such as management by objectives, SWOT analysis, total quality management etc, always with the necessary adaptation to the requirements of a public company.
It is comforting to see that within Greek public companies capable and experienced staff are still to be found and mobilized. However, uncertainty about the future of many of them and the lack of meaningful incentives, make it difficult to manage them effectively. The new managers will have to perform an extremely difficult job without having the proper tools. Whether our country will be able to look into the future with optimism depends largely on their success.
- Rules of Procedure of the Hellenic Parliament, http://www.hellenicparliament.gr/Vouli-ton-Ellinon/Kanonismos-tis-Voulis/
- Law nr. 3429/2005, “Public Companies and Organizations (D.E.K.O.).», http://www.et.gr
- Services and Agencies Registry of the Greek administration, http://www.gspa.gr/
This is the English version of an article that was posted on 9 April 2012 in the “Neos Agon” newspaper in Karditsa, Greece.