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Aivaras Abromavičius, Andriy Boytsun: The corporate governance reform of the state-owned enterprises will make them profitable and uncorrupted

Kyiv, April 24, 2017.

The corporate governance reform of state-owned enterprises is required to make them profitable, innovative and uncorrupted. Although state-owned enterprises should work in the possible closest conditions to those of private companies and be independent of political influences, they should be transparent. This was emphasized by Aivaras Abromavičius, ex Minister of Economic Development and Trade of Ukraine, and Andriy Boytsun, member of the strategic advisors Group to support reforms in Ukraine, research director of the Center for Economic Strategy, during the discussion at Ukraine Crisis Media Center.

Andriy Boytsun noted that although the anti-corruption reform is much more interesting to society than the corporate governance reform, strategically it is no less important, because now huge amounts of money are “pumped” out from the budget through state-owned enterprises. Adopting the global best corporate governance practices will gradually limit the political influence on state-owned enterprises and prevent plundering.

“Today we are facing the sheer inertia, because all are used to the fact that government is responsible for appointing business managers. This is an abnormal practice to the world. People strive for power specifically to manage state-owned enterprises as they see a ‘honey pie’ there. This results in the fact that we as a country attract those who will fight for control rather than good politicians who will fight for consumer rights and improve the competitive environment,” noted Andriy Boytsun. “The purpose, scope and results of this reform will be of great importance to each Ukrainian,” he added.

 One of the key ideas in the world practice is that a manager of the state-owned enterprise should receive the market wage. This is the best safeguard against corruption. If the manager is working for a trifle, the lobbyist of certain groups will more likely pay him secretly for promoting their interests. Moreover, real experts from the private sector will not accede to these terms.

At the same time people holding leadership positions at state-owned enterprises should meet the strict requirements. They should have the necessary knowledge and experience, and be without any family or friendship ties with other big business or political players. It is not enough just to wait for the applications for the competition to be submitted. We should take a proactive stance to search for potential candidates and invite them to apply for the competition.

In international practice, personnel decisions on the management are within the Supervisory Board’s competence, because it is responsible for the company strategy and its implementation. “If someone controls somebody, but cannot dismiss him, this control is negated,” stressed Andriy Boytsun. Although this envisages more serious responsibility of the Supervisory Board, it should not take over the functions of management. “40% of the Supervisory Board time in the theory and practice should be devoted to shaping the strategy. But, unfortunately, the focus often shifts in our country. (…) The Supervisory Board should not do the job of the management,” emphasized Aivaras Abromavičius. According to him, it is useful to attract foreigners to the supervisory boards, in particular, people from Northern Europe. They will stand a better chance of taking decisions independent of the Ukrainian political games and being most responsible.

Aivaras Abromavičius noted that there are not so many key state enterprises in Ukraine, for which the reforms are especially important. “All efforts should address ‘Naftogaz’, ‘Ukrgazvydobuvannya’, ‘Turboatom’, ‘Energoatom’, ‘Elektrotyazhmash’, ‘Ukrzaliznitsya’ and ‘Ukrposhta’. In general, it is about 20 companies, as well as regional and central power distribution companies,” he noted.

Working conditions at state-owned enterprises should be the possible closest to the conditions in the private sector. If the company is entrusted with some social functions, there should be a balance that will help it to remain profitable and grow, added Andriy Boytsun. “The goal of social policy is not to sell the product cheaper, but to make it more accessible for those who are most vulnerable. And this should be done through other mechanisms,” he added.

The experts also stressed that the success of any reform requires a quality communication. “Communication is the best friend of the reformer. One of the reasons for the success of ‘ProZorro’ is positive and regular communication,” noted Aivaras Abromavičius.

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