Topic 3

Organization, Management
and Control of the Public
Enterprise Sector
1
 Main issues
• Control

• Autonomy

• Accountability

2
 The organization of public enterprise
sector
1. Departmental enterprises

2. Public Corporations

3. State/Govt. Company

4. Operating Contracts

3
 Organization
• All orgs need a structure – efficient, coherent and
systematic way of conducting business

• The structure depends on the mandate of the PE

• Two wings – Board of Directors and Management

(Admin. staff)
4
 Organization (cont.)
• Board = Chairperson + Executive and Non-
Executive Directors

• Independent & non-executive Directors – outside

the org.

• CEO, Deputies, Directors, Managers & staff

5
General PE structure

6
 Control
• Control is the function which a Manager performs
that enables corrective action to be taken

• Signals, standards and landmarks or progress

points which management watches to ensure
that the desired objectives will be achieved

7
 Control (cont.)
• Internal and external - control of PE’s -
measurement and correction of their activities to
accomplish short and long term plans

• E.g. budget, return on investment, profitability,

and efficiency
8
 Control (cont.)
• The slogan “let the Managers manage” is used
to justify the increasing power of Managers in
making decisions within PEs

• External control – the extent to which decisions

and operations are influenced from outside
9
 Autonomy
• Independence to take decisions for timely and
quick action

• Activities of PEs are essentially the business type

- require quick decisions, timely action and
immense initiative on the part of management
10
 Accountability
• Being answerable for the performance of given
responsibilities according to set standards and
objectives

• It answers the question “how well?”

• For PE’s, it means reporting and explaining on

resource allocation and management
11
 Accountability (cont.)
• Accountability implies that PEs should be
responsible to some public authority

• E.g. dept. of the govt. Parliament, Minister,

Board of Directors and citizens

12
 Accountability (cont.)
• Public sector reforms - emphasized participation
by clients and by the public in general in the
decisions of public orgs

• This seeks to ensure that accountability is being

exercised downward as well as upward
13
 Autonomy & Accountability

• PEs function under the direct control of the govt.

• All PEs are established through Statutes & Acts

• The CEO is accountable to the Board, Minister &

citizens

14
 Autonomy & Accountability(cont.)

• Some work under the control of govt. depts

while others are established under the
Companies Act

• Therefore, PEs are either autonomous or semi-

autonomous in nature

15
 Autonomy & Accountability(cont.)

• Sometimes, the decision-making power and

responsibility are vested in the Board of Directors

• Too much autonomy without public

accountability may lead to many distortions and
inefficiencies – need to strike a balance
16
 Autonomy & Accountability(cont.)

• They are liable to the general public for their

actions

• Financed by the govt. through public funds

17
 Autonomy & Accountability(cont.)

• They serve the citizens

• They have to move in line with the country’s

planned programme of economic devt. and
fulfil their social obligations

18
19
 Ministerial Control of PEs

• The appointment of board members

• The Minister is politically responsible for the

appointment of the board and can dissolve it if
s/he is not satisfied with its performance

20
 Ministerial Control (cont.)
• Usually, the controlling ministry has a rep. in the
board whose role is to explain govt. position on
important issues

• They ensure that the corporation’s affairs are

managed along public service rules and other
conditions of service of the PE 21
 Ministerial Control (cont.)
• PEs must inform their supervising ministry and
obtain its permission before it makes any major
changes

• Embarking on new important lines of operation

especially when such major changes affect the
public interest 22
 Ministerial Control (cont.)

• E.g. restructuring of the enterprise,

retrenchment of workers, increase in electricity
or water tariffs, adjustment of rentals etc.

23
 Ministerial Control (cont.)

• Each PE must prepare and submit an annual

report to the govt. through its ministry

• In some countries, the Minister also appoints

Auditors to audit the accounts of the PE and
intervenes whenever there is a crisis (e.g. when
employees embark on riots) 24
 Ministerial control (cont.)
i) Administrative devices

• Issue of general policy direction

• Approval or veto of specified categories of

actions and policies

25
 Ministerial control (cont.)
ii) Financial devices

• Approval of operating budgets

• Approval of capital expenditure beyond the

specified limit

• Appointment of Financial Advisors for PEs

26
 Ministerial control (cont.)
iii) Informal Ministerial Control

• Control is exercised through consultation and

discussion between the Minister and the Board
behind closed doors

• Informal contacts
27
 Parliamentary Control
• Apart from ministerial control, PEs are
ultimately accountable to Parliament through
their Ministers, who are the political heads of
ministries

• They are usually created by Acts of Parliament

28
 Parliamentary Control (cont.)

(a) Control through comprehensive annual reports

of activities to Parliament through the Minister

(b) Control through annual account for a given

financial year to Parliament - subject to debate in
Parliament

29
 Parliamentary Control (cont.)

(c) The Finance Committee of Parliament can

summon the Minister to explain or discuss issues
concerning his/her corporation

(d) Questions, motions and debates

30
 Parliamentary Control (cont.)

• Public Accounts Committee (PAC)

• Statutory Bodies & State Enterprises Committee

• Finance and Estimates Committee

31
32
 Public Accounts Committee (PAC)

• Parliamentary oversight committee chaired by

an opposition MP

• It has the responsibility of examining the

accounts of govt. orgs – refers to the Auditor
General’s reports
33
 PAC (cont.)
• Appropriation of the sums granted by the House
to meet public expenditure

• It has the power to summon and subpoena

persons and demand papers and records - reports
its findings and recommendations to the House

34
 Auditor General
• Audit control is vested in the Auditor General -
powers of the AG varies from country to country
depending on the legal frameworks

Generally covers the following:

• (i) Provision of funds
• (ii) Regularity
• (iii) Sanctions to expenditure
• (v) Efficiency audit 35
 Auditor General (cont.)

• The AG brings to the attention of the PAC any

pre-payment audit queries raised by the Internal
Auditors of a Ministry, Dept. or Agency

• S/he demands answers for all audit queries raised

and the remedial action taken
36
 Conclusion
• In any democratic setting, Parliament is assigned
the function of control and accountability of PEs

(i) To fulfill their constitutional responsibilities -

delivery of goods and services to citizens

(ii) To protect capital invested in the PEs

37
 Conclusion (cont.)
(iii) To safeguard public interest

(iv) To ensure uniformity in public policies

(v) To monitor the implementation of policies

38
39
 Corporate Governance
• The system by which business corporations are
directed and controlled

• The distribution of rights and responsibilities

among different participants in the corporation
(board members, managers, shareholders etc.)
40
 Corporate Governance (cont.)

• It spells out the rules and procedures for making

decisions on corporate affairs

• The structure through which the company’s

objectives are set, the means of attaining them
and monitoring performance

41
Company/PE structure

42
 Basic principles of Corporate
Governance
• Accountability

• Transparency

• Fairness

• Integrity

• Trust

• Diligence & Disclosure

43
 Why Corporate Governance?

• It promotes efficient use of scarce resources

• It promotes the trust of investors/shareholders

• Promotes transparent ways of doing business

• Enhances professionalism and a culture of

accountability
44
 Why Corporate Governance?

• Funds flow to entities which are seen to have

internationally accepted standards of corporate
governance

• Good corporate governance has a positive link to

economic devt. & good corporate performance

45
 Composition: Board of Directors

• Chairman/Chairperson

• Corporate/Board Secretary

• Executive Directors

• Non-executive Directors

• Balanced composition, skills and experiences

46
 Board Chairman/Chairperson

• Provides leadership for the board

• Ensures that good corporate governance

practices and procedures are in place

• Ensures that all Directors are properly briefed on

issues arising at board meetings
47
 Chairman/Chairperson (cont.)

• Responsible for ensuring that appropriate

information is received by all Directors

• Encourages full and active contribution to the

board’s affair

48
 Chairman/Chairperson (cont.)

• Ensures effective communication between the

board and shareholders

• Ensures that the board works and discharges its

responsibilities effectively

49
 Chairman/Chairperson (cont.)

• Holds quarterly, bi-annual or annual meetings

with Non-executive Directors

• Ensures that there is a constructive relationship

between Executive and Non-executive Directors

50
 Executive Directors
• Directors/Heads of Departments

• Salaried employees of the public enterprise

• Accountable to the board

• Ensure that the info. laid before the board by

management is accurate 51
 Non-executive Directors
• Not employees of the parastatal - expressly
identified and should be of sufficient calibre

• They bring in independent judgement

• They actively participate in board meetings

52
 Non-executive Directors (cont.)

• Serve on committees (e.g. finance, HR committee

etc.)

• Monitor the corporate’s performance in achieving

pre-set goals

• They take the lead if conflict of interest

53 arises
 Roles: Board of Directors
• Assumes responsibility of leadership and control
of the corporate

• Sets the vision of the corporate

• Makes decisions in the interests of the corporate

(e.g. financial prudence)
54
 Board of Directors (cont.)
• Protects the interests of investors/stakeholders

• Oversees implementation of the strategic plans

• Dedicates some board meetings to strategic

matters

55
 Board of Directors (cont.)
• Directs and supervises the corporate’s affairs

• Hires and fires the CEO!

• Holds the CEO accountable for org’s performance

• Remunerates, rewards and plans for succession

56
 Board of Directors (cont.)
• Ensures that a full record of board/committee
minutes are available for inspection

• Independent Non-executive Directors should be

present at board meetings to discuss matters
involving conflict of interest

57
 Board of Directors (cont.)
• Abstain from voting if conflict of interest arises

• Insurance coverage in respect of legal action

against Directors

58
59
 Six Critical Questions for Directors

• Do I believe I have all the information?

• Do I have the necessary skills to make this

decision?

• Do I have any conflict in this matter?

60 60
 Critical Questions (cont.)

• Is this a rational business decision?

• Can I explain this in a transparent manner?

• Is it a responsible discharge of my duties?

61
 Roles of the CEO
• CEO is at a pivotal point in the organization

• Responsible for the day-to-day affairs of the org.

• Oversees the implementation of strategy

62
 Roles of the CEO (cont.)
• Information flow to and from the board

• CEO has a crucial role in ensuring that good

corporate governance principles are upheld

63
 Chairman/Chairperson & CEO

• Division of responsibilities between Chairman

and CEO is clearly laid down in writing

• Different but complementary roles

64
 Chairman/Chairperson & CEO (cont.)

• They need to develop and communicate a

shared understanding of the org’s purpose and
strategic priorities

• Both are responsible for protecting the assets of

the parastatals
65
 Roles of Corporate Secretary

• Key link between agency and Non-executive

Directors

• Works closely with Chairperson and CEO on the

agenda of board meetings

66
 Corporate Secretary (cont.)

• Oversees and conducts induction trainings for

newly elected Directors

• Ensures compliance with the board procedures

67
 Corporate Secretary (cont.)

• Takes the minutes of board meetings

• Arranges the annual shareholders meeting and

other special meetings

68
 Conclusion

• Corporate governance is a dynamic process that

is continually evolving

• It has no boundaries or limits!

69
70
 Recap
• Org., management & control of the PEs

• Corporate governance (Board of Directors, CEO)

• Ministerial control (Board of Directors, fees etc.)

• Parliamentary control (various committees)

• Human & financial resources control

71
 Human Resource & Financial
Management Systems

• Human & financial resources – critical for the

operations of public enterprises

• Delivery of goods and services to the citizens

• The need to be self-financing

72
 Human & Financial Resource

• Personnel or HRM systems in PEs do not differ

significantly from what obtains in govt. depts

• Govt. officials usually attempt to differentiate

between public servants and employees of PEs –
no difference to citizens
73
 Human & Financial Resource

• Recruitment of the CEO and Deputy CEO is

done by the Board of Directors

• PEs can recruit any person that they want –

sometimes leads to overstaffing

• PEs have different pay structures

74
 Human & Financial Resource

• PEs are expected to be self-financing – but in

reality, most of them are not

• Loss making entities which rely on govt.

subventions and bailouts - e.g. NDB, Air
Botswana, BMC, BR etc.
75
 Human & Financial Resource

• They do not have financial independence –

subject to govt. restrictions

• 2021/2022 subventions – P4.02 billion

• Water Supply, Distribution and Sanitation -

P5.43 billion for 2024/2025 financial year
76
 Human & Financial Resource

• User fees/tariffs are set by the central govt.

• E.g. BHC rentals are subject to govt. approval

• Political versus economic decisions

• Some critical service areas have been starved for

investment funds 77
 Human & Financial Resource

• Few profit makers and generators of savings

• Success attributed to them being monopolies in

their sectors and not necessarily because of their
management efficiency, quality of products or
service (e.g. BTC – landlines; WUC – water &
waste water)
78
 Human & Financial Resource

• Failure to generate income – failure to finance

new equipment, replacements, recruitment etc.

• Failure to maintain existing investment and

equipment, e.g. through regular repair, service &
replacement of parts

79
Summary

80
 Synergy between Autonomy &
accountability or control of PEs
• Kaul (1990) – autonomy means freedom to
make decisions on daily operations without
seeking approval of the central govt.

• Freedom from interference in the everyday

functioning of the enterprise
81
 Autonomy (cont.)
• Degree of autonomy given to private enterprises
would be inappropriate for PEs – citizens!

• Management's task - negotiate the boundaries

of the domain where enterprise's autonomy will
be respected by govt.

• Financial, strategic, and operational82levels

 Autonomy (cont.)

• Financial level autonomy - evidence that PEs

which generate profits enjoy relatively extensive
managerial autonomy

83
 Autonomy (cont.)
• Strategic level autonomy - strategic investments
and entry/exit decisions about business areas and
activities - most PEs do not enjoy autonomy to
any significant degree

• CEOs can, to some extent, pursue their vision

84
 Autonomy (cont.)
• Operational level autonomy - gained through a
long and difficult process in most countries

• Appointment of senior personnel is approved by

govts

• Interference of supervising ministries

85
 Control
• Ministerial control is unavoidable

• PEs established to contribute to national devt.

• Owned and funded by the govt.

• Accountability to citizens is paramount

86
 Balancing autonomy & control

• MoUs - aimed at specifying and agreeing upon

the objectives, targets, broad policies and
responsibilities of the enterprise

• Formalizes the flow of info. between the govt.

and enterprise
87
 Balancing autonomy & control
(cont.)
• Enter into performance contracts with the govt.

• What to do and what not to do

• Govtal obligations for the non-commercial

activities that the Board is required to perform in
pursuance of broader govt. policy
88
 Balancing autonomy & control
(cont.)

• Adherence to the principles of good corporate

governance: Accountability; Transparency;
Fairness, Integrity; Trust; Diligence; & Disclosure

• Leadership is at the center of everything that

happens in public enterprises
89
90