Public Sector Management - Essay Example

The paper is devoted to the discussion of the issues of management in public sector, ly the questions of the corporate governance and the problems of providing consultations with the key stockholders. As these issues often become cornerstones for the companies of public sector, it is necessary to base their description on the real environment with the application of the appropriate theories Public sector management In any environment, especially in public sector management, it is necessary to make the business reconcile with the human values, and thus corporate governance becomes the challenge for many companies in the public sector, as finding the correct strategy of corporate governance often determines the financial and other indices of the company. The public sector company I am going to speak about is one of the prominent companies in the Caribbean region, the name of which has been asked not to be revealed. During the work in this company, I have become the witness of the way the corporate governance was performed. According to the information I had been by my colleague, the process of implementing new corporate governance strategy has been implemented since the year of 1981, when the word combination 'corporate governance' has not yet been implemented and has been known only to a few people. The need in implementing this strategy lied in the fact that the government has been facing the necessity of merging this public sector company with another one, which put under the threat the future of many workers. That's why the Board of Directors decided to combine various corporate governance initiatives. The first step in implementation of the governance initiatives was the issue of the limited stock meant for the managers of the company as a part of their employment contract. Through this step the Board sincerely hoped that this would unite the managers with the company and would encourage them work for the benefit of this company, with building solid and long-term relations with the key shareholders. This set of initiatives was later followed by the granting the tag-along rights to all shareholders. From the critical point of view, tying the managers to the company as its shareholders may both work for the benefit and for the failure of the company. On the one hand - making managers shareholders of the company they work in may really encourage them for better achievements; on the other hand, people don't always understand the importance of being a shareholder, which means that not all workers, becoming shareholders will display better working results. However, it is very important for the managers to create solid relations with the investors and shareholders, which means that being a shareholder themselves will only help them in this process. The Board of Directors has implemented a new capital share structure. This new structure allowed involving the minority shareholders to the governance process, which also assisted in maintaining the new capital share structure. The governance structure of the company described, seek to align the interests of the executive employers and the shareholders. The main guidance of the corporate governance of the company lies in the belief that effective system of governance supports the confidence of the shareholders and becomes a proper basis for the correct functioning in any public sector. It does not matter, whether the enterprise belongs to the public or private sector. These laws are applicable to all spheres of business. For example, one of the most effective steps in improving corporate governance was equalizing the dividend treatment between the preferred and the common shareholders. In this process to align the interests of the shareholders and the executives made the Board of the company establish a system of executive compensation which has been closely connected with the shareholder value creation. Since the year 2000, the bonuses which the executive workers received in their normal process of work, has been closely linked to the economic value added. It is clear that such step could only lead to the improvement of the executive operation in the company, as now the staff members felt more responsibility for the actions they performed and the influence which these actions were exerting on the financial results and general results of the company's operation. I watch these steps as the desire of the Board to totally change the method of the company's operation and the means of its corporate governance. In fact, the steps performed by the Board in this striving for better performance, have totally changed the company, giving it 'modern appearance', so to say; but one of the most important an significant steps was granting the minor shareholders the possibility to vote for the members of the Board of Directors, which has for years been supposed to be the core of the corporate governance system of the company and has been consisted of seven members, among which there were always three independent non-executive directors. The minor shareholders have now acquired the chance to choose the Board of Directors without any limits, which is very rare for the Caribbean region. Critically evaluating this step, it could be viewed as a wish to make the Board of Directors and their choice as independent, as possible, with the non-controlling of the shareholders' interests. It is very important for the minor shareholders to have the chance to vote for the members of the Board of Directors, which gives them assurance that they have chosen the right object of investing their finances and are able to influence on the way the company operates, for their own benefit. The recent years have shown the importance of elimination the political and administrative influence in the public sector management, granting these obligations and opportunities to the managers. It is also essential to understand, that the Board of Directors has usually been the center of the corporate governance in the Private sector, and through the example of the company described, it is seen that the role of the Board of Directors in the public sector may also be increased, which will finally lead to the better public entities operation. The time has passed, when politics was the main ruling force in managing the companies of the public sector; financial results of the companies now acquire new meaning and become more important in defining the role of the company in the public sector. It is no matter, whether the Board of Directors is selected or appointed, (and in our case the part of it is appointed and another part is elected by the shareholders) there can be defined no common governance principles for the public sector, though they may be made similar in application to various public sector entities. The last step was the adoption of a special Ethical code, which was aimed at reducing the subjectivity level in interpretation of various principles of ethics in business environment, as well as providing the guidelines in resolving the interests' conflicts in management. It should be noted, that the corporate governance in the public sector has certain important differences, which are to be taken into account when the desire to improve this governance becomes evident. First of all, public entities are designed to fulfill certain political and social objectives, which put them under certain external constraints. The accountability of the companies of private sector is different from that of the public, and should be taken into account when setting corporate governance changes. In the corporate governance of the public sector entities the implementation of risk management and business planning many become one more step for making these businesses operate better in their public environment. However, it should not be forgotten that the shareholders of the public sector enterprises are Ministers, government members along with the general public. This is why the way the consultation is held with the key shareholders, often define the way the company will work in the nearest perspective. Consultation with the key shareholders in the public sector should be turned into a special strategy as among the key shareholders of any public entity are the respected people of the region and even the whole country, thus the process of consultation with them will bear certain differences from that in the private sector. The role of the consulting strategy is to define the extent to which the key shareholders are involved into the process of the decision making and to make sure that the opinions and views which they express bear no political or administrative implication and will work for the benefit of the public sector entity. The structure of the shareholder constituency in the company described was the following: 55% of the shares have been held by the government; 32% of the shares have been held by several ministers; 13% has been granted to the general public minor shareholders. Looking at this shareholders constituency, it is clearly understood that the key consultations has been held with the governmental representatives, and openness and involvement had to be the basic principles of the company's practice. The approach of the company to the process of consultation with the key shareholders was the following: 1. ensuring that the consultation will work for the benefit of the people involved and will ultimately lead to certain positive effects for the company in general; 2. ensuring that the results of the consultation with the governmental representatives are used in the positive decision making for the entity; 3. improving the process of consultation between the key shareholders themselves as well as between these shareholders and the managers of the entity; 4. providing better value for money. Trying to critically appraise the engagement processes, it should be noted, that governmental representatives in this pubic entity have been admitted to be well informed in the process of the company's operation, and their aim was not to put certain administrative restrictions on the company's operation, but to give the managers, through the process of consultation with them, to provide innovation and reforms for the benefit of the entity and the staff. The strategy, worked out b the entity for consultation with the key shareholders, had certain objectives, the fulfillment of which would certainly give the entity beneficial position among other public entities. First of all, the strategy had to work for avoiding the fatigue among the participants of the consultation process and enable to plan the consulting activity. This approach gave the company an opportunity to plan the way the consultation should be held among the key shareholders and simultaneously allow the managers who would take part in the process to at least approximately predict the outcomes and the reactions of the key shareholders. Another objective was providing the key shareholders with effective participation in the business operation of the entity. It sometimes happened that certain governmental representatives, who usually visited the meetings with staff, were not involved into conversation for various reasons. Taking into account this fact, the management understood the necessity of making all governmental representatives participate in the discussion. With the implementation of this principle, the company has received a number of extremely interesting ideas for the general operation improvement. However, one more objective had yet to be implemented - it was extremely important to ensure that the consultation with the governmental structures would bear certain strict standards and possess clear guidance. It should be also noted, that certain principles of operation were of course followed by the company, but should have been implemented into the process of consultation as a part of its standards. First, the company was and is acting according to the principle of providing the public with its services, which is its main and preferred obligation. All shareholders understand that they have invested into the public sector entity and thus the public services will become the principal aim of its operation. However, in the attempt to make the company financially more stable, at times the consultations acquired the tint of discriminating certain public interests. These discriminations were not very serious, and of course meant to ultimately work for the public benefit, but still the fact of this small discrimination, sometimes initiated by the governmental representatives, put a conflict between them and the management of the entity, who didn't want to recognize the necessity of providing these restrictions even for a small period of time. The frames, in which the consultation with the authorities took place, could acquire various forms - it could be a formal discussion of the certain exact scheme of the company's development, or could become the consultation as for the general long-term directions the company should choose in its development strategy. The consultation process could involve only one technique or various methods of discussion. The involvement spectrum in the company included the following stages: information, research, consultation, participation and delegation. It is thus understood, that the process of consultation lied between the two different poles of the involvement spectrum and thus was the central element, depending on the level the consultation participants have been informed as well as the delegation of certain rights and functions, which will become the result of this or that consultation. The consultation with the key shareholders didn't have too many different forms, as it has been with the minor shareholders, with whom the managers could consult through electronic means and questionnaires. The consultations with the key shareholders always had the form of conferences or meetings. However, in the recent time the company is getting used to holding the conferences via electronic visual means. It should be recommended for the company, to acknowledge the consultation process as the means of giving and receiving information, which may be ultimately used for the benefit of the company. This principle has been implemented into the company's consultation strategies only recently, with the earlier consultations being the means of ensuring the authorities and governmental representatives in the necessity and usefulness of this or that management step or action. The side to be consulted is different - at times the key shareholders need consultation for clarifying certain questions related to the company's activity; at times the managers and the Board themselves need to consult their shareholders before taking certain steps in the company's development. In any case, it is very important to provide both parts with all the information necessary, as the level of engagement into the consultation process if defined by the amount of information the participants possess. With the successful experience of consultations, more shareholders and managers may be involved into the discussion, but as in our case the main shareholder is the government, this positive experience may work for encouraging its representatives for more active cooperation with the executives and the board. The process of consultation with the key shareholders should also acquire more targeted character, as the authorities are those who have certain weight among the population, and exert serious influence on the public activity. The company with the involvement of the key shareholders into the process of operation should also provide public accountability, which will ultimately lead to the better public services, and thus create higher profits and returns. In the year 2002, there has been performed analysis of he consultation outcomes for defining its effectiveness and providing recommendations for the future. it has been discovered, that in 23 out of 25 cases under research, the impact of consultation with the key shareholders on the outcomes was extremely significant and in fact, determining. In 4 cases the outcomes of the consultation has been unexpected for all parties, and the results of the consultation have made crucial impact on the process of decision making. However, this analysis has revealed the problems which existed in the public entity - the results of the consultation were not always implemented effectively, as well as the time frames for the implementation of the results were often set incorrectly. Based on the above mentioned information, the following recommendations may be given for the company in the process of its consultation with the key shareholder: 1. The consultation process needs greater coordination, and though the key shareholders represented by the government only, it should be ensured that all shareholder groups are reached. 2. The consultation should always be meaningful - in the due time and for the due reason. 3. The consultation should not turn into persuading the authorities' representatives in the necessity to take certain managerial steps - it should be the process of information exchange with coming to the common mutually beneficial conclusion. The processes of corporate governance and consultation with the key shareholders have acquired new meaning for the public sector in the modern environment. Though these processes carry drastic differences between the public and the private sectors, it is necessary to admit, that their implementation in the public entities will lead them to the new level of profitability and business operation. References Whicker, Maria Lynn & Areson, Todd W. (1990) Public sector management. 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