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Is there a way of making public companies more effective?

February 17, 2015, 20:01 UTC+3 Alexandrova Lyudmila
© ITAR-TASS/Dmitry Rogulin

MOSCOW, February 17. /TASS/. The Russian authorities are about to decide what they can and must try to do about the effectiveness of public companies, whose operation, according to some critics, leaves much to be desired, while the salaries of their top managers are unduly high. Experts believe the proposed legislative measures with the aim to enhance the responsibility of companies’ chiefs are not enough to achieve their better performance. The problem is far more complicated, they say, while privatization for privatization’s sake is no good.

The State Duma has prepared for a second reading a government bill enhancing the responsibility of the managers of public companies and other government-controlled entities for improper execution of their duties, hoping to adopt it in the near future. The gist of proposed amendments to the Criminal Code is the chiefs of state-owned companies should be treated on the same terms with other civil servants and be punishable for negligence or abuse of office.

There is another issue that causes great public concern apart from negligence and ineffectiveness — the top managers’ salaries, which in the eyes of the general public are sky-high.

As the daily Izvestia has said, the government in cooperation with the State Duma’s committee concerned are working on a bill that will peg salaries and also top managers’ dividends to the general effectiveness of the companies’ performance.

In the meantime, some legislators have proposed their own ideas. At the beginning of February the deputy leader of the A Just Russia faction, Oleg Nilov, proposed a bill saying that the monthly salary of public companies’ managers should not be larger than that of the Russian president.

The Communists have their own vision of a likely solution, too. Two State Duma members — deputy chairman of the Communist Party’s Central Committee, Valery Rashkin, and the Central Committee’s secretary, Sergey Obukhov — have drafted a message addressed to President Vladimir Putin with a request for devising the optimal mechanism of adjusting remuneration payments to the heads and top managers of publicly-owned companies, and also to persons doing senior civil service jobs.

According to the annual Forbes list of the 25 most highly paid chiefs of Russian companies, published last November, all persons on the top of the list represented the public sector. The 25 persons on the list, according to Forbes, had been paid a total of $291 million.

The website of the oil company Rosneft on Monday published a statement declaring the overall income of its management. Each of the 13 board members last year made an average of 215 million rubles — 2.8 billion rubles all in all. Rosneft avoided disclosing though, how much was received by each member of the top management, including its president, Igor Sechin.

Experts’ opinions of the situation are mixed.

The director of the IT Research and Expertise Center at the Russian presidential academy (RANEPA), Mikhail Braude-Zolotaryov, is radically minded.

"The number of public companies and the scale of their activity must be reduced, just as the public sector of the Russian economy in general," he told TASS.

"The effectiveness of public companies depends on the effectiveness of state governance in general and on the condition of the economy. No individual measure will be able to change the situation. There must be a clear answer to the question why the government has a stake in them."

"If the government runs public companies, it must be obliged to explain why its presence in them is so necessary," the leading research fellow at the RANEPA Institutional Development Center Yury Simachyov agrees. As he told TASS, regrettably the mission of many publicly owned companies has not been identified clearly enough.

"It is pretty clear who is doing a good job and who is doing a bad job. It will take the political will to dismiss the managers who are no good. If a company is not effective enough, the management team must be replaced," Simachyov said.

He believes that up to half of Russia’s GDP is generated with the state’s direct or indirect involvement, in the so-called quasi-budget sector.

"The public sector is redundant in certain respects, but there should be no time-serving campaigns. There should be no privatization for the sake of privatization or nationalization for the sake of nationalization. The rules of the game must be transparent and sensible," he believes.

Rather large sectors of the Russian economy are related with natural monopolies and the steps to decontrol them must be taken with caution.

"Is the government’s presence in the economy large or small?" Simachyov asks. "It all depends on the functions that the government performs. In the public sector decisions must be made on the individual basis, in relation to each particular company. The systemically important companies that really determine the situation are few and must enjoy the closest attention."

As for the problem of high salaries, Simachyov believes it might be expedient to use "soft methods to ensure that 5%-10% of shares of public companies should belong to private shareholders who would be allowed to act in the capacity of independent experts and express their opinion regarding the salaries of top managers."

"The criteria of measuring effectiveness must be very clear," he added.

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