WHY DON’T WE INTRODUCE CORPORATE GOVERNANCE IN PUBLIC ENTERPRISES?

This blog post was inspired by a recent business conference that brought together countries in the Adriatic-Ionian region (Croatia, Slovenia, Italy, Greece, Bosnia and Herzegovina, Serbia, Montenegro, Northern Macedonia, Albania and San Marino), where the blue economy was discussed. One of the messages, in the form of a question, from that gathering was can we join our forces?

We’re so small, all individually, that we need to cooperate. It was one of the messages from experts from 10 countries, which I had left in my memory.

I would link this issue to the complex social situation in Montenegro that has been going on for a long time.  How medical it would be to ask ourselves that particular question, I thought.

With all the internal dubious traits that exist in our society, external shocks such as pandemics, the situation in Ukraine that has caused the highest inflation in recent history and the like.

  • Together, a global and locally complicated and unpredictable environment for life has been created. It is quite clear that Montenegro has very little impact globally. What he can arrange and where he can influence is our backyard. Even though we know that man is the greatest and most rewarding potential, it seems that we avoid quality individuals quite well…
  • Why we do it I don’t know until the end, but I do know that a system that doesn’t cultivate competition, it cultivates atrophy. Can we say today what we’re globally competitive in? Squeezing out talent is a trait of outdated systems that end infamously.    

The data itself, according to a recent survey in the media, shows that 60% of young people want to leave Montenegro should worry all decision-makers.

When are we going to welcome a leader who will succeed in our intent as a society to be homophotic, not heterogenous? And who will create public space as a training ground for the best ideas for the development of our society?

Our population is small, even when we split up politically and remove anyone who thinks otherwise then we come to a very dangerous situation for our national growth and development…

This blog post will make a modest contribution and cover, in short terms, a topic related to responsible management of companies/institutions through the application of corporate governance principles.  

THE IMPORTANCE OF CORPORATE GOVERNANCE

(CRITERIA FOR THE SELECTION OF THE BOARD OF DIRECTORS AND THE SETTING OF INTERNAL CONTROL MECHANISM)

Corporate governance (professional way of running an organization) is important for the progress of any organization, so I try to illuminate a topic that’s rarely written about and I think it’s one of the important ones.

The definition is many, but some concise variant of corporate governance might be that it is a set of sophisticated relationships in the company (between top management, employees, shareholders and other stakeholder groups in society). There are detailed actions of the Board of Directors, Supervisory Board, effective internal control mechanisms and a system of accountability defined. It’s basically a set of rules in a company/organization that knows the order and the rules are respected by everyone.

In serious organizations, there is a Code of Corporate Governance as a document that is really applied because it ultimately leads to a better business outcome. Statistics show that in the most developed countries, investors invest 63% more in the companies they have and apply the principles of corporate governance in their business.

In Montenegro’s modest economy, for most public and private companies, the principles of corporate governance are far from an essential understanding and voluntary application. An honor to the exceptions there are. Companies that are foreign-owned generally respect these principles because it is already an established business practice from before, so they brought such business practices with them and to Montenegro.

A typically positive example of this is the Porto Montenegro project, which Tivat has completely “transformed” and raised standards in Tourism of Montenegro. Only 20 years ago, there were not many reasons why we should stop in Tivat, and today, because of Tivat, you come to Montenegro!

There are current political rotations in our society, where new players place “their” people on the Boards of Directors but also by the depth of institutions while the previous ones are mostly “clean”. We’re going to analyze how it should be done by business standards.

Therefore, when the possibility of forming a Board of Directors should be considered:

That appointed members of the Board of Directors should have previous experience on the Board of Directors (it is not enough to know that person and vote your political option);

– That members of the Board of Directors should be better introduced into the business;

– To have representatives of the state (if it is a public company), then dependent experts (those who work in the company and know all the problems in it), independent experts (who are completely out of the system and have no emotion towards the company as dependent experts), as well as a representative of the workers;  

 That the activities of board members of directors, chief executives and their fees should be conditional on the company’s business results! To avoid the scenario that some representatives of state companies receive EUR 3,000 – EUR 7,000 a month and that the company deals with losses!? If the business result is positive then bonuses should be paid, of course.

The most important criteria for rewarding are the fulfillment of the plan, the fulfillment of strategic goals and success in the field of business for in charge of an individual management member. Among other criteria, the most common consideration is the amount of profit achieved, which is the basis for defining the bonuses of management members;

– Provide members of the Board of Directors and supervisory board of professional trainings because everyone needs continuous professional progress. The Board of Directors should also do an evaluation of its own work;

– The Board of Directors should have commissions that will improve its work (Audit Committee, Compensation Commission, Appointment Commission, body that cares about work procedures, frequency of sessions, management supervision);

– To make a rulebook for the Board of Directors where all these details will be prescribed;

It is recommended that there is a person in charge of contact with investors in each company/institution.

Effective implementation of regulations and sanctioning irregularities are a prerequisite for the development of market economy institutions and a positive impact on good corporate governance practices. Everything that creaks with us in society and the business community. Laws and rules exist in many areas, but enforcement is pretty bad.

I’m going to jump completely into another area now, but it’s a good example of poor enforcement of regulations. Look how much rubbish is around us and the Constitution says we’re an ecological state! How is it possible that we did not turn this ingenious idea as a society into our global recognition and uniqueness?!

Will Montenegro live to see people who have integrity elected at all levels and who will be proud of all its citizens? Am I a utopian?

For all organizations that want to appoint a good Board of Directors, he should have some of the following:

  1. – Relevant experience;
  2. – Different and necessary qualifications (a mix of different expertise on the board gives a new value to the organization);
  3. – Board of Directors who are independent;
  4. – He devotes enough time and is genuinely interested;
  5. – A board of directors focused.

When the Board of Directors is completed, a suitable chief executive should be selected. Some of the important items to be respected for the selection of a CEO are:

  1. – That this person must have required professional qualifications;
  2. – That he must be an expert in his field and have proper managerial experience;
  3. – Make sure that the person punished in economic activities is not fit to perform the function of executive director;
  4. – In the employment contract, make it clear to prohibit work for competing companies. In the event that the CEO cancels his post, he should protect the company’s interests for a period of time and sanctions should be imposed in the event of a violation of that provision;

The Executive Director is obliged to execute the orders of the Board of Directors and implement his decisions regarding the company’s operations, management of the company’s assets, representation of the interests of the company, opening bank accounts, concluding contracts, employment, etc. More on the obligations of the Executive Director should be looked at in the Law on Companies.

After choosing the right person to be chief executive, it would be good to pay attention to a quality system of internal controls. Therefore, that there is an internal mechanism that will detect and eliminate problems in the organization itself. It is necessary to select professionals who know how to set up a system of internal controls that will really fulfill their purpose.

In the vast majority of smaller organizations I have met, the practice is to assign two or three functions to an individual, just to comply with the law. And that person, in principle, cannot be an expert in two or three completely different areas… This increases the risks of doing business to the maximum, even though the cost savings are made. Often, accumulating functions as a savings can be a trigger for making mistakes and irregularities in your business.

We should consider organising the internal control system in a way that each sector director is assigned to detail their activities in the sector. Then to create a risk table in the sector. Finally, according to the principles of priorities, specify a line of steps on how to minimize these risks with a timeframe when it should be completed. And that directors of other sectors in the company or organization do the same.

Then they create a comprehensive report that will be the basis for making decisions to the structures above the hierarchy!

If citizens fund public companies and the leading persons in them, is there any reason why corporate governance principles, other than private companies, should not apply to public enterprises?

Can political elites evolve to the level of leaving to the professionals leadership positions that will produce a positive result instead of the of political parties stuff that create losses.

priroda-blog-vladimirdrobnjak

A plastic example of how state-owned enterprises can function as modern and successful private companies is a personal example when I was a tourist in Scandinavia a few years ago. After a direct flight PodgoricaStockholm was to reach the city centre, that is, the final destination. As an average tourist, before the trip, I googled a little and realized that there was a mobile app from their state-owned company that transports passengers from the airport to the city center and other destinations around the city. The app is so “user friendly” that it can be used by anyone. I’ve decided on that option. Let me try how it works.

You type the location where you start and the final location and you get the price right away. If it’s okay with you, you pay for the ticket by typing in your bank card number and it’s all over in three steps. That bill you paid, it’s left in the phone you just show at the entrance to the state bus. The interior of the bus is spaced, air-conditioned, adaptable for working on a laptop, tablet, phone during the trip with electronic equipment charging places.

Anyone who doesn’t know how to install apps, I have to say that this state-owned company at airports has and pays for tickets and manually (if you don’t know that, the person at the airport can help you buy a ticket, with an indication that the option is slightly more expensive than when you pay via a mobile app). Everything went ideal, and I didn’t feel like I was riding on public transport, because with us, the experience is completely different. 

Why don’t we in our beautiful country, which is also touristy, make these kind of digital steps that aren’t complicated or expensive at all?! Could this be the idea of a party implementing something that would benefit everyone instead of boring criticism of the competition? Try to score with good and innovative projects?

The continuation of this story, with the notion of how late we are in digitization as a society, goes on… I met a month ago a person from Madrid who’s been touring southeast European countries… After his stay in Montenegro, he tells me that the next destination is Belgrade and that he wants to take the train. He asks me for details on how to buy a ticket because persistent searches on the internet could not be found out how to buy a ticket online. In our society, you still have to show up at the train station counter before you travel about these things. I can’t tell you the look on the face of a person who realized she had to physically show up to buy a ticket and had previously visited several countries and finished it all on her mobile phone.

I’m talking about these things out because of a desire, to understand where we are as a society and how late we are for the European standards that we aspire to and start implementing solutions that are useful to everyone.

Finally, I go back to the beginning and the business conference question: Can we join our forces? Who will be against if the best people in their fields are chosen to lead us into the future? Montenegro could be El Dorado if we can “internally” agree.

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