State lacks clear framework for managing publicly owned companies

Supreme Audit Office, photo: Tomáš Adamec

The state spending watchdog, the Supreme Audit Office, has issued a report putting the spotlight on ongoing failures how ministries manage the wide variety of companies under their control. In spite of past government resolutions and instructions, clear guidelines and policies are often still lacking with ministries appearing to take an ad hoc approach.

Supreme Audit Office,  photo: Tomáš Adamec
The Supreme Audit Office examined how the state exercises its control over 31 companies where it either has full control or a substantial shareholding. Altogether the market value of the firms reviewed comes to 106 billion crowns. The companies range from the giant near 70 percent controlled power company ČEZ to the company running Karlovy Vary’s Thermal Hotel, the setting for the annual film festival. Three ministries were put under the spotlight, the ministries of finance, industry and trade, and agriculture.

Olga Malková is spokeswoman for the audit office and she described one of the main conclusions:

“The Supreme Audit Office found that a significant problem is that until now the state does not have any overall policy for evaluating which companies it counts on in the future as strategic and which it wants to get rid of. The overall policy should have been established by the relevant ministries already in 2012.”

The task of coming up with that overall strategy has been postponed by governments several times since then.

The office’s survey also found that there were clear instructions at the government level who was responsible for pushing and protecting the state’s interests in only two cases out of the 31 companies, and these were not the most important state-controlled firms. In the remaining cases, it was left up to the ministers concerned how the state’s interests were pursued. And what’s more, clear markers for responsibility and decision making were confused in cases where more than one ministry had a stake in state-controlled companies.

And as far as guidelines about the payment of top state representatives on companies are concerned, in most cases ministries have failed to set out a framework for pay and bonuses in spite of the government laying down instructions how this should be carried out in 2010.

Ceilings for the maximum annual earnings of state appointed managers and board members were also supposed to be set. In the case of the Ministry of Finance, it approved 14 out of 22 agreements but in none of these cases was a maximum set for managers’ rewards. And in 15 agreements there was no linkage made between the overall management package and achieving the long term or mid-term goals of the company.

The latest survey is an example of the watchdog pushing the bounds of its powers to the limit. Currently it can only look at how ministries manage the state-run companies. It cannot look at the company results, strategies, or how the management are performing. That though could change under a proposal to widen the audit office’s powers which is currently being debated in parliament. So far there have been no fundamental amendments to the original proposal but the process has still to be wrapped up.