EOpriv: Developing competent management

[Dan Bell <dbell@kent.edu>]

Here is another section of the paper. Comments are welcome.

5.3     Developing competent management

        A large part of the rationale for privatizing a state enterprise is the
conviction that the state does not manage it as well as private owners
would. The logical conclusion, then, is that original management is
inadequate and either needs to be replaced or assisted. Where an entire
economy is moving from state planning to market conditions, this challenge
may be much more acute.

        While the original managers should not be dismissed without review, it
seems appropriate that their permanence in their positions not be taken as
an a priori either. A reasonable amount of time should be dedicated to
reviewing a number of management options including that of retaining
current management.

        In addition to the standard set of management skills (sales, finance,
operations), values consistent with the ownership culture of an
employee-owned company should be identified and used to screen candidates.
Where corruption is widespread, another criterion may be the personal
financial position of the top manager. Some advisors have even joked that
one needs to find someone who has already stolen enough previously, that
they are now willing to focus on making the company successful.

        Another challenge for attracting good managers to employee-owned 
companies
is financial incentive. If the managers' stake is not sufficiently large,
adding value to the shares of all the stockholders may not be an important
enough priority for them. Designing an incentive strategy which is generous
to managers who perform well for the benefit of all is superior to high
salaries which drain much needed working capital and do not hold top
management accountable.

        In transition economies with very limited pools of ready-made managers,
there will be some developmental needs. One way to address this is to
create a matrix of all of the relevant skill sets. Not only can the matrix
be used to assist in the selection process, it can also serve as a
diagnostic tool to assess management developmental needs. Training
resources to strengthen each skill set in the matrix can be systematically
identified.

        Privatized enterprises struggling to survive under unfamiliar market
conditions do not have the luxury of waiting for their managers to gain
sufficient market experience. During the first one to two years, these
companies would benefit from the assistance of short term experienced
managers. To make such people available, the privatization agency could
establish a management intervention team which supported several companies
at a time, or it could subcontract this task out to a network of employee
ownership and turnaround managers. The cost for this could be rolled into
the overall long term acquisition financing.

        A lower cost alternative would be to bring networks of newly privatized
enterprises together on a regular basis for in depth roundtable
discussions. The group could share experiences and concerns with each other
and also benefit from the input of a few experienced managers. The Internet
can also serve as a networking tool; for example, a closed list serv which
allows a select group of managers to query each other about periodic
challenges.

        Oversight of management is another significant challenge. The role of 
the
board of directors is an important check on management. Employee owners are
not normally equipped with the typical board member skills needed to review
management's operation of their company. Over time, this can change with
the proper training. The natural divisions of opinion between management
and labor can be more successfully resolved with the assistance of a
mutually-selected outside board member with the power to intervene.

        A transition board can be a good idea as well; one that serves as a
guardian of the employee owners' interests until they are ready to play a
more active role responsibly. Such a board may also be important for
assuring that commitments made to the privatization agency about the
continued use of the assets to benefit the local community are met.

--
Dan Bell
International Program Coordinator
Ohio Employee Ownership Center
Kent State University
Kent, OH 44242
(330) 672-0333 << New direct number!
(330) 672-4063 fax
dbell@kent.edu
http://www.kent.edu/oeoc/
http://cog.kent.edu