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| Privatization & Capital Management |
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Most economists put the
blame for the poor state
of the Iranian economy on the
centralized system and vast government control. There is no doubt that state-run economies are not efficient while some degree of guidance and supervision is thought by many authors to be beneficial. In any case, presently privatization is the subject of the day among Iranian economists as well as the technocrats and – in particular – experts in management and management systems. Among the latter is Farzin Entessarian who runs a company one department of which deals exclusively with quality management issues, and implementation and establishment of anagement systems. What follows is a summary of his views on the present state of government-run companies and public sector managements. Some time ago the ex-president, Hashemi Rafsanjani admitted in a press conference that 85% of Iran’s economy was (and is) still controlled and run by the public sector and that all efforts made during his presidency towards privatization, had failed. This is the sad truth and there are thousands and thousands of companies run – quite inefficiently – by the public sector and by typical state managers who are more concerned with preserving their positions and desks than running a profitable company. Let’s take an example, a typical company in this category (which is by no means purely imaginary; the writer has seen many like it). The company has 45% of its capital invested by the state and 55% by one or more of the country’s major banks which are themselves state-owned and state-run. The members of the general assembly are three persons from the bank(s) and two from the relevant ministry, all public sector managers with their usual characteristics and devoid of any entrepreneurial feelings, all concerned primarily with their ranks (hence their degree of respectability) rather than the company they are supposed to run. The general assembly of the company appoints, from among its members, three persons to make up the board of directors one of whom would be the general manager, another the financial director and the third the chairman of the board. (There may of course be some more government employees as members of the board without specific duties, who would just receive their salaries and bonuses as compensation for their work in the organization). The general manager’s office has recently prepared a report for the board of directors which has approved it for presentation to the general assembly. However, the report does not mention any existing or past shortcomings, any problems the company faces, any point that would even slightly worry or concern anybody. Everything is set out in a way that the directors and the general assembly would wish to have them and that suit the directors’ future plans and their predetermined decisionmakings. If the company loses money it simply raises the prices of its products which the public has to pay, as all other companies that produce similar products will be asked to raise their prices, and are bound to comply. In case this is not possible and the company consequently shows a loss then the blame is put on external factors such as changes in market trends, labor problems, import/export formalities etc. The shareholders’ representatives are all very busy people because they are also high ranking directors in the relevant bank(s) or the ministry, and members of the general assemblies of ten other companies! On the day the general assembly is to be held the general manager’s greatest concern is the quality of the pastry and fruits that are to be served, and the way photographs and charts shall be presented. The contents of the reports do not worry him! Of the shareholders’ representatives Mr X is on a trip abroad and Mr Y is in a very important meeting. Therefore, they have each sent one of their managers to the assembly as their representatives. Mr Z has managed to come but has to leave within one hour. Each person arrives with some delay, is welcomed and sits in his usual seat in the conference room. They chat for one hour or so about the weather, traffic, politics and a little about Mr X’s recent trip abroad on a business mission! Then, the chairman of the board opens the meeting by thanking the board and the general manager for the hard work they have performed during the previous year. Then, the general manager and the chairman of the board talk for about two hours with the help of many beautiful charts and maps. Meantime sweets, pastry, fruits and tea are constantly being served. At one o’clock the general manager invites the assembly to proceed to a posh restaurant nearby, for lunch… To cut the story short the session ends at 0430 hours with everyone happy and smiling. Such a tragedy occurs in Iran almost every day and all this arises from the fact that the investors are not there to see what is happening to their capital. To illustrate the issue, suppose you have bought a bus and would like to make money by running it between Tehran and Mashhad (about 700 km) carrying passengers, but you yourself are busy making money elsewhere and cannot afford the time to act as the driver. You need a driver, but what sort of a driver? What would you look for in him; what qualities and capabilities? He must, of course, have a first class license. He must be orderly with a clear past record. He must guarantee to drive carefully; to look well after the bus, to keep it clean and in good condition. He must be polite and respectful to the passengers, and must serve them well. Also, before you purchase the bus you should research into the market. Perhaps you can more profitably invest the money in some other venture bedsides buying a bus. The Iranian state, however, as all states across the world, does not bother to evaluate the capabilities and the suitability of its managers because there is no one to care if money goes to waste. It employs a driver not because he is a good driver or that he is reliable or … but because he is so and so’s cousin, or has been of service to someone. Worldwide experience has proved that “governments are not good investors”! They do not have a clear understanding of the nature of capital and assets, nor do they have the necessary knowledge and experience for the effective implementation of capital management. They always neglect human resources, management systems, and managerial knowhow which are vital tools of capital management. In Iran, public sector companies have been following a wrong procedure to assess their own position and this has been going on for years now. In most companies the employees of the financial department exceed 15% of the total number of personnel and they spend all their time working on their books and ledgers and preparing financial reports. In the best instances, the boards satisfy themselves with reviewing the auditors’ reports, the balance sheets and the profit and loss statements, evaluating the performances of their management boards solely through these. These boards fail to see that two companies may have quite similar balance sheets but completely different structures as regards management, human resources, technical know-how, equipment, operations and R&D. Add to this the question of marketing and market research, as well as approach, viewpoint, customer satisfaction and customer needs and it becomes evident that the dissimilarities may lead to conflicting sets of values. To assess a company’s performance we need to study and evaluate many other factors besides financial issues. Some of these factors are listed below: 1. The management system and its methods, to see if the company is progressive or regressive 2. Projects, future plans and the relevant risks 3. Production as regards qualitative and quantitative issues benchmarked against “the best in class” 4. The production system and methods, benchmarked against comparable goodperformance competitors 5. Production quality and compliance with the relevant standards based on direct/ indirect feedback from the market, customer etc 6. Methods of repairs and maintenance of machinery and equipment 7. Amortization and evaluation of current values of machinery and equipment 8. Costs and revenues considering those factors which truly affect current values of assets (special attention must be paid to non-quality costs) 9. Potentials, capabilities and behaviors of the personnel 10. Production, marketing, distribution, sales and purchase procedures 11. The workplace and the work cycle 12.The prevailing conditions with respect to capital, cash flow/ liquidity and the effects of the market on capital and liquidity 13.The prevailing conditions with respect to human resources, management systems, and technical knowledge and know-how, as intangible assets 14. Customer requirements and needs. These are some of the major points to consider. Our companies must study and learn from the trends, processes, successes and failures of major international entities, from how they are run, and from what they do and don’t.  |
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