Are govt-owned firms managed properly?
It is heartening to note that the new government has galvanized into action
to eradicate corruption in government organisations through a transparent
process. The silver linings are the "Freedom of Information Acts", "The
Amendment to the Companies Act "and invariably the new watchdogs coming
under the famous 17th amendment. All these efforts are highly commendable
as the transparency, accountability and right to obtain information will
serve as effective fetters to corruption.
The focus of this article is to highlight in the best possible way,
one of the major grey areas which have not attracted sufficient attention
of the powers-that-be. This very important area is the function of "Government-owned
companies".
The way they are being operated by various parties lead to the sixty-four
million dollar question whether they are really owned by the government
and to what extent.
Public Enterprises
The government compa nies are ones defined under "Public Enterprises".
The Public Enterprises Reform Commission of Sri Lanka Act No. 1 of 1996
defines a "Public Enterprise" as a public corporation or a government-owned
business undertaking or a company where all the shares or the majority
of shares of such company are held by the government.
Not limited by this, various other acts have defined "Government Companies".
These are; Commission to Investigate Allegations of Bribery or Corruption
Act No. 19 of 1994, Finance Act No. 38 of 1971, Human Rights Commission
of Sri Lanka Act No. 21 of 1996.
This shows the importance of the government companies in various spheres.
However, interestingly there is not a shred of provision given regarding
these companies under the Companies Act No. 17 neither of 1982 nor in the
Companies (Amendment) which is of utmost importance.
All these acts define government companies only in terms of shareholding.
In the actual operation of these companies according to the Companies
Act a Board of Directors is appointed in the first instance as subscribers
to the memorandum and subsequently the directors are appointed by the board
of directors itself. To represent the government there are one or many
directors.
To represent the government as directors, representatives are appointed
on behalf of the Secretary to the Treasury as the government shares are
held in trust with the Secretary to the Treasury.
Hence it is seen that the Secretary to the Treasury is vested with a
heavy responsibility on the shareholding.
The vital question which should be answered is to what extent the government
(Treasury) exercises control over these government companies. Serious misgivings
arise given the way these Treasury representatives function inside the
Board of Directors.
More often than not it appears that these representatives are not at
all interested in the representation of the interest of the government
where public money is kept in trust.
In many cases they act in cahoots with the other non-government members
to satisfy their own ends. These government representatives are paid handsome
amounts for Board sittings by these companies. Also lucrative medical benefits,
transport, etc. are provided in order to bait them to represent the interests
of the other private shareholders unknown, unseen and unmonitored by this
government representative's master, the Secretary to the Treasury.
Companies Act
The other private owners are cunning enough to reap the full advantage
of the loopholes of the Companies Act, the laxity of the Treasury and its
representatives, ignorance of the employees and the minor shareholders
and specifically the recent judgments delivered by the Supreme Court and
the Human Rights Commission which are the courts with power to safeguard
Fundamental Rights.
These government companies are mainly functioning according to the Companies
Act, therefore they have to prepare annual accounts, get them certified
by a recognised private audit firm and file the annual accounts in the
Company Registrar's office. These files can be scrutinized by anybody on
paying a nominal fee. There is no government control over these accounts
as there are no provisions in the Companies Act or any other act where
the Auditor-General could get involved. This too is a sad story as the
so-called audit companies charge lucrative fees for the preparation of
annual accounts.
It is difficult to think that these firms will give a report to their
clients disadvantage barring a good income. In some cases the same audit
firm has prepared and continues to prepare the accounts years on end, and
continue to be in good business.
Corporations
In other public enterprises such as corporations the officers cannot freely
move about without the permission of the government. For example if such
an officer wants to go abroad for official purposes they have to get government
approval This applies even to ministers as well. The situation regarding
the higher-ups of these government companies is that they have no such
restriction.
This has lead to a situation where the bosses of these companies go
on foreign trips as and when they please on company expense for their own
pleasure but not necessarily for any business. Also there is no control
over the salaries and other perks received by the bosses of these companies.
Vast salary differences are observed between the Managing Directors and
other fellow senior employees in these places.
Because of these activities some of these companies are running at a
loss. The loss is also felt by the public because of the government's shareholding.
This loss is not much of a problem to the bosses of these companies, its
directors including Treasury representatives as they can enjoy their salaries
and perks in spite of the losses.
The Registrar of Companies is not effectively monitoring the activities
of these institutes other than maintaining the documents in files with
the day stamps and keeping it for public scrutiny.
In some instances these companies have with the connivance of Treasury
representatives gone to the extent of changing the shareholding under the
guise of Employees' Share Trusts granted under the Amendment to the Companies
Act No. 33 of 1991. The way these Employees' Share Trusts are established
and registered with the Company Registrar are really baffling.
Not stopping at that, these Trusts are being audited and certified by
the so-called reputed audit firms and filed with the Registrar of Companies.
What happens is that the Board of Directors appoints few trustees to take
care of the Share Trust. Most of these trustees are company directors themselves.
They form a document called the Deed of Indenture where the Board of Directors
and trustees (virtually the same lot) come to an agreement between them
regarding the operation of the Share Trust. Now everything is hunky dory.
No employees are representing this Trust.
The Trust is registered with the Company Registrar unknown to the Secretary
to the Treasury. After it is said that this Trust is the major shareholder
to overshadow government control and to control the company according to
the whims and fancies of a few. Even PERC is not informed of these developments.
Principles
The simple question which should be asked is, can one appoint somebody
who is more powerful than himself like a Frankenstein monster? This is
against all known legal principles. Before the appointment of Trustees
and establishment of the Trust the government is the major shareholder.
Once the trustees are appointed by the Board of Directors (trustees are
a selected lot among directors themselves) the Trust is left with a bigger
shareholding than the government. Then the Trust can at the Annual General
Meeting of the company outvote the Board of Directors.
Fundamental rights
The other fact to be inves tigated is that a private party could usurp
government shares without the approval of the government, in this case
the Secretary to the Treasury, merely because the government representatives
connive in these dealings. This matter is somewhat complex to be understood
by a novice and it is of immense advantage to the unscrupulous persons
who are in business.
competitive bidding
In some cases these com panies through competitive bidding mainly on its
technical strength have secured government jobs and charged the government
ministries exorbitant fees in national projects. In one case a ministry
was so annoyed with the performance of one of these government companies
in many of the national projects in the said ministry that it reportedly
sought the advice of the Attorney General regarding the action to be taken.
The developments after that are not known.
When it comes to Fundamental Rights, substantial differences exist in
the way the highest courts of this land has defined the "Executive and
Administrative Action" arising out of the deep and pervasive control of
the government in these entities where there is a government shareholding.
The salient point was whether some of these institutes are government organs.
In the case of Hemasiri Fernando vs Mangala Samaraweera and others, the
Supreme Court accepted Sri Lanka Telecom as a state body which is amenable
to fundamental rights jurisdiction. In this case the Supreme Court observed
- "under the veneer of the commercial company is the state".
On the contrary in the famous Air Lanka case the Supreme Court decided
that the government has lost deep and pervasive control and Air Lanka action
does not constitute Executive and Administrative action.
In another case (D.A.J. Ranwala vs Lanka Hydraulic Institute Ltd. HRC/651/99)
in the Human Rights Commission, the Commission decided, citing the Air
Lanka cases, that the government has lost deep and pervasive control over
Lanka Hydraulic Institute Ltd and the action complained of does not come
within the ambit of Executive and Administrative action and the Commission
has no jurisdiction to hear the said case. However, even the Human Rights
Commission considers Sri Lanka Telecom as a government organ which is also
a company of a similar nature.
reverse trend
These show a reverse trend and ad-hoc analysis in fundamental rights and
these have been the subject for many discussions among legal luminaries
about this recent reverse trend in the arena of fundamental rights.
With the government always favouring privatisation as a way of injecting
dynamism into some organisations, government shareholdings (public money)
is in jeopardy in the hands of unscrupulous individuals who find the loopholes
in the law to wriggle through any irregularities. Since they are the caretakers
they spend the money of these companies to serve their own ends rather
than serving the nation whether it is private or government. Privatisation
should not be a gateway to flout the law. Its very idea is to efficiently
serve people.
It is high time that the government stood up and took note of the functions
of these government companies in which many are bristling with corruption
and mismanagement.
A great responsibility is on the Minister of Finance, the Deputy Minister
of Finance, the Secretary to the Treasury and the Minister of Legal and
Constitutional Affairs to study the goings on in these entities and propose
remedial action.
The other parties such as the Parliamentary Committee on Public Enterprises
(COPE), Public Enterprise Reform Commission (PERC), and the Registrar of
Companies are pivotal.
The irony is that although there are many such governing bodies, some
of the managers in these government companies openly flout the rules and
regulations and still manage to get off scot- free.
The extent of government controls and whether these are government organs
or not, should be clearly defined in the forthcoming amendments in the
relevant acts. This will save the money and time of litigants and the government
in cases of Fundamental Rights violations.
The government should appoint an independent regulatory body to look
into the affairs of these public companies as at the moment the role of
the Treasury representatives are thoroughly inadequate and questionable.
The Companies Act should contain clear provisions about government companies,
its operation, shareholding, control, limitations and more importantly,
the share ownership and the establishment and operation of Employees' Share
Ownership Plans (ESOPS) to stamp out corruption and mismanagement. Government
companies should not be allowed to be operated as the property of few unscrupulous
individuals. It should be stressed here that most of the private companies
are managed better than these government companies.
Dedication
I want to appreciate the dedication of some of the authors in the calibre
of K.M.M.B. Kulathunga, retired Supreme Court judge, Kishali Pinto Jayawardena
who writes on rights issues in the Sunday Times, Nayana who writes the
Legal Watch in the Sunday Island, the Human Rights Institute headed by
Mr. J C Weliamuna and Preethi Udagama, etc. who have from time to time
written about mismanagement of government property and, issues pertaining
to Fundamental Rights, etc.
Their future contribution is highly valuable in this complex subject
in the national interest. Also contributions from anybody towards this
subject is of immense value to this ailing nation.
Pro Bono Publico |
