ENHANCEMENT OF CORPORATE GOVERNANCE THROUGH PRIVATIZATION

Abstract

The convergence of global economies towards market-based systems has put the modern corporation in the centre of economies around the world. It is becoming increasingly recognized that companies should be managed to reflect the interests of society at large rather than for purely private interests. The positive and negative externalities of the separation of management and ownership in the modern corporation makes corporate governance an important issue. This leads to a number of issues related to efficient control of the assets of corporations in the interest of all stakeholders. Corporate governance is also important for state-owned enterprises (SOEs).

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DEALING WITH RESISTANCE TO PRIVATIZATION

Abstract

As the Privatization Commission executes its mandate of formulating, managing and implementing the Privatization Programme, it is likely to encounter resistance from different stakeholders. This is not unique to Kenya as every country that has pursued privatization as a Government policy has had to deal with resistance to privatization at one time or the other. A survey carried out by the Center for Global Development in 2002, concluded that “privatization remains widely unpopular, largely because of the perception that it is fundamentally unfair, both in conception and execution”.

Opposition to privatization can come from different stakeholders and groups that include trade unions - including workers and management, consumers, professionals, environmentalists, political groupings and politicians, and community organizations. Resistance to privatization has taken place in countries at varying levels of national incomes so that the resistance to privatization is not limited to developing countries.

Resistance has the potential to delay, dilute or sabotage public enterprise reform in general and privatization in particular (Nellis, 2003). Despite the resistance, the economic benefits associated with privatization are widely accepted and can include: improving enterprise efficiency and performance; developing competitive industry which serves consumers well; accessing the capital, know-how and markets which permit growth; achieving effective corporate governance, broadening and deepening capital markets and securing best price possible for the sale.

In light of the above, this paper seeks to identify the possible reasons for resistance to privatization and the mitigation measures that can be put in place to deal with the resistance.

The specific objectives of the paper are: identifying the benefits associated with privatization based on numerous studies that have been conducted; identifying possible reasons for stakeholder resistance to privatization; identifying some of the mitigation measure that can be put in place to deal with resistance to privatizations; and proposing recommendations on how to mitigate possible resistance as the Privatization Commission implements the Privatization Programme. The paper has extensively reviewed literature on privatization most of which has been downloaded from the internet.

 

Recommendations from the paper include:

  • Need for a communication strategy for the Privatization Programme through which stakeholder expectations for privatization can be managed.
  • Need for enhanced stakeholder consultations during the design of the Privatization Programme and prior to and during the entire process of implementing privatization transactions.
  • Inclusion of employee ownership schemes in the privatization proposals to offer interested employees an ownership in privatized enterprise.
  • Publicizing major activities can enhance public acceptance.
  • The proposed methods of privatization could as much as possible encourage broad based ownership to gain public and political support.
  • There may be need to ensure that the Commission is underpinned by a strong law that empowers it to overcome opposition from vested interests – this may call for strict
  • Enforcement of the existing law or amendment. Such a law could accord the Commission administrative authority that requires entities to be privatized and government ministries to comply with its requirements.
  • The Commission may consider developing a mechanism to monitor institutions post-privatization that will provide feedback on closed transactions – this will build stakeholder confidence and marshal support to ongoing privatizations.
  • Government may be encouraged to plough back privatization proceeds into social infrastructure such as hospitals and schools to build public support for privatization

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