Re: EOpriv: Response to Wheatcroft: Developing competent management

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

I agree that poor management should be rectified without resorting to
privatisation.  There is notcertainty that privatisation is a cure
as observed in Russia and the UK.  I am on the editorial board of
the journal listed below which details the problems in the UK.

"Privatisation and Deregulation: Corporate Governance 
Consequences in a Global Economy" 
Corporate Governance: An International Review, Vol. 8, No. 
1, January 2000
BY: ENRIQUE LOREDO 
University of Oviedo 
EUGENIA SUAREZ 
University of Oviedo
Contact: ENRIQUE LOREDO 
Email:
Mailto:eloredo@correo.uniovi.es
Postal: University of Oviedo 
Escuela Universitaria Jovellanos 
Francisco Tomas y Valiente 1 
33201 Gijon 
Oviedo, SPAIN 
Co-Auth: EUGENIA SUAREZ 
Email: Mailto:meugenia@correo.uniovi.es 
Postal: University of Oviedo 
Escuela Universitaria Jovellanos 
Francisco Tomas y Valiente 1 
33201 Gijon 
Oviedo, SPAIN
ABSTRACT: 
Corporate governance practices in the privatised British 
electricity utilities are analysed in this paper. It is shown 
that external governance did not put enough pressure on the 
managers of the companies. Soft price regulation, the lack of 
product market competition in distribution, low financial 
leverage and the deactivated takeover market created a stable 
environment. Moreover, diffused ownership was not an adequate 
stimulus either. Although board structures complied with best 
practices and executive incentives were in place, these two 
devices were unable to successfully restrict managerial 
discretion. Therefore, it is suggested that global competition 
in the market for corporate control could play an important role 
in bringing in the appropriate incentives. The evidence 
indicates that allowing American electric firms to bid for their 
UK counterparts brought to light inadequate corporate behaviour.

JEL Classification: G34, L33, L51, L94


My paper listed in the COG library on "The competitive advantages of stakeholder mutuals" http://cog.kent.edu/Author/Author.htmdescribes describes how competition for corporate control within a firm can improve performance without being listed on a stock exchange.  [The triangles, circle and thick black arrows which appear on the cover page should appear within Table 1.  Hopefully, Dan and/or Joseph can correct this problem and/or include my revised version dated September 20th]

Regards

Shann








At 04:53 AM 21/9/2000, Dan Bell wrote:
> Dave,
>
> Again I share your observation that if one can fix
> a problem of poor management without privatizing, poor
> management ceases to be a valid reason for privatizing.
>
> I think that state companies and publicly held companies
> (ie, traded on the stock market) often share the same
> problem, which is that the owners are too far removed
> from the business. If managers can get away with wasteful
> practices without being held accountable, they will.
> Some of this waste may be in forms that enrich them
> personally.
>
> Others, I believe, refer to this as the principal-agent
> problem. Privatization is intended to align the interests
> of the owners and the managers by making them one and the
> same, or at least to create up-close (as Jeff Gates would
> say) owners who are better able to keep an eye on their
> managers.
>
> Certainly a possible alternative to privatization would
> be decentralization into local autonomous units with
> economic incentives based on local performance, while
> retaining state ownership.
>
> Thanks again for your helpful comments. Could you expand
> a little on what you mean by "Non executive Directors".
> I was a little confused by the term.
>
> Dan
> --
> 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