At the euphoric dawn of market reforms it seemed it was enough to proclaim
"privatization of the whole country," and new owners would instantly march
in close ranks to their enterprises. And they would, of course, show the
way the economy works for profit rather than out offear. But things turned
out slightly differently: formally, some owners indeed gave way to others,
but the new ones began to behave no better than the Red managers who remained
in their posts: the same embezzlement, the same incompetence in decision-making.
So what happened? What is corporate management under the conditions of
a market economy? How can managers be made to work honestly? This is the
topic of our conversation with People's Deputy, former chairman of the
State Property Fund, and former Economy Minister Yuri Yekhanurov.
"As a result of privatization, we did not really get new owners in the
shape of new shareholders. It turned out that there have to be not only
certain legislative decisions but also a corresponding corporate culture.
How does it work throughout the world? There are company owners - shareholders
- and an executive body - managers hired by the shareholders to run the
company. There also are hired workers who work under contracts signed with
management. All three of these elements should function independently of
one another. In our case, everything is mixed up. Ukraine has about 20
million shareholders, while Germany only 4.5 million. In other words, we
have such wide fragmentation of property that we cannot concentrate the
controlling shares needed to effectively manage an enterprise."
"So the privatization pattern this country opted for was flawed?"
"This pattern resulted from the decision on voucher privatization, i.e.,
the decision to hand out property. So when one says today that privatization
allegedly has not produced effective ownership, one must remember that
this was never a goal of those who were molding economic policy in 1992.
We thus got a huge number of pseudo-owners, but we never got those who
could organize a process of concentrating stock. Moreover, millions of
our shareholders do not even know they have the right to sell their shares."
"But, maybe, the point is not that people do not want to sell their
shares but that there is nobody to sell them to?"
"There are buyers in Ukraine, but they do not buy shares because they
lack confidence in the economic policy and stability of the government.
For the same reason, people who have amassed money in the market are in
no hurry to purchase stores and enterprises. They are absolutely uncertain
of being able to work there. They fear that as soon as they change a bazaar
kiosk for a respectable building, they will face a long line of officials
wantin bribes. But let us get back to the problems of corporate management,
for instance, in enterprises where the collective has fully bought out
its shares. Of course, there are also happy exceptions there such as Obolon
Ltd. These people were among the first to receive property certificates,
and they are now working successfully. Other limited-liability companies
are slowly "rotting," and nothing will result unless they become public
limited entities. But even public limited companies have no bright prospects
unless share blocks can be concentrated. For example, the successful performance
of the Cherkasy-based Azot became possible because 2/3 of its shares are
controlled by a single structure which holds the manager responsible for
his activities.
"We must also keep in mind such an element of corporate culture as the
ability of shareholders to come to terms. We do not have this so far. Shareholders,
instead of sitting down at the negotiating table and making a deal on cooperation,
make a decision on the purchase or sale of the controlling package. Moreover,
if a company has acquired control, this does not mean it will be able to
take full advantage of its rights. Powerful officials who may simply dislike
this company intervene immediately. As a result the former will destroy
the latter. By the way, do you know the consequences of the decision to
limit the number of enterprise inspections (one a year - Editor)?
Now inspectors come to an enterprise and stay for months on end. Now the
manager of any business has in fact two superiors: an official he must
come to terms with in order to live and work normally, and a shareholder.
"Another peculiar feature of ours is ownership of large controlling
share blocks by enterprise managers and directors. Since the manager is
simultaneously an owner (when decisions are made at a shareholders' meeting)
and a contractor, he cannot avoid having a split personality. While Western
managers encourage acquisition of shares by employees, their Ukrainian
counterparts, above all, crave power and independence from their shareholders.
The director is interested in collecting a blocking package of shares only
so that the shareholders won't be able to implement their personnel or
structural decisions. I do not think we can do without a legislative division
of the functions of an owner, manager, and employee. There has to be an
owner with an exclusive right to make decisions. There has to be a manager
obliged to meet any demand by the owner. There must be hired personnel
strictly subordinated to the manager. I strongly doubt that what we have
in store is the process of a democratic coordination of the interests of
all actors. And I am sorry to say that we will have to go through a long
stage of share block consolidation in the hands of one element. We will
be unable to go on without this.
"Another problem hindering effective corporate management is accounting
standards. Nobody can make heads or tails of our bookkeeping records, even
if he gets access. Our owners should finally get to know what is happening
in their enterprises, whether they are making profits or losses. It is
clear there will be no radical reforms in this election year. But still,
something can be done - for example, to pass a law on accounting and financial
reporting (the draft is ready). This is a very complex law, and I predict
most accountants will meet it with daggers drawn. For the basic idea of
this law is to force an accountant to think and make decisions, and, what
is more, makes the finances of an enterprise more transparent. Which many
people equally dislike."
"Any market economy enterprise depends on whether or not it makes
a profit. In what way can we make state-run enterprises, the more so if
they enjoy the status of being exempted from privatization, orient themselves
toward making profits? How can we keep a state-appointed manager from the
theft ubiquitous in our economy? Why should he earn a profit?"
"In theory, this problem has long been solved, and all discussion is
over, but in practice, it has not even been dealt with. The law should
identify the category of government-owned enterprises. There can be five,
maximum ten, government-owned entities, like the mint. All other state-run
facilities are ordinary enterprises working on a normal cost-accounting
basis, i.e., in active competition with private business. The state should
renounce subsidies. If an enterprise is making losses, the relevant decisions
should be made: change the manager, sell it, or restructure it. And to
keep the Ministry of Finance from repaying their losses, as it does today,
we need parliamentary supervision. What we do today is bury almost Hr 5-6
billion in losing enterprises in Verkhovna Rada and government appropriations.
But here we touch upon a different sphere, that of structural reforms.
We must first decide what kind of economy we need and only then think about
financing it. We must say honestly, for example, that metallurgy has no
serious prospects."
"And don't you think that the policy of priority-setting is a false
step? We must have only one priority: a profit-making economy. And only
then can we identify the few enterprises whose losses this economy will
repay."
"Don't be naive. I agree there should not be the kind of priorities
we have. But, still, we must decide what to do with enterprises belonging
to ailing industries like coal. This is hurting the whole Ukrainian people.
We must be aware of this and pay this industry. Not because they demonstrate
in protest, but because we have a pit-closure program. I do not agree we
must pay somebody only because they are in agriculture or any other sector.
But we in fact always try to freeze money wherever we can, for example,
in shipbuilding or related industries. Priorities should only be set for
those who have current assets and bring profits. But we are still not mature
enough for this. There are no serious debates for a simple reason: Parliament
and the government are mostly filled by the representatives of large enterprises.
These people are used to thinking in terms of large enterprises. They do
not understand that the situation in the economy has changed radically.
They already speak of small and medium business from a platform in normal
terms. But only from a platform do they love it. In fact, the number of
small businesses last year fell as a result of this 'love'."







