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Agents of change, or simply a changing of agents? The new western CEOs

April 19, 2016

Having witnessed a Cabinet of Ministers containing numerous Ministers of foreign birth and/or western education and/or top level western business acumen be replaced by the latest Cabinet of Ministers that can hardly make such a claim, and having watched two Deputy Prosecutors that passed through public screening prior to appointment leave after suffering various acts of subterfuge and attempts at coercion regarding their reformist/anti-corruption intentions, notwithstanding a number of international advisory entities with hand-picked personalities advising both President and Cabinet, their erudite words prima facie being listened to but unheard,  a reader may ponder the expectations for those foreigners being appointed as CEOs to Ukrainian State Owned Enterprises (SOEs).

Having lost so many injected agents of change at the very pinnacle of national policy making, or seemingly ignoring those that remain in advisory capacities, does inserting those of the same calibre and mindset as CEOs of SOEs simply represent a changing of agents of the agents of change in arguably less politically prickly roles?

The selection process has been thorough.  International headhunters, interviews have taken place, ahead the ever uncertain parliamentary approval that will possibly see the next 3 candidates appointed.  The critical criteria being zero-level tolerance for corruption, an impeccable professional reputation and proven experience in change management.

Thus far during 2015 Ukrgazbank, UkrGasVydobuvannya, Ukrnafta, the State Food and Grain Corporation of Ukraine and a few others have seen new and unsullied CEOs.  Whilst some or all may be still operating at a loss, it would be reasonable to assume that 2016 reporting will record those losses being significantly reduced if the CEOs are indeed as good as their respective Curriculum Vitae purports.

That said, not all such search and select matters have run smoothly.  Governor Saakashvili’s efforts at recruiting “bright young things” for the 28 Districts of Odessa Oblast has met with failures and resistance in 6 of them.  Perhaps 6/28 duds or simply very disliked figures is not such a bad ratio?

Whatever the case, it appears that Wojciech Balczun, who did a tremendous job turning around Polish Railways, will take on the nightmare that is Ukrainian Railways.  So much of a nightmare is Ukrainian Railways that none sitting within the corridors of power past or present have yet decided how it will eventually be privatised, despite deciding it will be privatised.   Presumably Mr Balczum will be tasked with making it worth buying at all whilst such deliberations continue.

Electrotyazhmash, the monopoly SOE dealing in high power generators (predominantly for nuclear and thermal infrastructure), with a fair wind in the Verkhovna Rada, will be headed by Frenchman Jean-André Barbosa, previously of lofty positions within Areva.

Odessa born Igor Smelyansky, currently of KPMG, will take on the Soviet structured and entirely unfit for purpose Ukrposhta.  In fact, it is a fair to state that the Ukrainian postal service fails to deliver – quite literally – and in every sense.

Undoubtedly these people are as good as it gets from those approached by the headhunters that showed an interest.  Their résumés clearly define their accomplishments and quality.  They will earn the western market rate for taking on the roles.  Undoubtedly they will make immediate changes that will reduce losses simply through diligent accounting procedures and the most basic of bureaucratic streamlining .

Perhaps they will be able to work with a minimum of the political interference and/or deliberate meddling that facilitates the continued feeding of the oligarchs and other vested interests with minor shareholdings in SOEs that feed off of the State subsidies required to keep them running.

How easy it will be for them to make significant structural alterations, or indeed significant personnel changes, is the point at which these agents of change may become impotent – ultimately with a similar fate ahead as the original agents of change within the last Cabinet of Ministers (their engineered removal to preserve the status quo).

end near

Simply put, sacking corrupt people within the organisation does not mean they are actually sacked.

For a start, the labour laws of Ukraine do not necessarily make it easy to dismiss people from within State employ.  If they happen to be well placed and connected, it becomes even harder.

Take the on-going saga of police reform as an example.  Thousands of police officers have been sacked either for questionable and unconvincingly explained wealth, professional inability, or simply criminality.

Many of those sacked have appealed to the corrupt courts of Ukraine that have stated they have been wrongly sacked and must be allowed to return to their previous positions.  This had led to Khatia Dekanoidze the Chief of the National Police of Ukraine to state she will sack these people again.  When she does, a reader can guess what the courts will rule – again.

And so it goes on – eventually to an ECfHR already overflowing with Ukrainian human rights case applications.  Perhaps Strasbourg should open a temporary second court of human rights simply to deal with all the Ukrainian cases and clear them all from the lists of the current court.

It seems somewhat fanciful that corrupt yet enriched officials within the SOEs will not be able to buy the court decisions overturning their dismissal by a new CEO as and when inevitable sackings for corruption occur.

As the top SOE management are often associated with facilitating the requirements of the vested interests and/or oligarchy that placed them in their roles, or bought their souls when they reached such dizzy management heights, every effort will be made for them to keep their jobs, and if they can’t be kept, then to insert them into another SOE to serve nefarious interests there.

As the Odessa Regional Prosecutor drama surrounding Nikolai Stoyanov ably displayed, lustrated does not necessarily mean lustrated – unless it is enforced by public protest, the Ministry of Justice and presidential intervention eventually in order to win the day.

In short, sacked it appears, often does not mean sacked.  To be fired is often a temporary thing.  At worst it can mean a move from one SOE to another.

Ukraine is looking for about 50 CEOs for the top 50 SOEs.  If a new CEOs does manage to rid their organisations of particularly odious managers, there is every chance that these intolerable individuals will become another SOE CEOs nightmare – or indeed the nightmare of numerous SOE CEOs as they are forced out, forcefully reinserted, forced out again, moved on and inserted, to be forced out and the cycle repeated.  Sacking them is simply not enough – only jailing them will break their particular personal cycle and part in the corruption machinery.

Further, how does a new CEO create and implement structural change without the consent of shareholders – those structural changes possibly requiring legislative changes too?

With the oligarchy and/or vested interests being minority shareholders but also “owning/renting” numerous parliamentarians and political parties, would sufficient shareholder votes (both private and State) be forthcoming to facilitate the necessary changes?

For Ukraine as a State the sooner the loss making subsidy guzzling SOEs are privatised and removed from the books the better – even if these entities sell for $1, the immediate savings in continued subsidies, bad debt write offs etc are immense.   However for the minority shareholders and many of the managers that the “own/rent”, those subsidies, bad debt write-offs and dubious supply chain management agreements are the source of equally immense incomes.

Chicken or egg?  Which to do first?  End the subsidies making restructuring the only way the vested interests/oligarchy can make an income from the SOEs in which they have minority shares, or attempt to restructure and then end the subsidies once these business units become profitable?

When the shareholders (private and State) are one and the same that would be asked to end the subsidies upon which they gorge, how to “encourage” them to do so?  Withholding of “western” finance?  Strict conditionality upon “western” finance with clear and unambiguous linkage to ending subsidies clearly communicated?

In the limited window of reinvigorated “reform momentum” that will initially follow the new Cabinet taking charge, should ending subsidies and/or SOE restructuring prior to privatisation be a priority among so many priorities before the inevitable early Verkhovna Rada elections bring everything to a halt for months?

What are the expectations from the new CEOs vis a vis what are the CEO’s expectations, and what will result?

 

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