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Management of public companies in Greece

Management of public companies in Greece

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Published by Fotis Fitsilis
This is the English version of an article that was posted on 9 April 2012 in the “Neos Agon” newspaper in Karditsa, Greece.
This is the English version of an article that was posted on 9 April 2012 in the “Neos Agon” newspaper in Karditsa, Greece.

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Published by: Fotis Fitsilis on Sep 12, 2012
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Management of public companies in Greeceby Fotis Fitsilis*
The economic crisis has turned upside down all areas of public administration inGreece. Publicly owned or controlled companies are not excluded from the frame of the attempted changes. Changes to their operation are based on two main pillars:Organizational restructuring and model of management.In this article we will refer to the need for changing the administrative model inpublic companies. First, we will define the entities we are dealing with. Then we willexamine the basic differences with their counterparts in the private sector. Finally,we will study ways to control the administration's acts and omissions.
Definition and characteristics
According to a recent recording from 2010 there are approximately 1000 publiccompanies. This number does not include about 1100 companies funded by thedecentralized state, e.g. municipalities; however this number has decreasedsignificantly with the latest administrative reform. Public companies mainly operateas limited companies, legal entities under public law or private legal entities. Asregards the types of public companies, these may be utilities, banks, social securityorganizations etc. The public nature of these companies is mainly assumed throughstate participation in their share capital (over 50%) or through appointment of theiradministrative body (e.g. board of directors).A private company usually aims to improve its products and services for itscustomers, while reducing operational costs, in order to increase its turnover and,ultimately, its profits. In theory, the goals of public companies may correspond withthose set by private ones. Reality, however, shows that during the last three decadesGreek public companies mainly acted as the long hand of the Government in itsdevelopment and social policies. The result was the accumulation of huge debts,which the state budget had to absorb.
Differences between public and private sector management
Running a company is a difficult task. But when it comes to a public company, itresults to additional degrees of difficulty. Many managers believe they can, in oneway or another, implement in full the management principles and methods from theprivate sector. Notable private sector managers have tried their hand at a publiccompany and have failed miserably. This can be attributed to the fact that they failedto take into account chronic problems and the specific internal conditions of publiccompanies. Freshly appointed managers are often taken by surprise once theyrealize the true dimensions of their work.
 
In the private sector the management has a free hand in the strategic planning of acompany following some general guidelines of shareholders. On the other hand, themanagement of a public company has to take into serious account several internaland external parameters, among others:The frequent changes in the political leadership of the relative Ministry.
The company’s organizational and structural maze.
The requirements of the powerful unions.Lengthy recruitment procedures that cannot cover extraordinary orspecialized needs.This means that the management must aim at constantly changing targets having astatic and unmotivated staff at its disposal, thus reducing the effectiveness in theimplementation of decisions.The two cornerstones of human capital management are reward and punishment.Reward, when the outcome of an employee is higher than expected andpunishment, which in an extreme case can result in job loss, when the performanceindexes are negative. In most cases, the management of public companies has itshands tied both ways. There is no possibility of individual rewarding towardsachieving specific objectives (bonus), while no penalties can be practically set.Increases in wages are horizontal, resulting in huge operational costs, which of course are not accompanied by a corresponding increase in the productivity of allemployees.Controlling of public companiesDepending on the type of the public company various forms of control have beenimplemented by the central administration. The most important are:Ministerial control. Ministers appoint the management of public companies.Therefore, they are politically accountable for their actions and can terminate
the manager’s term
at any time.As required by law nr. 3429/2005, financial oversight of public companies isconducted by the Interministerial Committee of Public Companies andOrganizations. This committee approves and amends operational plansdrawn up by every public company, although, unfortunately, rarely is aneffective assessment performed. The same committee may impose sanctionson companies and replace their management.At the highest level the control of public companies is conducted by theCommittee under Article 49A of the Rules of Procedure of the HellenicParliament. The so-called "public utilities commission" issues an opinion onthe suitability of senior managers of public companies. The same committeemay call the managers of public companies to special hearings (Article 49B).

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