Poland’s state-owned giants cope with unprecedented turnover

The government is removing the boss of a State-owned Enterprise (SOE) every three weeks on average.

For 17 years the state-owned stud farm in Janow Podlaski in eastern Poland has hosted the “Pride of Poland” auction. In its heyday Arabian horses strutted around a grassy track, tempting foreign buyers into eye-popping bids. In 2016 the new government replaced the stud’s long-standing boss with an inexperienced newcomer. In his first two months two horses died, prompting media headlines; the new boss was ousted. Last year the auction brought in only a tenth of what it made before the changes. The next boss was also sacked.

Executive turnover is not restricted to Janow Podlaski. Since coming to power three years ago, the populist Law and Justice (PiS) party has swept the stables at state-owned enterprises (SOEs) with Herculean energy. The 30 most “strategic”, as defined by the government, have been run by over 100 bosses during the period; average tenure now stands at just under a year. According to an analysis of over 20 big SOEs that are listed on the stockmarket by Puls Biznesu, a business newspaper, the public sees a change of chief at one of them every three weeks on average. That compares with every eight weeks under the Civic Platform government, in power between 2007 and 2015, and every ten weeks under a left-leaning government in office between 2001 and 2005. As the current prime minister, Mateusz Morawiecki, said: “We sometimes bet on new faces, sometimes they prove their mettle, sometimes they do not.”

How the SOEs are run matters. Poland has one of Europe’s most overgrown public sectors. The government controls the two largest banks, the biggest insurer and two defence groups, as well as important energy, mining and petrochemical companies. Constant turnover risks throwing sprawling organisations into disarray. Severance packages and recruiting costs add up. And long-term strategies are harder to set—by August, for example, firms inside the biggest state-owned defence group had not agreed on their goals for the year. Aware that their tenures will probably be short, bosses can be myopic. Jaroslaw Dominiak, president of the Private Investors Association and a former board member at the Warsaw Stock Exchange (WSE), describes how one of the exchange’s chief executives unwisely fired experts to achieve quicker cost cuts, knowing that the time allowed was limited.

But SOEs are also finding ways to cope with the churn. Firms are keeping daily business moving by shifting operational work to technical managers, leaving only large strategic decisions to the board. Strong unions and pledges to local communities about manufacturing bases also help stabilise companies such as the mining giant, KGHM, notes Andrzej Bobinski at Polityka Insight, a research firm in Warsaw.

Moreover, many state firms are enjoying good results, partly owing to a strong economy. Last year profits at the 15 largest, listed state-owned companies reached around $4bn, double the equivalent figure in 2016. The shares of the nine companies which have been state-owned and included in the WSE’s index of 20 largest companies since 2012 rose by 62% in 2016-17, outperforming the benchmark by 23 percentage points.

If high turnover of bosses has not proved disastrous, the state’s wider influence is still unhealthy. Firms are encouraged to bail out unprofitable businesses that carry political clout. In 2013 Civic Platform, for example, tried to pressurise the head of PGE, the country’s largest power producer, into making an unprofitable investment in a coal plant that the state wanted to protect. He refused, and resigned. And instead of investing in existing plants, in 2016 PGE bought into the Polish Mining Group, the European Union’s largest producer of hard coal. Its shares have tumbled since 2013; electricity prices in Poland are set to be the EU’s highest partly as a result of old, coal-reliant infrastructure.

In 2016, 17 state-owned groups opened their coffers to fund a new body, the Polish National Foundation, which aims to promote Poland’s economy and cultural heritage. One recent project is funding English-language films by Hollywood scriptwriters. When the economy turns, such investments will become more problematic. SOEs may even wish they had a bit more stability at the top.

Source: Economist – https://www.economist.com/business/2018/12/01/polands-state-owned-giants-cope-with-unprecedented-turnover

Our privacy policy