Perception of a Pathetic Saga

Sacking the CEO of MK 

This whole scandalous episode is revelatory of the profound maladies which have been eroding the very foundations of the governance structures with regard to the proper management of parastatal bodies generally and corporatized entities in particular

One of the directors who allegedly voted for the ouster of the Chief Executive Officer of the national airline, leading to an immediate loss of MUR123 Million in the market valuation of the enterprise (we suspect that the divestment would have been mostly foreign portfolio driven) was only some days back accusing the private sector of lack of initiatives leading to a scarcity of investments in the country. If his vote indeed went for the ouster, he obviously would have failed to see the reputation risks associated with his action and the paucity of investments in the country.

The Prime Minister whose office is responsible for determining the general policy of the national airline, to the extent that the enterprise is considered to be a strategic instrument in defining the geo-spatial positioning of the country, is specifically given a right of veto as regards the appointment of the Chief Executive Officer of the company. In a distinct Ponce Pilate style, he has washed his hands with respect to the events that have rocked the company since that fastidious board meeting and is now haranguing those who are responsible for the mess.

Breach of good corporate governance

The circumstances under which the Board was convened and called upon to take a decision of the utmost strategic importance with hugely consequential impact on the future of the company were, to say the least, pathetic. It is understood that the directors were summoned at conveniently short notice for only the “right” ones to be present and probably “instructed” to vote according to “directives” from higher quarters. Under the circumstances the Minister of Good Governance has expressed, albeit rather timidly, his concerns about the process and suggested that there may have been a breach of good corporate governance principles.

Ever since public stock companies were authorized under royal seal, the concept of boards of directors representing the diverse interests of the large number of shareholders has been a characterizing feature of the governance of those enterprises. Boards provide the deliberative forum in which those diverse interests converge to single out the best course of action for the future of the corporation.

Not surprisingly, as a result of the above-mentioned manoeuvres, the minority of directors who voted for the motion, presumably presented by the Chairman, were all Civil Servants who were there in their capacity as ex-officio members of the Board. Talk of the least common factor. And there you have a vote taken by people who have never had the responsibility for running a micro-enterprise or faced the challenge of building a balance sheet, taking a decision which will impact the future of an enterprise worth nearly MUR1.5 Billion.

It is therefore not surprising that all the other directors who come from different backgrounds have expressed shock and disapproval and that even Mr Bissoon Mungroo, who is an entrepreneur in his own name, has publicly disavowed the decision.

In the circumstances it would be difficult indeed to find a single right-thinking person who would not condemn the decision to give the sack to Megh Pillay, the respected Chief Executive of the company. Unless the few Board members who voted and executed that decision come out pretty soon with a plausible reason to justify their action, this will surely go down as yet another exercise in value destruction which this government seems to have a knack for.

In the yet undigested case of the British American Insurance Group at the beginning of last year there was at least a prima facie case of wrongdoings although the process was reckless and therefore value destroying. In the present case one has yet to figure out why on earth the CEO of a quoted company has been so brutally dismissed and that too at a most sensitive time for the future of the national airline.

Of the grave consequences of such myopia

This whole scandalous episode is revelatory of the profound maladies which have been eroding the very foundations of the governance structures with regard to the proper management of parastatal bodies generally and corporatized entities in particular.

Corporatization is a process whereby State Owned Enterprises (SOEs) are for all intents and purposes transformed into legally autonomous entities and run under the provisions of the Company’s Act. Most of these, like Air Mauritius, are involved in commercial lines of business and generally have to function in a competitive environment.

Indeed the decision to “corporatize” these businesses was initially dictated by sound principles. It was acknowledged that for them to thrive successfully in the market place they had to be freed from the burden of the bureaucratic decision-making process associated with the government machinery.

Some of these companies, like Air Mauritius and Mauritius Duty Free Paradise, are actually competing in a global environment, and one would expect that they are run professionally and develop the appropriate business culture to become world-class companies. Things get even more complex when these enterprises are quoted on the Stock Exchange of Mauritius while the government retains a majority of the shares and thus controlling interests in what could be called “mixed ownership” structures.

Partially privatized SOEs are a common feature of the economic architecture of national economies, in spite of the dominant trend of liberalisation and deregulation of the past decades whether in the developed or emerging economies. According to a recent OECD report, the State is invested in listed companies that represent 6% of total market capitalization in developed countries and the figure is nearer to 25% and growing in emerging economies.

The reasons and motivations behind programmes of full or partial privatisation and indeed why one is preferred to the other will of course depend on the political, economic and historical circumstances of the country concerned.

Public-private partnership

This column has constantly advocated the case for a mixed economy and a new enhanced public-private partnership as the way forward for the future economic architecture of the country. It is professed that, given the historical background and socio-economic evolution of the country, the Mixed Ownership Structures should constitute the foundation of the proposed new and enhanced partnership.

Unfortunately the kind of behaviour and utter lack of basic business culture displayed by those who are appointed at the head of SOEs and corporatized entities generally tend to militate against the institution of such a new regime. Given what has been happening over the past decades, conspiracy theorists could have a field day figuring out whether this is not a deliberate choice to give the dog a bad name and hang it…

Rajiv Servansingh

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