I can share my own personal experience in the role of the Supervisory Council Chairman of Lattelecom, as well as having previously worked in various governing bodies of fully private owned companies. Just to clarify – I don’t have any direct experience with corporate governance of fully, 100% state owned companies, which is a “different story” and based on slightly different principles.
Few words on Lattelecom and its governance:
- Leading, most (and increasingly) valuable telco / ICT company in the market, offering variety of products – fixed broadband, pay TV, content, BPO, ITO, data centres, cloud computing, infrastructure maintenance and construction and others. So – Lattelecom is totally into digitalised world, both in terms of its business, but also the process of corporate governance.
- Not to be modest - referring to the early panel discussions - Latvia leading Europe and the world in terms of availability of high speed internet and free WiFi, is largely merit of Lattelecom.
- Lattelecom is excellently governed since 1994, when the western investor (Cable&Wireless) came in and western standard corporate governance model was introduced and constantly improved ever since. I believe presence of investor, itself having high standards of corporate governance, also contributes for improvement of governance approach by the state.
- Lattelecom has 3 level governance model:
- 51% state owned and 49% TeliaSonera owned (largest telco in the Nordics and Baltics).
- Shareholders – participating in decision making either through the mechanism of General Meeting or executing their rights under the shareholders agreement;
- Supervisory Council – non executive 7 member board, elected by the shareholders, nominees of both shareholders represented proportionally (4/3). 3 special committees – Audit, Remuneration, Business Planning – are operating, with more narrow number of SC members in each. Main tasks and responsibilities of SC and its committees include:
- General supervision of company operations, reviewing management reports;
- Annual budget and business plan approval, corporate targets;
- Strategic reviews and decision making, communication with the shareholders;
- Reviewing issues before the General Meetings, incl. Annual Report, profit distribution, reviewing reports by the internal and external audit;
- Management Board remuneration and targets, 1st level structure, selection and / or approval of key group personnel, HR policy;
- Consents for transactions of the certain thresholds or features;
- Reviewing certain policies, procedures (procurement, ethics, compliance etc).
- Management Board – separate, executive board, 5 members, includes CEO, CFO, Commercial director, CTO and HR director.
Lattelecom serves as an excellent example where state as the shareholder is being able, in cooperation with the private investor, to procure decent, high standard corporate governance. Lattelecom has been recognised as one of the 3 best governed SOCs in the Baltics (along with Eesti Energia and Citadele) by the Baltic Institute of Corporate Governance.
In practical terms, Lattelecom SC operates in comparatively “digital environment”:
- All communication, materials and documents for meetings, are communicated through specifically designed “SC intranet”, available to all SC members from any internet connection, where also options for commenting, having discussions etc are available. Corporate documents, regulations, as well as historical documentation are all available and well structured in SC Intranet. That secures easy access, confidentiality and reliability of information and ability to track down information flow and decision making process.
- Online (teleconference, video-conference) formats for holding SC meetings are practised for long time already.
It is believed that abolishing of the supervisory councils in fully state owned companies in 2009 (which did not involve Lattelecom and some other partly state owned companies, such as Citadele, Air Baltic), was mistake. Decision then was based on both austerity as well as observed wrong practise of politicizing such councils / boards. However abolishing boards, instead of improving principles of appointment, competence, decision making and responsibility, obviously turned out to be wrong.
Consequently Latvian government / Ministry of Economics developed policy for improving of governing state owned companies and Latvian parliament adopted, in October 2014, the new legislation, all very much based on OECD recommendations as well as best practise examples, such as Lattelecom.
There is a hope that governance model in fully state owned companies will be improved already starting from this year. I believe that professionalism and quality can be maintained by the state, when nominating directors to the positions of the boards, as follows:
- Setting up professional and independent selection mechanisms for candidates;
- Defining clear and prudent criteria for candidates, paying due attention to the characteristics of respective company – business specifics, size, markets, track record, financial condition etc.
- Defining clearly competence, authority and responsibility and accountability of the board and its members and also to procure that their performance is followed by and measured properly;
- Proper training of directors appointed. Training may also be done by the board itself, with a support from the management, especially when it comes to business specifics.
Another problem related to ability of the state as the shareholder to attract proper people for board positions in terms of competence, experience, knowledge and reputation – currently the law regards state nominated board members as state officials and provides for certain limitations for them. Status of the “state official” (public office) for these positions involve, among others, limitation to combine respective position with other business employments, excluding mainly academic, NGO and other specific positions. Recent amendments to the law allow board members to combine position with other business employment, if conflict of interest situation is avoided and certain permission by the state is received. However existing and previous limitations still may deter some of the most experienced professionals from serving at the supervisory boards of state owned companies. Introducing such limitations was historically based upon necessity to avoid conflict of interest, corruption etc, however the actual result has been adverse – restrictions have made rather difficult to attract best professionals to contribute for good corporate governance of the state owned assets in order to increase their value.
As mentioned, supervisory boards themselves have been absent for fully state owned companies for number of years. Not having board or even any other proper supervision mechanism naturally doesn’t allow to have proper skills to execute it.
To have properly skilled people being motivated and able to help the Latvian state to improve governance of its assets:
- Proper governance institutions must be re-instated, defining their role, competence, authority, responsibility and authority;
- unreasonable restrictions for supervisory board members must be removed and newly amended law duly applied with a view to widen the circle of potential candidates;
- proper mechanism of selection, appointment, setting targets and measurement of performance, reporting principles etc, must be developed.
When it comes to the role of the board – if set up properly, it may serve as the excellent tool for the shareholders and the state in particular, to assist in improving business operations of the company and increasing their value.