Curb on crony jobs at risk of veto

New legislation to reduce the number of political appointees to top jobs in state companies will be debated by the Sejm this week. But political observers believe the coalition parties, whose members already man the boards of most state companies, will ensure it is talked out even though the proposed new law squares with measures advocated by the European Union to achieve greater corporate transparency in the Polish state sector.
Last week the Sejm treasury commission approved a draft bill amending the Privatisation and Commercialisation Law. It was drafted by a special subcommittee and combines two bills previously proposed by the government and by Wiesław Walendziak, Law and Justice (PiS) party parliamentarian and head of the treasury committee.
"We have managed to vote through the most important elements concerned with improving supervisory boards of state sector firms," Walendziak said. "The bill will reduce the size of the boards and increase the influence of the Treasury on appointments."
The appointment of supervisory boards by the government has come under frequent criticism from market analysts as open to abuse, filling key jobs in the sector with political cronies rather than capable businessmen.
The current appointment system makes large state businesses into trophies for ruling political parties, allowing them to stock upper management positions with their allies and cronies, market observers said. They point out that the main danger of the system is the appointment of people without no business track record who cannot provide adequate supervision of their company's interests.

"Members of supervisory boards are supposed to take care of shareholders' interests," said Paweł Puchalski, an analyst at Austrian Raiffeisen Bank. "In firms that are 100% treasury-owned, the Polish people are the shareholders, so supervisory boards should focus on maximising the value of the company. The current system does not appoint effective managers, and supervisory boards know they know that there will be an election in four years, so they are not interested in the long-term interests of their company."
The most radical element of the bill aims to reduced the size of supervisory boards to a maximum of nine members in strategic state holdings, with five-member boards in smaller firms. To increase management standards the treasury committee wants the appointment of supervisory boards and directors to be run on a competitive basis and to require the screening and testing of potential management candidates.
While reducing boards to cut the costs of running the state sector and linking management salaries to company size, the bill also aims to give supervisory boards greater powers, allowing them to appoint and dismiss the board of directors.
"In the past, supervisory boards have complained that they could see problems in their companies that they could not influence because they could not dismiss the directors," Walendziak said. "In the majority of state-owned companies it was the treasury minister who appointed directors, but it is unfeasible for the minister to successfully appoint directors in 1,700 companies and adequately supervise them."
Additionally, the bill attempts to prevent taxpayers' money from being channelled out of the state sector through fake donations and sponsorship deals by requiring that these expenditures are subject to treasury ministry approval.
"Boards must obtain approval from the treasury ministry for donations and sponsorship deals worth over €5,000 (zł. 20,400)," Walendziak said. "Directors have often complained of pressure from politicians seeking to obtain donations and sponsorship, which was not always understandable from the point of view of the firm. Now boards are accountable for these expenditures."
The new proposals for regulating supervisory board appointments are not foolproof. Political observers are sceptical that the treasury's vetting of board appointments and approval of sponsorship deals and donations will cut out abuse since the approval body and the management stem from the same political party. They argue that any legislation that would diminish the influence of politically appointed management will not get through the Sejm.

"The trouble is that the SLD has both a parliamentary majorit, and its people hold the management posts in the majority of state sector firms, so this makes it unlikely for any useful form of this legislation to get through the Sejm," Puchalski said. "But it is also true that such legislation could help to keep the current crop of managers in their next jobs after their next election."
According to Puchalski, privatisation is the only certain way of eliminating political influence in state-owned firms. "After privatisation these bosses stay in their posts for a while, but get kicked out sooner or later," he said. "No strategic investor would allow the treasury to appoint board members."