A few weeks ago farmers in Western Kenya stormed into one of the state-owned sugar millers in an attempt to prevent the newly-appointed managing director from taking over operations at the plant. Before that the management of the sugar miller had announced that the plant was on the brink of shutting down due to cane poaching.
The question is how these troubles continue to plague state-owned millers yet their competitors in the private sector are faring well? These are questions whose answers are not so simple but looking at the role of board of directors in state-owned enterprises (SOEs) or parastatals may give us valuable insights.
Ideally the role of a board of directors in SOEs should be to give strategic direction to managers as well as oversight of management which is similar to what happens in board of private companies. However there are differences between SOEs and private companies and as such the roles between the two are similar but not the same.
One difference is on the strategic direction. Boards of many private companies especially those that are listed set out targets, mostly quarterly or yearly, for top management but for SOEs the targets may be of a longer tenure. In Kenya’s case the strategic direction of boards of SOEs should be aligned to national goals or targets such as Vision 2030.
The failure of boards to align the strategic visions or goals of parastatals to the national interests over the decades has had negative effects that are still felt up to date.
As pointed out in the Report of The Presidential Taskforce on Parastatal Reforms of 2013 the snaking traffic that is choking Nairobi and other major towns, road carnage and the high cost of business due to the pricey charges for road transport originate from the lack of strategic vision by the Kenya Railways Corporation.
Still in transport the lack of an ambitious strategic vision by the board of the defunct Nyayo Motor Corporation, known today as the Numerical Machining Complex (NMC) is the reason that Kenya imports up to 90,000 car units a month instead of Kenyans driving locally-assembled units unlike Malaysia which produces the Proton range of vehicles. Proton (Perusahaan Otomobil Nasional Sendirian Berhad) which was established by the Malaya government in 1983, three years before the Nyayo Car project entered a strategic partnership with Japan’s Mitsubishi Corporation and today Proton churns units to meet local demand and in the process has created new industries and jobs along the assembly value chain.
The report has other examples of SOEs whose lack of an ambitious strategic vision by their respective board, has resulted in missed economic opportunities especially in scaling up and creation of new industries that would have catapulted Kenyans into higher income levels.
All is not lost as there are gems giving us valuable lessons on how boards of SOEs with a strategic vision can change the fortunes of companies under their mandate and in the process lifting Kenya economic fortunes.
Kenya Commercial Bank (KCB) and Safaricom are prime examples of SOEs whose boards created a strategic vision for management and today are giants in their own fields. KCB is the biggest and most profitable bank in the region while Safaricom is the most profitable firm in the East and Central African region.
More impressive is Safaricom’s board which created a strategic vision that gave birth to mobile money transfer service M-Pesa, giving Kenya the status as the world’s pioneer in mobile money solutions. The upshot of the board of directors’ visions for these former SOEs is that they are donors to the Treasury (through dividends) and not annual receivers of funds in addition to creating employment and wealth for shareholders including the government.
The need for Boards of SOEs to have a strategic vision is a debate that all Kenyans should engage in especially at a time such as this when the competition for public funds is becoming fiercer while the pool of resources available is not growing in tandem. The wave of strikes in the public sector from lecturers to doctors who are demanding higher wages, as financing of key infrastructure projects including the Standard Gauge Railway and the Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) Corridor project means that Treasury has to be as prudent as possible in the allocation of resources.
Such a situation as Kenya now finds itself in calls for everyone to pull their own weight and one of the key sectors that can easen the burden for the Treasury and by extension the Kenyan taxpayer are parastatals or state-owned enterprises but for this to happen boards must align their strategic visions with Kenya’s ambitions under Vision 2030.