Direct Speech, Latvia, Port, Transport
International Internet Magazine. Baltic States news & analytics
Thursday, 25.04.2024, 12:18
The cornerstone of the port reorganization - the implementation of good corporate governance principles
Dr. sc. administr. Valters Bolevics. The only PhD holder in the Baltic States with a specialization in port governance |
It cannot
be unequivocally called good or bad, but the fact is that the current governance
model is politically controlled. The port governance models have significantly changed
over the last thirty years, from traditional bureaucratic structures to the business-oriented
companies, who are independent in decision making process and open for business
and foreign investment.
In Baltics,
Tallinn port authority, which manages five harbours around Estonia is a
joint-stock company, whose shares are owned by the state of Estonia (67%), 33%
by pension and investment funds and private shareholders, and which operates
under the same business laws as any other private company in Estonia. The
company is managed by three members of the board and eight supervisory board
members, the CEO is also a board member of the entity and therefore legally
responsible for the decisions made. The port authority CEO in Riga and
Ventspils only implements the decisions taken by the board of the corresponding
port authority, the port authority board consists of eight members: four
officials from the local government and four representing various ministries.
The board members of these port authorities are nominated directly from the
represented municipalities and relevant ministries, the municipality board
members are approved by the city major or his deputy, and the government
representatives are approved by the Cabinet of Ministers vote.
In
Lithuania, the Klaipeda State Seaport is managed as a limited liability company
(LLC), which is fully owned by the State of Lithuania, and members of the board
are bearing full responsibility in accordance with the Commercial Law. Klaipeda
Port members of the board are the representatives of the Ministry of Transport,
Klaipeda City Council, Klaipeda County Administration, it also includes the
member nominated by the board of the port, the users of the port and the users'
associations and institutions. The primary task of the board is dealing with
the operation and development of the port, while the task of the supervisory
board is to manage the port economically responsibly in society's best interest.
What Latvia should do to shift from existing port governance model to the one which supports transparency, independency and international investors?
First, each
port (Ventspils and Riga) should be formed as a separate company, and it is
recommended to include the state and local government in the distribution of
capital shares, as well as to reflect the distribution of their interests. For
example, 70% of the Port of Rotterdam authority shares belong to the
municipality and 30% to the state, 100% of the shares of the Port of Antwerp
authority belong to the municipality, Port of Gdansk authority has a mix of state
treasury, the municipality and the employees, 100% of the shares of Klaipeda
State Seaport authority are state-owned and 67% of shares of the Port of
Tallinn belong to the state and 33% to the investors.
It is
important that the port authorities are transformed from non-profit
organizations into joint stock companies with full liability for their board
members stipulated in the commercial law. The change of the legal status
besides better aligning with operations of a corporation would also change the
incentive structures for board and management members, as well as bring ports'
management and governance practices under the discipline of corporate law. It
is strongly recommended to establish a supervision function to hold the boards
of Latvian ports accountable and to carry out an annual evaluation of their
performance.
Clear qualification
criteria should be implemented for port authority board members and, if
established, supervisory board members, which should encourage the authorities
to ensure that selected members have adequate experience and skills to fulfil their
mandate. The criteria should provide a board member’s profile including general
attributes as independence, accountability, integrity, leadership and specific
professional qualifications for some of the board members, like port economics
or port management for port CEO role. The term limits for board and supervisory
board members, which should include a standard period of tenure, as well as a
maximum number of terms, as well as KPI indicators, should be implemented.
I believe
that port authorities in Latvia have to be developed into entities which follow
very simple but clear business rules. There are number of examples in the world
how a port authority can be developed into a successful business oriented
company that operates complex businesses in the logistics chain. For example, port
of Rotterdam authority is not a single port management company. This state and
municipality owned company manages also the Port of Sohar in Oman, the Port of
Pecem in Brazil, and has established offices in virtually all strategic locations
worldwide to facilitate the flow of goods through their own assets. There are
other port authorities that follow a similar business model and have
successfully developed themselves from old fashioned national level
bureaucratic institutions to transatlantic businesses.
Port authorities
governed according to good corporate governance guidelines perform financially
better than their competitors who are not following the same principles and
deliver higher port performance results, therefore it is of paramount importance
for the society and businesses in ports to strengthen port authorities towards
independent decision making and entrepreneurial competence.
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