• Wed
  • Jul 23, 2014
  • Updated: 5:27am
BusinessChina Business

Call for reform at the top of state firms

Global success needs leaders fit for the role at state enterprises, say experts

PUBLISHED : Tuesday, 22 January, 2013, 12:00am
UPDATED : Tuesday, 22 January, 2013, 4:12am

Getting the right people in the right positions is one way for enterprises to succeed, but this is easier said than done for state-owned enterprises (SOEs), due to the government's dominant role in leadership appointments.

Now experts have called for reform of the appointments system to help improve the firms' competitiveness in making inroads into global markets.

The mainland's 116 SOEs are managed by the State-owned Assets Supervision and Administration Commission, which also appoints top executives to the enterprises. The appointment system allows senior officials to swap between SOEs and government bodies.

The practice has been criticised by Zhu Boshan, general manager of Tacter Consulting in Shanghai, who says that operating an enterprise under such a bureaucratic practice "is an obstacle for SOEs to improve their efficiency".

Zhu, an expert on SOE reform, said some senior executives in the sector were only concerned about building a personal image and short-term achievements and did not care about the long-term development of an enterprise. "Unlike the situation in private companies, you can't dismiss them even if they are unable to achieve decent results or pass assessments," he said.

Xu Hongcai, deputy director of the information department of the China Centre for International Economic Exchanges, a government think tank, said a posting to a well-paid SOE position could be "compensation" for an official's contribution to the government over many years.

Under such an appointment system, executives appointed to run an SOE might not be the most capable and might not be able to seize opportunities, said Xu. The lack of transparency in top executive appointments also demoralised other staff who felt they were sidelined in the process.

Reforming their shareholding structure could be a solution, Xu said: "The proportion of government shareholding is too dominant." SOEs should introduce more private and institutional investors such as the national pension fund, he said.

"Institutional investors seek returns on investment and they will be able to put pressure on those top executives," Xu said, adding that a reward and punishment system would help remove incapable executives.

Zhu said the boards of SOEs should be reformed so that directors could eventually take over the responsibility of making executive appointments.

SOEs' initiatives to "go global" also put them under pressure to reform their staffing systems, Zhu said. In addition, China's construction sector could soon peak, making it necessary for state firms in this industry to seek overseas business opportunities. Against this background some SOEs have been criticised for competing with domestic private companies, adding to pressure on them to expand overseas.

To be globally competitive, SOEs needed overseas talents who are more familiar with international standards, Zhu said. "But the current appointment system is unable to find and place global and high-end talents."

Robert Parkinson, chief executive of RMG International Business Consulting in Beijing, said many prospective candidates in Europe and the United States were keen on employment opportunities in China, but the culture was too different.

Going global would be more difficult for SOEs if they are run by people who are not really suitable, Parkinson added. "To make it bigger overseas, you need people in more countries. And reform is mandatory."

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