The Government As Venture Capitalist: Organisational Structure and Contract Design in Germany's Privatisation Process

This paper examines the role that organisation structure and contract design played in resolving economic and political problems that arose during Germany's privatisation process. We find that German officials structured organizations and contracts in a way that made credible the government's commitment to rapid privatisation. This credibility served to protect the process from political and social opposition. In addition, it enabled Germany to attract talented private sector managers to its privatisation effort. This began with the establishment of an independent privatisation agency, the Treuhand. It culminated with the creation of another set of independent organisations called Management KGs, to which the Treuhand outsourced part of its restructuring, management and privatisation work. The Treuhand provided funding to this effort, thus serving as a kind of venture capitalist.     

Accounting for privatisation in Africa? Reflections from a critical interdisciplinary perspective

The interrelation of privatisation and accounting constitutes a wide-ranging focus for research that is attractive from a critical theoretical and interdisciplinary perspective. A number of studies may be considered part of this focus in holding themselves out as types of evaluation of – or as an accounting, or accountability, for – privatisation. For us, the evaluation of privatisation programmes is properly a concern of critical accounting research and of those interested in the development of more holistic forms of accounting and auditing for appraisal, such as is envisaged in forms of social accounting and social auditing. Indeed the assessment of privatisation has been deemed within the ambit of the social audit movement. Privatisation in Africa is controversial. In today's context it is often integral to the particular form of the globalisation process and carries related ambiguities. Apparently something of a panacea for its advocates, it is problem-ridden for its critics. How should we account for privatisation in Africa? We promote the delineation of a holistic accounting evaluation model by reflecting on a critical review of research constituting accounts of privatisation in Africa. Of course such research, to the extent that it is holistic or comprehensive, would include attention to the mobilisation in context of various accountings as well as related practices of governance at micro- and macro-levels—in turn reflecting the sense in which accounting, along with related systems of governance, is pervasive in privatisation processes. While we find strengths in the research analysed and acknowledge its contribution, we point to deficiencies and gaps from a critical theoretical and interdisciplinary perspective. These gaps and deficiencies delimit policy discourse and praxis vis-à-vis privatisation in Africa and beyond. They also point to a more holistic accounting model of appraisal. We acknowledge the particularities of Africa, and indeed of the differing nations, cultures and regions of Africa, but also suggest the model's relevance not only for African contexts but beyond.     

A Tale of Two Classes: The Privatisation of Medway Ports

This paper presents a case study of the privatisation of a UK port, Medway Ports, which was sold to a Management and Employee Buyout consortium in 1992 with assistance from the accountancy firm of Price Waterhouse. Half the work force was then dismissed by the new management and forced to sell back their shares which were valued at £2.50 by another accounting firm, KPMG Peat Marwick. Within a short time, Medway was resold to Mersey Dock & Harbour Company for £37 per share, making millions for Medway's directors and financial backers. The resale price was eight times more than the amount the UK Treasury had received from the original sale only 18 months earlier prompting an investigation into the government's handling of the privatisation. The study examines the privatisation of Medway Ports as a focal point for understanding the role major accountancy firms have played in the neo-liberal privatisation programme.     

ON LOCAL GOVERNMENT ACCOUNTING HISTORY: THE CASE OF CENTRAL ESTABLISHMENT CHARGES

During the municipal trading debate, which was the first major privatisation debate in this country, local government accounting was very controversial. The variety of treatments of central establishment charges was an important part of the controversy. In essence, the debate was a confrontation between the policy imperative, which required uniform accounting, including complete allocation, of central establishment charges across trading undertakings, with the theoretical doubts that this was unattainable. One aspect of the context of the debate was that policy-makers did not have (and/or did not choose to have) the power to enforce their policies.     

The Operating Performance of Newly Privatised Firms in Central European Transition Economies

This study examines the operating performance of privatised firms in three Central European Transition Economies between 1990 and 1998. Overall, we find no evidence of a significant improvement in operating performance for the first six years after privatisation. Contrary to the increasing empirical evidence for non‐transition economies, our privatised firms experience no improvement in profitability, capital investments, efficiency, and output, a significant drop in employment, as well as a significant increase in leverage. The most important determinants of the performance changes following privatisation were country effects, timing of the privatisation sales, industry classification, and state ownership after privatisation. Our findings are consistent with the empirical evidence that the transition process proved to be more difficult than expected and that, although necessary, privatisations do not necessarily produce equal efficiency gains in transition economies ( Megginson, 2005 ; Havrylyshyn and McGettigan, 1999 ).     

The association between privatisation and voluntary disclosure: Evidence from Jordan

This paper investigates the impact of privatisation on the extent of corporate voluntary disclosure in Jordan.We conduct a longitudinal examination using 243 annual reports of 27 privatised firms in Jordan over a period of nine years from 1996 to 2004. Employing univariate and pooled regression models our results show that privatisation is positively associated with voluntary disclosure. Specifically, we find that accounting regulation reforms and foreign investments accompanying privatisation have a significant impact on the levels of accounting disclosure in Jordan. Our study provides evidence on the role of privatisation in improving the disclosure culture as an important pre‐condition for the development of active capital markets.     

New Labour and the Modernisation of British Local Government: A Critique

The modernisation agenda for local government is based on questionable political assumptions. It has the attributes of a theological concept. This paper examines the concept of modernisation of local government by focusing on three dimensions (1) governance, (2) management and (3) finance. This analysis suggests the modernisation agenda is limited in scope and vision.     

A “fresh start” or the “worst of all worlds”? A critical financial analysis of the performance and regulation of Network Rail in Britain’s privatised railway system

The purpose of this paper is to examine the degree to which Network Rail, the new not-for-profit infrastructure company owned by members, has provided a “fresh start” for Britain’s privatised railway system. Rail privatisation was predicated on the belief that surplus value could be created through redundancies and deskilling in a loss-making subsidy-dependent industry. Network Rail’s predecessor, Railtrack, followed a profit-maximising agenda and collapsed into insolvency in 2001, after several years of poor performance. Unlike Railtrack, Network Rail is not under pressure to pay dividends to shareholders, and so in theory can focus on the maintenance and renewal of the infrastructure. However, its reliance on debt rather than equity finance, combined with escalating infrastructure costs, means that its annual borrowing costs have reached £1 billion. Thus, the nominally private company is only viable because of substantial subsidy and explicit government support for its borrowing. Further, the bulk of its expenditure is on renewals work which is outsourced to contractors aiming to maximise surplus value. The paper uses critical financial analysis to show the extensive and continuing transfers from the taxpayers and passengers to the financial elite, highlighting distribution issues which have been largely missing from the policy debate over Network Rail’s creation.     

The restructuring and privatisation of the electricity distribution and supply businesses in England and Wales: a social cost‐benefit analysis

In December 1990, the 12 regional electricity companies — responsible for the distribution and supply of electricity in England and Wales — were privatised. For the first few years following privatisation, real prices, profits and costs in the industry rose. Following two Price Control Reviews, prices have now fallen sharply and there have been substantial reductions in costs and more recently in profits. This paper attempts to conduct a social cost–benefit analysis of the privatisation by examining actual and predicted falls in costs over the period to 2005. We conclude that the privatisation did yield significant net benefits but that these were unevenly distributed across time and groups in society. Relative to our preferred counterfactual, consumers experience slightly lower prices and the government gains £5 billion in sale proceeds and net taxes. However, consumers begin to gain only from 2000.     

EVA IN THE E&P INDUSTRY: THE CASE OF NUEVO ENERGY

This article presents a case study illustrating some aspects of the new business model discussed in the roundtable above. Continuing a major theme in the roundtable, the authors begin by arguing that the long‐run failure of the E&P industry to create shareholder wealth stems to a large degree from weak or distorted incentives held out to the top executives and managers of most large, publicly traded companies. This article traces the incentive problem to the lack of an effective wealth creation metric to guide the financial management process. Although the industry employs a variety of accounting‐based performance measures, none is a reliable measure of wealth creation. In place of traditional financial metrics such as earnings, annual cash flow, and return on capital, this article recommends a performance evaluation and incentive compensation system that is tied to the use of a “reserve‐adjusted” EVA measure—one that exhibits a strong statistical correlation with changes in shareholder wealth in the E&P business. The greater explanatory power of this new measure reflects the reality that changes in the value of reserves in the ground can greatly outweigh changes in annual earnings or cash flows. As the focal point of a compensation plan, EVA has advantages over stock options in that it can be calculated at various levels in the organization, even at the level of a single well, whereas stock prices only exist for the company as a whole. For this reason, an EVA incentive system permits a clearer “line of sight” between pay packages and the performance of the part of the business for which managers are directly accountable. Perhaps even more important, EVA can be calculated (using an “internal hedging” mechanism) in a way that removes the impact of changes in oil prices on the incentive outcome. And, as demonstrated in the case study of Nuevo Energy, such internal hedging allows companies to give their employees a much greater share of wealth created with far less cost than by simply granting stock or stock options.     

The restructuring and privatisation of British Rail: was it really that bad?

This paper uses a social cost‐benefit analysis (SCBA) framework to assess whether rail privatisation in Britain has produced savings in operating costs. The paper shows that major efficiencies have been achieved and consumers have benefited through lower prices, whilst the increased government subsidy has been largely recouped through privatisation proceeds. We also find that output quality is no lower (and is probably better) than under the counterfactual scenario of public ownership (pre‐Hatfield). The achievement of further savings is key to delivering improved rail services in the future. This paper finds that a privatised structure, where shareholders demand a return on their investment, has led to significant improvements in operating efficiency. It remains to be seen whether the new regime, with a not‐for‐profit infrastructure owner, will deliver the same efficiency improvements.     

Hungarian Privatisation Strategy and Financial Performance of Privatised Companies

This paper examines Hungarian privatisation strategy and the financial performance of privatised enterprises. The results suggest that Hungary has preferred privatisation by direct sales by a considerable margin, but has recently shifted towards share issues. Both types of sale have predominantly been gradual. Subsequent sales, however, confirm the government's intention to sell previously retained shares. An analysis of IPOs during 1990–1998 shows positive initial returns on Privatisation Initial Public Offers (PIPOs) and greater underpricing than for other IPOs. The long term returns of PIPOs are positive and they outperform other IPOs in all periods after the listing.     

Risk society and ecological modernisation alternative visions for post-industrial nations

Two prominent social theories have been shaping the discourse of environmental politics during recent years. Ulrich Beck's risk society theory contends that conventional definitions of social class are losing their significance in advanced nations due to the success of the welfare state in reducing economic scarcity. As societies transition toward late modernity new social cleavages based on the distribution of environmental and technological risks are gaining salience. Standing in contrast is the theory of ecological modernisation originally advanced by Joseph Huber outlining a hyper-rational strategy for correcting the ecological flaws of contemporary production and consumption practices. This paper introduces a typology that joins the two theories into a unified framework and suggests that the direction toward which a particular society progresses will be conditioned by its predisposition to scientific rationality. Due to increasing public endorsement of alternative epistemologies, most countries will likely encounter great difficulty achieving ecological modernisation.     

The Spanish privatisation process: Implications on the performance of divested firms

This paper reviews the main characteristics of the Spanish privatisation and liberalisation processes and their consequences for the performance of privatised firms. Conventional pre- versus post-privatisation comparisons fail to indicate significant improvements in privatised firms' profitability and operating efficiency over a medium-term horizon once industry effects are taken into account. In contrast, they do highlight significant improvements in divested firms' industry-adjusted profitability and efficiency over a long-term horizon. Furthermore, the results of the study suggest that the economic environment may play an important role in the success of privatisation processes, and that profitability and efficiency gains seem to take place in firms operating in competitive markets and in firms that were privatised during periods of macroeconomic growth. Our results also partially support the influence of restructurings before privatisation on firms' performance.     

Judicial review of public administration

Government Ministers and local authorities have been increasingly, and embarrassingly, hauled before the courts. The threat that Thames Water Authority might suffer the same fate at the hands of the National & Local Government Officers Association was a major factor in the Government's decision to postpone privatisation of the water industry. All this is the result of a new judicial process that has crept up on a largely unsuspecting public sector‐and is being gleefully exploited by trade unions and others.     

BANK OF AMERICA ROUNDTABLE ON THE SOFT REVOLUTION: ACHIEVING GROWTH BY MANAGING INTANGIBLES

Economist Paul Romer has developed a new theory of economic growth—one that moves the factors of scientific discovery, technological change, and innovation back to the center of economic analysis. For corporate management, Romer's theory amounts to a new model of value creation. Where the old idea was to accumulate and make the most efficient use of "hard" assets—machines, factories, and natural resources—the new model points to "soft," or intangible, assets as the key to growth and profitability.
More precisely, the focus of Romer's model is something he calls "nonrivalrous information," or "software" for short. "Software," in brief, is valuable knowledge or formulas or instructions that can readily transmitted to others and therefore replicated throughout an organization. It is "nonrivalrous" because it can be used outside the firm—and indeed throughout the nation and the world—without diminishing its value to the firm.
In this roundtable, Romer discusses his concept of software and its potential corporate applications with the CEOs of three successful companies. Besides illustrating the variety of forms software can take, the discussion also considers the challenge of managing the development of corporate software. One of Romer's messages to corporate management is that all workers are potentially creators of software—and this theme is echoed in the testimony of each of the three CEOs. In each case, moreover, a certain amount of decentralization of decision-making is said to be necessary to achieve continuous improvement. And a number of comments by the panelists suggest that decentralization reinforced by stock ownership or well-designed profit-sharing schemes has considerable potential to add value.     

Does Privatisation Matter? The Long‐Term Performance of British Telecom over 40 Years

In this paper, we offer and discuss new evidence on the performance of British Telecom (BT) before and after privatisation. We use a unique data‐set based on company accounts over 40 years (1960–99) and original additional company data on several variables. We focus particularly on output, prices, revenues, costs, employment, productivity, profits and investment. Our key findings are that operating profits (i.e. gross profits before interest and tax) were remarkably stable before and after divestiture, and that ownership change per se had little discernible impact on productivity trends, particularly between 1984 and 1991. Major changes in performance after 1991 were, however, related to variations in financial arrangements, competition and regulatory pressure. This allows us to regard the BT case history as a natural experiment on the relative importance of privatisation, liberalisation and regulation.     

The Evolution of Corporate Governance and Firm Performance in Transition Economies: The Case of Sellier and Bellot in the Czech Republic

This paper investigates the evolution of corporate governance and firm performance in transition economies. It focuses on barriers that impeded adoption of optimal corporate governance at Czech ammunition manufacturer Sellier and Bellot (S&B) following voucher privatisation in 1993. Exogenously imposed diffuse ownership, combined with legal, capital market, and accounting deficiencies, contributed to poor corporate governance and weak firm performance. This study shows how legal, capital market, and accounting deficiencies hinder corporate governance evolution; it demonstrates monitoring and incentive mechanisms can create value in transition economies; it suggests effective privatisation not only involves rapid ownership transfer but careful accounting and securities regulation and legal protection.     

Growth, crisis and change in the insurance industry: a retrospect

The insurance industry currently finds itself in a revolutionary situation characterized, in part, by the impact of new direct marketing techniques, facilitated by new technologies; by corporate restructuring and the creation of international mega-corporations; and by the accelerating globalization of the industry. This article surveys recent research on insurance history with the aim of placing these developments in their long-run context. Three areas are examined for evidence of continuities and discontinuities with the past: namely, the impact of technology, the interaction between markets and organizational change, and the globalization of insurance and its relationship to economic growth.     

From Public To Private: Evidence From a Transitional Economy Setting

The literature on public financial management reform has devoted comparatively little attention to the detail and effect of reform process implementation in developing economies. This study contributes to an understanding of this phenomenon by examining the impact of privatisation on a sample of previously state-owned enterprises in Vietnam. Using a detailed, financially focused methodology and drawing on data sourced from audited general purpose financial statements, our analysis suggests evidence of material variation in financial performance and position post-privatisation compared to the position observed immediately prior to privatisation. Specifically, our data suggest that after being privatised, firms generally exhibit reductions in profitability, some degree of improvement in working capital management, an increase in financial leverage accompanied by a higher degree of solvency risk and greater calls on cash resources for the purpose of funding capital expenditure. Our results assist with understanding the impact of privatisation as a reform technique in developing economies, and may help policymakers and managers better target areas of likely risk, during the process of transition from public to private ownership.