January 2014
Corporate management was an issue much referred to in the “Efficient Company Management” session at the Economic Forum 2012. Directors of power plants and senior officials in State-owned companies and State industries were articulate in expressing their ideas. Power plant officials explained how persistence with non-commercial decisions had merely seen a rapid rise in their indebtedness. Frustration with the present was common, but there was no consensus on solutions. Some panelists were more blunt than others, with J.Odjargal, a director at MCS Group, saying, “Privatising State-owned companies is the only solution.”
As the debate on what to do with State-owned companies goes on, the number of such entities goes up. Inefficient management in the name of the State is rampant especially in strategic sectors that produce most of Mongolian export products. State-owned mining companies are gasping because they were not given a chance to grow by investing their own income. Barring two out of nine, every board member at ErdenesTavanTolgoi JSC is a minister, or a state secretary, or the head of a ministry department. Are these the people who can lead Mongolia’s biggest coal project in a period of crisis when we need focus and aggressive competitiveness?
This issue of the Mongolian Mining Journal features management practices in other countries, especially in the mining sector, with a special eye on our neighbours and other Asian countries developing rapidly. The first principle of corporate management is to totally eliminate State involvement. The terms “State company” and “private business” find no place in the lexicon of corporate governance. Whatever its ownership, every company deserves to be managed professionally, with legitimate profit making the major criterion of its success. Appointing competent people from the private sector to the boards of State-owned companies is now common practice because it has been proved effective. The State’s main role is to distribute a certain percentage of the company’s profit for the people’s welfare.
The Mongolian Mining Journal encourages widespread adoption of corporate governance practices and principles of proven worth. As a first step, ministers and other State officials adorning the boards of State-owned companies should be forthwith replaced by competent managers from the private sector. This is part of the Mongolian President’s “From a Big State to a Smart State” initiative.
The Reform Government should not delay beginning the process of privatising State-owned companies in phases. Commitment and competence should be the essential and the most important qualifications for the new managers. Given their primacy in the economy, State- owned companies in the mineral sector should be taken up first, leaving no space any longer for the State’s direct involvement in their management. The inevitable result will be healthy intra-sector competition and private companies will also surge ahead.