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Big money for foreigners: Why supervisory boards at state-owned enterprises exist?

Author : Natalia Lebed

Source : 112 Ukraine

"There is nothing more cynical in Ukrainian politics than the way Serhiy Leshchenko fulfills an order for Russian money," MP Oleksiy Honcharenko writes on his Facebook page. The following is a story about how Leshchenko proposed to award the head of the National Commission for state regulation in the energy and utilities Valery Tarasyuk. "In addition to the fact that he receives huge salary at Ukrzaliznytsia, without doing anything, Serhiy is still working on proposals for state awards," Honcharenko continues.
21:37, 5 October 2020

The Verkhovna Rada

For reference: Serhiy Leshchenko is a member of the Supervisory Board of Ukrzaliznytsia. And Tarasyuk, according to Honcharenko, is the person who “acted as the main sponsor of Leshchenko’s election campaign. In July 2019, the future chairman of the National Commission for state regulation in the energy and utilities deposited almost half a million hryvnia (18 000 USD) into the accounts of candidate Leshchenko in two tranches, which amounted to 60% of all receipts. This is almost all official Tarasyuk's salary for 2019. And this is only the official part ". In addition to other debunks, Honcharenko also points to Tarasyuk's ties with Russia.

Poor railway, rich observers

Yes, this story is not so much about Serhiy Leshchenko. But let's add two more words about him, since this has to do with Ukrzaliznytsia, in particular, and the supervisory boards in general. When a completely wild incident occurred in August - a woman was almost raped on a train by a passenger who did not have a ticket, but was traveling "by agreement" with a conductor - Ukrzaliznytsia attracted everyone's attention.

And it has actualized the problem, allegedly not related to the rampant violence and aggression in the country. Readers of social networks began to actively write about the outrages on our trains, "tagging" in the posts the former MP, and now a member of the supervisory board of Ukrzaliznytsia, Serhiy Leshchenko.

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In response to numerous mentions of his name, Leshchenko noted (and quite reasonably) that Ukrzaliznytsia had no direct relation to the protection of law and order on its routes. This, they say, is the work of the police, but its transport unit no longer exists and no alternative has yet been invented for it. Law enforcement officers can provide an escort of trains, but on condition that their services will be interpreted as the provision of protection and accordingly paid.

The price of the issue is significant, Leshchenko noted, - UAH 250 million  (9 million USD) a year. And this is "without any compensation for losses in passenger traffic." So, theoretically, a member of the supervisory board knows about the problem, which is it is at least dangerous to use trains left without police supervision. But even here he finds those responsible for the situation, and these are the MPs. Because it is in their competence to resume the work of line police units.

Thus, the police are responsible for the safety of passengers, and the legislature is responsible for the presence of the police. The logic seems flawless, and there is nothing to argue against. But what then is the supervisory board of Ukrzaliznytsia responsible for? And what are the supervisory boards of other state-owned enterprises responsible for? They, by the way, cost the country's budget a much larger amount than the transport police.

Related: Ukrzaliznytsia and Deutsche Bahn signed strategic cooperation memorandum

What the law talks

To understand what supervisory councils are, you need to turn to what Leshchenko also appeals to - legislation. Ukraine is no exception to the rule when the existence of such institutions is regulated by an earlier adopted law. In Poland, for example, it is the "Code of Polish Commercial Enterprises", in Germany - "Law on Corporations of the Federal Republic of Germany", in China - "Law on Companies of the People's Republic of China".

And in Ukraine it is a law with a long title: "On Amendments to Certain Legislative Acts of Ukraine Concerning the Management of State and Communal Property Objects", adopted in 2016. The adoption of this law became a kind of the point of no return, after passing through which the supervisory boards of enterprises turned into a constantly repeated experience.

It would be more correct to say that the supervisory councils existed until 2016, but then they did not attract attention by their composition (which began to include foreigners en masse), as well as the size of fees for their members.

But for what purpose were the supervisory councils created? In order to establish the institution of a referee who will judge the actions of the state. Because the owner (in this case, the state) does not always act in the legal field and behaves like a rational owner. The introduction of an independent (as expected) regulator was supposed to minimize the risks of corruption and political interference - the so-called telephone law.

Consequently, supervisory councils have emerged in state banks, as well as in a number of state-owned companies: Naftogaz, Ukrzaliznytsia, Ukrenergo, Ukrposhta, Ukrhydroenergo, Administration of Ukrainian Seaports and Boryspil International Airport.

Related: Ukraine invites Austrian companies to renew electric locomotives of Ukrzaliznytsia

If we start from what the supervisory board exists for, for example, in the aforementioned Ukrzaliznytsia, then there is no doubt that Serhiy Leshchenko or any of his colleagues are not guilty of attempting rape on the train. But the area of ​​responsibility of the council members includes the progressive and competitive development of the enterprise, and if it lacks something (even modern toilets, even security, even clean linen), it is the direct responsibility of the "supervisors" to make sure that such a shortage is eliminated.

Therefore, being only an arbitrator in the supervisory board and controlling the state is not enough. At least in Ukrainian conditions, whether someone likes it or not. Not so much because of office instructions, but because of the specifics of our being, we expect the maximum from the hired management.

Penny to penny

In the end, for this, the members of the supervisory boards receive their remuneration, which is not just more than the national average, but is fundamentally different from salaries even in highly demanded industries. Undoubtedly, council members do not receive their income illegally. The size of them is regulated by the "Procedure for determining the terms of payment for services and compensation for the expenses of members of the supervisory boards of state unitary enterprises and business entities, in the authorized capital of which more than 50% of shares (stakes) belong to the state", adopted by the Cabinet of Ministers in 2017.

In connection with this government decree, the size of the salaries of members of the supervisory boards directly depends on the size of the annual income of the enterprise. So, in particular, the average remuneration of members of supervisory boards in most state-owned enterprises is about UAH 100 000 (28 000 USD) per month, but in large strategic companies - Naftogaz or Ukrzaliznytsya - the remuneration may be higher, since their financial indicators amount to hundreds of billions ...

But that's not all. Because, for example, the chairman of the supervisory board is entitled to an additional remuneration of 20%. And ordinary members of the Supervisory Board are entitled to additional remuneration of 10% of the amount of remuneration for participation in the work of the Supervisory Board Committee and the right to reimbursement of expenses related to the exercise of their powers.

Thus, when members of supervisory boards complain about the unprofitableness of their companies, while simultaneously entering six- and seven-digit figures in their declarations, there is a sense of cognitive dissonance. Because here, either with the profitability of enterprises, everything is in order for top managers who write out incredible salaries and bonuses for themselves, violating the Cabinet's instructions.

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At the same time, some of these bonuses are awarded to foreign specialists invited to Ukraine. For example, the Turkish financier Shevki Acuner, the current chairman of the supervisory board of Ukrzaliznytsia, receives his monthly remuneration in the amount of $ 26.5 thousand.

And his deputy Daniel Bilak has 13.5 thousand dollars a month. Members of the supervisory board of Ukreximbank, Dimitri Chichilo, and Dominic Michel Marie Menu, receive each 15.3 and 14.1 thousand dollars. At the same time, independent directors of Naftogaz monthly have the equivalent of the cost of an apartment in a provincial Ukrainian city - $ 22,000 in their bank account.

Some time ago, the thesis that the people will never get out of poverty if they have "poor" power over themselves became very popular in Ukraine. And not even because high salaries are a safeguard against bribery, but because highly qualified specialists must be paid accordingly. Otherwise, it will be unfair to them, moreover, it will deprive such persons of the motivation to work with full dedication.

And when a whole landing of foreign specialists moved to Ukraine, they expected at least a miracle, which, however, should have been well paid. But the miracle did not happen. Even with a moderate salary, even with a huge one - the superstructure called "supervisory councils" demonstrates a rather modest efficiency. But nevertheless, it continues to exist. Why?

Political overtones 

“The principle of corporate governance, adopted in the West, has reached Ukraine in the form of supervisory boards,” comments political analyst Kyrylo Sazonov. “They imposed it on us, to put it mildly, but in practice, everything in Ukraine did not work out the way we would like it to. We don't even know who all these people are. And to whom our enterprises are entrusted, for example, the same Ukrzaliznytsia - the largest corporation in Eastern Europe. Our enterprises are run mainly by foreigners - strangers with crazy salaries. "

“What are they doing? It’s not clear. Once a month they call up on Skype or Zoom, talk about something and get so much money, which no Ukrainian minister can even dream of, let alone a teacher or a doctor. Do they work? This is a separate mystery. The same supervisory board of Naftogaz, knowledgeable people call among themselves the "London club." Transferring their enterprises to foreigners, and even writing them insane bonuses is wildly unfair," the expert says.

And his colleague in the political science department Bogdan Petrenko formulates three reasons why everything turned out this way. All these reasons have nothing to do with economic expediency but are exclusively related to political motives. "Ukrainian citizens can be attracted to the supervisory councils and, keeping them at the expense of the state for their loyalty. If the authorities have an interest in such people. This is the first thing," Petrenko says.

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“Secondly, foreigners are also included in the supervisory boards, and this is already a curtsey towards international corporations. The third aspect: starting the supervisory boards, the state gives them responsibility. And it washes its hands. Example: Ukrzaliznytsia has become dramatically unprofitable. But the state has nothing to do with it because this is already the sphere of responsibility of the supervisory board – which is quite convenient for managers of state-owned enterprises. They should no longer be profitable, be it economic or political. Now the supervisory board is engaged in this," the political scientist is convinced.

And then, obviously, there are reasons to fear that such a "distribution of responsibility" scheme will persist for a long time because it is so convenient. However, according to Kyrylo Sazonov, “the current government, unlike the previous one, has a certain understanding that such an imposed scheme is not something good. Reforms are not taking place, in particular, at Ukrzaliznytsia: trains have not become more comfortable, electric trains don't run better and more often, corruption is rampant. All the troubles are obvious, but now we also pay the supervisory boards."

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