Exploring governance issues among boards of directors within state-owned enterprises in Barbados

• DOI: https://doi.org/10.1108/IJPSM-04-2018-0099
• Date: 08 April 2019
• Pages: 264-281
• Published date: 08 April 2019
• Author: Renée M. Thompson,Philmore Alleyne,Wayne Charles-Soverall
• Subject Matter: Public policy & environmental management,Politics,Public adminstration & management

Exploring governance issues

among boards of directors within

state-owned enterprises

in Barbados

Renée M. Thompson, Philmore Alleyne and Wayne Charles-Soverall

Department of Management Studies, Faculty of Social Sciences,

University of the West Indies at Cave Hill, Bridgetown, Barbados

Abstract

Purpose –The purpose of this paper is to examine corporate governance (CG) issues among boards of

directors (BODs) in Barbados’state-owned enterprises (SOEs) by utilizing agency and institutional theories as

the theoretical framework.

Design/methodology/approach –This research adopts a mixed methods approach using quantitative and

qualitative methods. Data are collected in five stages including data initially from a governance workshop

attended by BODs. The findings are presented and feedback obtained in subsequent stages including several

seminars attended by BODs, government officials, regulators and other stakeholders.

Findings –BODs perceive that they perform their roles and responsibilities in an effective and efficient

manner, influence decision making, exercise control in SOEs and conduct well-organized meetings. However,

respondents from the various stages report that there is lack of accountability and transparency, inadequate

disclosure, lengthy board meetings resulting in excessive delays in decision making, unclear accounting and

auditing guidelines, and a lack of training in financial and CG matters. Political interference, board

appointment and composition are also cited as major concerns.

Research limitations/implications –Suggestions include reduced political interference, increased

training, following OECD (2005) best practices and greater accountability.

Originality/value –The paper extends the literature on CG in BODs in SOEs in emerging economies.

This study utilizes the agency and institutional frameworks to understand the phenomenon.

Keywords Public sector, Corporate governance, Board of directors, State-owned enterprises

Paper type Research paper

1. Introduction

Bozec and Dia (2005,p. 1) state that “corporate governancerefers to the process and structure

for overseeingthe direction and managementof a corporation so thatit carries out its mandate

and objectives effectively.”Several researchers discuss corporate governance (CG) (Shleifer

and Vishny, 1997)particularly following the demiseof companies such as Enron Corporation,

WorldComInc. and the 2008 collapse of the global financialsystem within the corporateworld

(Solomon, 2010). Thus, regulators, stock exchanges and corporate boards sought to revamp

governance practices. However, little empirical research has focused on governance of

state-owned enterprises (SOEs) in emerging economies which have been criticized for poor

performance. SOEs experience unique issues and challenges (Grossi et al., 2015) which make

the transition to reform more difficult than the private sector.

SOEs are classified as enterprises in which the state, regional governments or cities exert

significant control, through full, majority or significant minority ownership (OECD, 2005;

Grossi et al., 2015). SOEs can be diverse in that they range from small to medium

establishments,completely owned and vastly or slightlyprovide public services. CG theorists

always emphasize that in the face of competition, organizations that do not optimize their

management practices will eventually be overtaken by more efficient organizations

International Journal of Public

Sector Management

Vol. 32 No. 3, 2019

pp. 264-281

© Emerald PublishingLimited

0951-3558

DOI 10.1108/IJPSM-04-2018-0099

Received 10 April 2018

Revised 26 July 2018

28 September 2018

Accepted 2 October 2018

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0951-3558.htm

The authors wish to thank the editor and two anonymous reviewers for their insightful comments.

264

IJPSM

32,3

(Smith and Trebilcock,2001; Bruton et al., 2015). SOEs in emergingeconomies are different in

the sense that they rarely face competition, often appearing in (natural) monopoly

environments,and so often lack reasons to improvemanagement practices, thusmaking them

more inefficient(Peng et al., 2016). However,the challenge is that theseentities are supposed to

be run similar to corporations (OECD, 2005), despite their institutional weaknesses. Thus,

there is a need to understandthe underlying institutional factorssuch as boards of directors

(BODs) that can improve their performance.

This study utilizes agency theory (Jensen and Meckling, 1976) to examine the inherent

dilemmasand contradictions of BODs inSOEs within Barbados in termsof principal-principal

(PP) conflictand principal-agent (PA) conflict. Agency theory isappropriate given the linkage

between the PA relationship, whereas the agent (BODs and management) work and make

decisions on behalf of the principal (state), yet each party pursues self-interested acts.

An agency problemarises in SOEs when there may be divergencesbetween management and

the controlling body(State), on the one hand, and between politicians and the final ownersof

the SOE (citizens),on the other hand. This study also uses institutional theory to examine the

institution and structures (laws, culture and practices) of SOEs which are indeed important

underpinnings to understand how CG systems actually work within SOEs. Thus, we argue

that it is important to use these two theories (agency and institutional) in order to examine

BODs in SOEs.

1.1 Context of the study

Barbados is a small island territory (430 km) located in the Caribbean Sea with a population

of approximately 300,000. The country is considered a stable democracy with high living

standards. The nominal per capita income in 2013 was US$15,373. The international

economic downturn of 2008 exposed the country’s vulnerability to external shocks, and it

has since been characterized by low economic growth, relatively high unemployment, and

high public debt of 98 percent of GDP. It is an emerging economy of which 63 SOEs play a

significant role. Over the years, successive reports by the Auditor General highlight the

need for SOEs to comply with financial regulations in relation to disclosures and completion

of annual reports (Barbados Audit Office, 2015, 2016).

The Minister of Finance and Economic Affairs emphasizes the need for government to

restructure some SOEs, given their inefficiencies in providing public services and poor

revenue returns (Cumberbatch, 2013). Additionally, Senator Harry Husbands questions the

transparency of appointing BODs to SOEs and stresses that appointed members should

have a code of ethics, be compliant, transparent, accountable and competent to sustain

boards (Thompson, 2013). Senior analyst at Standard and Poor’s, Richard Francis, notes

that heavy funding of SOEs results in the Government of Barbados (GOB) experiencing

financial strain (Best, 2014). Financial transfers to SOEs accounted for over 60 percent of the

total transfers by government in 2016/2017 which has increased over the years, growing

from 9.5 percent of GDP in 2006/2007 to 11.8 percent in 2016/2017 (IMF, 2018, p. 14). In this

context, transfers to SOEs have become a significant burden on the budget and are therefore

identified as a critical weakness of Barbados’fiscal accounts.

SOEs in Barbados are legal entities wholly owned by government, established to pursue

public policy (social and financial expansion policies), commercial objectives and are very

similar to privatefirms in the way they function. SOEs operate in many sectors ofBarbados’

economy and account for a significant portion of government activities which include

transportation,utilities, education, health, agriculture and other social services. The structure

of the SOE is hierarchical. BODs are responsible for overseeing the management of their

organization. Management reports to the board on organizational performance. BODs are

mandated to establish performance criteria, approve planning, strategic direction and

monitoring.They choose management to execute the goalsand objectives of the organization.

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Governance

issues among

BODs