PUBLIC ENTERPRISE

 A business organization wholly or partly owned  There are several factors that have contributed
by the state and controlled through a public the growth of public enterprises in the recent
authority. times. The governments have used it to guide
 Some public enterprises are placed under public and command the economy; they own the
ownership because for social reasons, it is strategic industries, functions and agriculture
thought the service or product should be and also try to fill the inadequacies of the
provided by a state monopoly. private sector.
 Utilities (gas, electricity, etc.), broadcasting,  PE are also essential in bringing about national
telecommunications and certain forms of development. They are also used as political
transport are examples of this kind of public instrument to maintain political stability,
enterprise. prevent unrest.
 Public Enterprises are by definition intended to  PE have also helped the earlier colonized and
be operated in the public interest. now developing economies of the world to
 As a corporation it has legal entity. decrease their dependency on other nations
 Its capital requirements are met by the treasury, and become self sufficient. Monopoly, freedom
but it is supposed to meet its current expenses to choose profitable projects; no taxes etc are
from its normal commercial operations. other factors.
 Its employees are not civil servants, and the top  What is the most common motive of PE?
management is often appointed by the minister - The public sector contributes to economic
in charge. development and the main objective is
 State Company which is simply an ordinary social welfare and security.
joint-stock company whose shares are owned  Why is enterprise important?
wholly or partly by the state. - Economic development, solving problems,
 PE played an important role in the economic creating jobs and investment opportunities
development of many developing countries are a few reasons why an enterprise is
before the adoption of the New Public important.
Management approach in public administration.  Why are enterprises important to the
 The government sells goods and services to the economy?
common people through the means of a state - Entrepreneurship accelerates economic
owned enterprise system which incorporates growth, by creating new products and
the characteristics of both public and private services, they stimulate new employment,
enterprises. (Eg. Metro Train Facility for which ultimately results in the acceleration
commuting in big cities, developed, managed, of economic development.
and run by the government.)  How will you differentiate between public
 The government operates in the areas which are enterprises?
of basic or strategic importance and also the - Private enterprises refers ti the enterprise
areas that require huge investments beyond the owned, managed and controlled by private
scope pf private enterprises. persons.
 The state owned enterprises play an important - Public enterprise refers to the enterprise
political, economic and developmental role in owned, manage and controlled by
their respective countries. government.
 Why do you tink business enterprises is  What is another name for public enterprise?
important to the Philippine economy? - Government-owned corporation
- They generate tax revenue. When - State-owned entity
businesses are successful they generate tax - State Enterprise
revenue for the government. This is - Public owned corporation
important because it helps to fund public - Government business enterprise
services like education and healthcare. - Commercial government agency
- Public sector undertaking or parastatal is a
 What are the local economic enterprises in the legal entity created by a government to
Ph? undertake commercial activities on behalf
- Local Economic Enterprises (LEEs) in the Ph of an owner.
consists of public markets, slaughterhouses,  Sir Jerry’s points:
public hospitals, public city colleges,
- Guys, what i've had presented to you is the
cemetery, parking lots, recereational and
overview, concept, and/or definitions of public
cultural facilities, public services such as
enterprise.
water and power supply and distribution - I think that was already a lot when it comes to
and telecommunications, waste collection introducing the origin and how public enterprise
and disposal. come into existence and its advantages to both local
 What are the examples of public enterprise in and national economic development.
the Ph? - What I am trying to emphasize here is for you to
- In the Philippines, public enterprises which be aware of as a bachelor of public administration
are engaged in myriad of economic and students, regarding the businesses that the
developmental activities in the country. government had initiated, as a catalyst of change.
- PCSO, PAGCOR, GSIS, SSS, PhilHealth, PAG- - It is because the state or the government is the
IBIG prime mover of the economy. I must say, a prime
mover, because everything that were in placed such
 What are the advantages of a public
as roads, airports, seaports or piers, etc. They are
enterprise?
called, CAPITAL OUTLAYS.
- Since public corporations are generally large
- Without capital outlays in which our government is
they can benefit from economies of scale, the catalyst, private sectors are also become STATIC.
including cheaper pricing and better quality - It is because nobody would spent money without
of service. And because public corporations earning the so called, ROI or return on investment.
are wholly owned by the government, - And no further ordinary JUAN could barely avail of
planning and coordination is easier since those capital outlays should the private investors or
the government can take complete control capitalists i enter the scene.
over certain items. - Considering that views, the government seeks
 Why are public enterprises created? alternatives to respond to the needs of the general
- The public enterprises came into existence public. Henceforth, the public enterprises were
as a result of the expanding scope of public created to render services that are most serving the
ordinary JUAN.
administration. The advent of the concept
of welfare state after the Second World War
and increasing undertaken by Government
across the world, the system of public
enterprises was developed.
 What is the most common motive of public
enterprise?
- The public sector contributes to economic
development and the main objective is
social welfare and security.
NATURE, PROBLEMS AND CHALLENGES OF THE and expenses of the government. Expenditures
PHILIPPINE PUBLIC ENTERPRISE SECTOR were some 28 % percent of the national
government. GOCC assets were some P5.557
 Prior to 1972 (Martial Law period), they were trillion vis-à-vis the national government’s
formed to respond to long-established strategic P2.879 trillion. They also account for 91 percent
needs such as: of the total inter-agency receivables of the
1) Rehabilitation and restructuring after the war national government (Drilon 2011). It is also
2) Those requiring large scale indivisible widely perceived as mismanaged, with salaries
investments of its top executives higher than their private
3) A basic industry that provides high forward sector counterparts or of the President of the
linkages Republic, but with less accountability for
4) There is public sentiment to keep the industry performance and results (Senate 2005 as cited
free from foreign control because of its impact in Mendoza 2007). In recent years, there have
in the economy, and been various reports about high-ranking officers
5) The private sector is unwilling or unable to of GOCCs being charged with graft for
put up the capital to establish the industry misappropriation of government resources,
(Tabbada 1989; Alvendia 1991). dispensation of bloated salaries, unauthorized
purchase of assets, and abuse of power (Senate
 Moreover, the following problems have been Hearing 2010).
hounding the PE sector in the past (Mendoza
1992 in Tapales and Pilar (eds.) 1995; Mendoza  C. A Revisit to Recent Public Enterprise Reforms
2007): a. In the 1950s, the Office of Economic (pre-2001-present) Reforms have been
Cooperation, the agency entrusted with undertaken to reshape, redefine, and redirect
supervision of state enterprises found GOCCs the GOCC sector. Among these were policy
exhibiting “rampant corruption, reforms to ensure financial discipline, guidelines
mismanagement and inefficiency.” (as cited in for the creation/definition of GOCCs,
Tabbada, 1985) Nepotism was also observed (as disposition, salary reforms, performance
cited in Teodosio et al., in Palafox and Barranco evaluation and audit, and privatization
(eds.) 1988). b. In addition, the sector, according (Mendoza 2007). The more recent of these
to the Presidential Commission on Government reform initiatives include rationalization and the
Reorganization (PCGR, 1986) suffers from three enactment of the Corporate Governance Act of
fundamental problems. These are: 1) There is disposition.
no clear policy when the government will
intervene in the economy or when to use the  In addition, P.D. 2030 and Proclamation 50 and
corporate form; 2) Inadequate overall 50-A s. 1987 collectively state that “The
monitoring and control system, particularly government has no business in business and has
because of the presence of a number of to privatize to a) reduce the financial burden of
“privileged” corporations owned and/or government due to losing and inefficient
controlled by Marcos cronies; and 3) Poor GOCCs; b) reduce involvement of government in
corporate performance because of poor economic activities; c) promote greater
oversight and coordination, and lax financial efficiency in government operations; and d)
controls. In the 1970s to 1980s, the GOCCs were raise funds to finance major development
notoriously used to serve as milking cows of the projects like the Comprehensive Agrarian
Marcoses and their cronies, thus subverting Reform Program.” These policies were meant to
national interest. They were found to constitute curtail the growth in number of the GOCCs and
a heavy drain on scarce resources and have limit the creation of new ones only to those,
contributed to the rapid fiscal and budgetary which are strategic in nature, for national
burden of the national government (Manasan defense, public interest and welfare, and for
and Buenaventura, 1985; Briones, 1985; which financial viability is manifest.
Amatong, 1985; Tabbada in Iglesias et al., 1989).
 2. Ensuring Financial Discipline This aims to
 As of 2009-2010, the GOCCs accounted for a reduce the financial dependence of GOCCs on
significant percentage of the assets, liabilities the national government, make them self-
sufficient, expose them to competition by tax exemptions, tax subsidy is given but
withdrawing cushions not usually availed of by only for specific activities with high
private sector counterparts, and make them social impact.
financially shape up. Specifically, these 5) Imposition of interest charges on all
initiatives include: government advances for the servicing
a) Imposing a ceiling on public sector of re-lent or national government–
investments and centralizing investment fund guaranteed GOCC loans. Aside from
allocation to all entities under the National promoting fiscal discipline, this practice
Economic and Development Authority (NEDA) aims to enable the national government
b) Issuance in 1983 of Letter of Instruction (LOI) to recover, to some extent, the cost of
No. 1340 to improve the control mechanism money for the delayed repayments of
over borrowing of GOCCs. It provides that a GOCCs.
GOCC, including any of its subsidiaries, “may 6) Enforcement of the requirement that
borrow only when the funds raised are used for public enterprises declare and remit
activities or projects that will yield the dividends to the national government of
necessary return on investment and generate at least 10% to 50% of their net income.
the necessary cash flows in order to enable the (Mendoza 2007)
prompt repayment of interest and principal on
the borrowings as they fall due.” It also  3. Compensation/Salary Reforms These were
mandates the Board of Directors of GOCCs not complemented by policy initiatives aimed at
to approve any borrowing without a “conclusive setting the internal operations of GOCCs right,
showing of return on investment and cash flow mainly through more appropriate compensation
adequacy.” and position classification systems. These
c) LOI 1366, which limited the approval of include the Salary Standardization Act (SSL) of
foreign loans and other foreign obligations to 1989 to 2012 and Memorandum Order (MO) 20,
highly meritorious projects. LOI 1366 mandated 2001.
all GFIs and GOCCs “not to extend or issue a. Salary Standardization The SSL standardized
guarantees, counter-guarantees, standby letters all compensation and position classifications in
of credit and other forms of guarantees to the bureaucracy, including those of the GOCCs.
secure foreign loans and other foreign It aims to
obligations of the private sector.” 1) provide compensation systems that
d) A series of cost-cutting measures, which would enable GOCCs to attract and
include, among others (Carague in Gouri (ed.), retain some of the best and competent
1991): resources; and
1) Reduction of the number of 2) limit the packages so that they do not
government enterprises to only those, fall too far out of line with the general
which are necessary for specific level of compensation in the
economic and social purposes. government bureaucracy. Before these
2) Granting of equity contribution only measures, the salaries of the employees
for start-up capitalization requirements of GOCCs were “50-80% higher than
and only to the extent that GOCC’s those received in the regular
internal cash generation and borrowings bureaucracy.” (Tabbada in Iglesias et al.,
could not meet the deficit financing 1989).
required. b. Perks and Pay In 2001, Pres. Arroyo issued
3) Restriction of subsidy support to the MO No.20 entitled, “Directing Heads of
financing of operating and maintenance Government Owned and Controlled
requirements of non-profit GOCCs and Corporations (GOCCs), Government Financial
to projects that are not financially viable Institutions (GFIs) and Subsidiaries Exempted
but are necessary to promote the from Or Not 9 Following the Salary
welfare of disadvantaged members of Standardization Law (SSL) To Implement Pay
society. Rationalization in All Senior Officer Positions.”
4) Elimination of tax exemptions This was issued in response to the findings of
enjoyed by GOCCs. Instead of outright the preliminary review conducted by a
Management Consulting firm on the pay 64 1993). It shall also “establish an effective
practices of certain GOCCs, GFIs, and performance monitoring and coordination
subsidiaries, which found that the system for all GOCCs, which does not curtail
compensation package in these sample entities their operational flexibility but rather
are much higher, such that their officers receive encourages GOCCs to perform their functions
at least twice what comparable positions without undue interference from the National
receive in national government agencies. The Government.” (Ibid.)
study also found that heads of some of these b. Audit The performance and financial audit of
GOCCs even exceed the average salary of their all GOCCs and their subsidiaries lie within the
counterpart positions in the private sector in ambit of the Commission on Audit (COA). A
the Philippines and in the ASEAN Region. MO 20 constitutional body with a dedicated Corporate
ordered said GOCCs to immediately suspend the Group to oversee accounts of GOCCs and their
grant of any salary increase and new or subsidiaries, it goes where government
increased benefits. It mandated them to resources go. COA examines, audits and settles
prepare a Pay Rationalization Plan for senior all accounts pertaining to the revenue and
officer positions and members of the Board of receipts of, and the expenditures or uses of
Directors/Trustees “to reduce the actual pay government funds and property (Philippine
package to not exceeding two (2) times the Constitution, Art. IX-D, Sec 2). For several years,
standardized rates for comparable national COA’s orientation has been towards traditional
government corporations.” auditing, e.g., financial and compliance audit.
4. Performance Evaluation and Audit However, in the 1990s, with the help of the
a. Performance Evaluation Like any other Canadian Institute of Chartered Accountants,
enterprises, PEs must be evaluated. Absence of COA shifted to the value for money (VFM) mode
a good performance evaluation is a source of (COA Report, 1995). It is also known as
the general impression that PEs are inefficient. performance audit or the three-E’s audit, i.e.,
Evaluation in the Philippine context is needed to “the independent assessment of the extent to
improve the operations, simplify the linkages, which an organization operates efficiently and
and clearly define the roles of the components effectively with due regard to the economy. Its
of the PE system. However, the initial evaluation components include:
system (ES) instituted here was merely to check • Economy and efficiency audits- determine
on the financial performance of some heavily whether agency resources (men, money,
indebted GOCCs. The ES was meant primarily to machines, materials, methods and management
curb government borrowing, especially, external systems and control) were acquired at the
borrowing. More specifically, it was intended to lowest possible cost to achieve the maximum
monitor corporate financial condition, output in terms of quantity and quality.
investments, capital expenditures, and • Effectiveness audit – determine the extent to
borrowings. It was mainly a financial tool and which program or agency achieves its objectives
not a performance evaluation system, where or intended effects or legislative intents.
non-financial 10 and social indicators of 5. Privatization
government performance, efficiency, and Privatization has always been associated with
effectiveness are assessed. (De Guzman and free market and liberalization. It has been
Reforma 1994) The Government Corporate implemented in the country as part of our
Monitoring and Coordinating Committee structural adjustment programs with the IMF
(GCMCC) is the oversight body for the and WB. World Bank defines privatization as
monitoring and evaluation of GOCCs. It was “any action that moves an enterprise or an
created in 1984, reconstituted in 1986, economy in the direction of private ownership
strengthened in 1987, transferred from the or that tends to make the behavior of state
Department of Finance (DOF) to the Office of enterprises more like that of private entities. It
the President/Presidential Management Staff is also the divestiture by the state of
(PMS) in 1993 and back to the DOF before 2011. enterprises, land or other assets.” (WB 1996 as
Among the functions of the GCMCC were “to cited in Sta. Ana 1997). Iprivan the Philippines, it
balance accountability and adequate has evolved from a purely divestiture mode to
operational flexibility among the GOCCs.” (MC get the government out of business to a
mechanism for governance, implying a  SOLUTIONS TO THOSE ISSUES:
redefinition and reduction of the role and scope 1. Objective-Every organization should have a
of the state and GOCCs in development. It came specific objective. The objective should be
to mean as “the divestment, disposition and expressed in clear terms and communicated to
liquidation of nonrelevant and non-performing all the employees of the enterprise.
assets and corporations.” Its four-fold objective 2. Sound business principles: The enterprise
include to: should be run on sound business principles.
1) Reduce the financial burden of the
There should be focus on improving efficiency in
government due to losing and inefficient public
all functional areas. Policies, systems and
enterprises;
2) Reduce the involvement of government in procedures should be modified with the aim of
economic activities; making the enterprise flexible, efficient and
3) Promote greater efficiency in government profitable.
operations; and 3. Autonomy: Public enterprises should have
4) Raise funds to finance major development considerable autonomy in their functioning.
programs like the CARP (P.D. 2029, 2030, Authority should be delegated and they should
Proclamation No. 50, 50-A, 82 s. 1986, 1987). have the freedom to take decisions. Autonomy
Later, it evolved into a strategy for governance, would ensure that decisions are taken at the
with the participation of other sectors of the right time and growth opportunities utilized in
society, particularly, business. the best possible manner.
E.O. 37 s of 1992 expanded the modes of 4. Freedom from political interference: Many
privatization to include, in addition to the sale of
public enterprises are considered to be the
physical and other assets, “lease, management
kingdoms of politicians. They are run to suit the
and maintenance contracts, and build-operate-
transfer (BOT) schemes.” E.O. 298 s. 1996 needs and requirements of the ruling party.
provides for alternative and/or intermediate Corruption, favoritism and nepotism are
modes of privatization pursuant to Proclamation rampant in many of the enterprises and the
50, to include: interests of the enterprise is sacrificed. It should
1) “Joint Venture- whereby the Asset be ensured that they are free from continuous
Privatization Trust (APT) arranges for the APT- interference of politicians, bureaucrats etc., in
held asset to carry on a specific business their affairs.
enterprise with another person/entity for their 5. Proper project appraisal: It is common to
mutual benefit, using their combined funds, observe that many projects are announced
land, resources, facilities and services, either without any sort of appraisal of the need and
through a joint venture, corporation or as
viability of the project. Therefore, many projects
separate personalities.
are left incomplete with a huge amount of funds
2) B-O-T Schemes-whereby the APT finds
invested in them going waste. Therefore, it
proponents who will undertake infrastructure
and/or development projects using the APT-held should be ensured that before any project is
asset. taken up for implementation, there is a
3) Management Contract – whereby a thorough appraisal of the viability of the project
corporation undertakes to manage or operate from the technical, economic, social, and
all or substantially all of the business of an APT- commercial points of view. Only those projects
held asset. This contract may also be designated that are found to be feasible should be
as a service contract or operating agreement. considered for implementation.
4) Lease-Purchase.-whereby the lessee of an 6. Proper planning: Time and cost over runs are a
APT-held asset would have the right to purchase common malady affecting public sector
the same projects. Proper planning: Time and cost over
5) Securitization- whereby the form of the APT-
runs are a common malady affecting public
held asset is changed or modified, such as from
sector projects. Therefore, once a project is
physical form to equities or certificate of
considered for implementation, there should be
participation.” (E.O. No. 298)
proper planning right from the commencement
 of the project until its completion. Contingency bonus of employees should be linked to the
plans should also be prepared so that the extent of costs reduced.
enterprise is ready to face any situation. Such 10. Professional cadre of managers: A new cadre of
detailed planning would ensure that projects managers who are professionally qualified
are completed within time in a cost-effective should be appointed. To attract talented
manner. A project is considered for professionals t10. Professional cadre of
implementation, and there should be proper managers: A new cadre of managers who are
planning right from the commencement of the professionally qualified should be appointed. To
project until its completion. Contingency plans attract talented professionals, the pay and perks
should also be prepared so that the enterprise is offered should be substantially increased. They
ready to face any situation. Such detailed should be given autonomy so that they can
planning would ensure that projects are function effectively without any external
completed within time in a cost-effective interferencehe pay and perks offered should be
manner substantially increased. They should be given
7. Redeployment of excess staff: Excess staffing is autonomy so that they can function effectively
one of the major problems faced by public without any external interference
enterprises. The reasons for this situation are: 11. Pay for performance: The pay for employees in
a. one of the objectives of public enterprises public enterprises has very little relationship
was creation of large scale employment with performance. There is no difference
opportunities and therefore recruitment between a top performer and non-perfor11. Pay
was done in large numbers without for performance: The pay for employees in
considering actual requirements, secondly public enterprises has very little relationship
in many sectors the public enterprises have with performance. There is no difference
reduced their scale of operations unable to between a top performer and non-performer in
compete with the private sector, but the terms of pay and perks. Therefore there is very
number of employees has not come down. little motivation among employees to improve
8. Improvement in capacity utilization: Idle and excel. To motivate employees and create
capacity constitutes wastage of national the urge to excel, public enterprises should link
resources. In India, low capacity utilization is a a substantial portion of pay with performance of
problem plaguing many public enterprises. Due both the organization as well as the
to the low capacity utilization, the productivity employee.mer in terms of pay and perks.
is low, and revenues earned are also low. Therefore, there is very little motivation among
Therefore, measures should be initiated to employees to improve and excel. To motivate
improve capacity utilization levels, and new employees and create the urge to excel, public
capacity should be planned only if the existing enterprises should link a substantial portion of
capacity is fully utilized. pay with performance of both the organization
9. Cost control and cost reduction: Over-staffing, as well as the employee.
poor capacity utilizat9. Cost control and cost 12. Retaining talent: The pay, working environment,
reduction: Over-staffing, poor capacity opportunity for professiona12. Retaining talent:
utilization, and low productivity of employees all The pay, working environment, opportunity for
contribute to cost inefficiencies. Employees professional advancement and fast track career
should be trained on measures of cost control growth are missing in public enterprises.
and cost reduction. Wage hikes and bonus of Therefore many talented employees quit them
employees should be linked to the extent of and seek opportunities in the private sector.
costs reduced.ion and low productivity of Therefore public enterprises should institute
employees all contribute to cost inefficiencies. measures such as pay for performance,
Employees should be trained on measures of promotions based on performance and not on
cost control and cost reduction. Wage hikes and seniority, employee stock options and salary
levels should match those offered by the private
 sectorl advancement, and fast track career government machinery, the executive,
growth are missing in public enterprises. legislative and judicial.
Therefore, many talented employees quit them  PA plays a crucial role in formulation of policies
and seek opportunities in the private sector. therefore it is part of the political process as
Therefore, public enterprises should institute well (for eg Bills and Acts)
measures such as pay for performance,  It can be Direct and Indirect
o Direct – provision of services like
promotions based on performance and not on
mortgage insurance, mail delivery and
seniority, employee stock options, and salary
electricity.
levels should match those offered by the private
o Indirect – when the government pays
sector.
private contractors to provide goods
and services to citizens (Roads building,
BoTS)

DEFINING ADMINISTRATION  Implementation of public interest and doing it

 PA is like any other administration which is collectively.
carried out in public interest. o The PA works under the universal label
 “Administration is determined action taken in of public interest.
pursuit of a conscious purpose. It is the o The public interest is a commonly
systematic ordering of affairs and the calculated accepted good.
use of resources aimed at making those happen o The rise of administrative discretion in
which one wants to happen”. (Marx) the face of legislative vagueness means
 Frederick Lane defines administration as that the job of the anonymous
organizing and maintaining human and fiscal administrator is to define the public
resources to attain a group’s goals. interest.
 Administration is the planned approach to solve
all kind of problems. LEGAL APPROACH OF PA
 L.D. White, PA consists of all those operations  As defined PA is what a state does, it is both
having for their purpose the fulfillment or created and bound by an instrument of the law.
enforcement of public policy. o It has to execute the public law.
 Woodrow Wilson defines “PA is a detailed and o Every application of a general law is
systematic application of law”. necessarily an act of administration.
 Therefore, PA is nothing but the policies, o In the Pakistan, the 1973 Constitution is
practices, rules and regulation etc. in action. the law of the land. All legislation must
conform.
APPROACHES TOWARDS THE PA o PA is implementation of regulation.
 Political o It is government telling citizens and
 Legal businesses what they may or may not
 Managerial do.
 Occupational
MANAGERIAL APPROACH OF PA
POLITICAL APPROACH  PA is the branch of government.
 The legitimate object of government is to do for  PA is geared toward the maximization of
a community of people, whatever they need to effectiveness, efficiency of the economy.
have done, but cannot do, at all, or cannot, so  Many graduate schools of management (or
well do, for themselves – in their separate and business or administration) are divided into
individual capacities. (Abrahan Lincoln) public and private.
 PA is what government does.  PA is the executive function of the government
 FA Nigro argues that PA is essentially a o Government agencies put into practice
cooperative group efforts in public setting. legislative acts that represent the will of
Secondly, it covers all the three branches of the people.
  Public Administrators are found in middle subsequent actions of implementation,
management, the group responsible for the enforcement and evaluation.
execution and interpretation of top  PP should distinguish between what
management policies and the day-to-day governments intend to do and what in fact, they
operation of an organizational unit. do.
 Government’s inactivity is as important as
PA IS ART OF SCIENCE government activity.
 It is actually both.
o It requires judgement, confidence and FORMS OF BUSINESS ORGANIZATIONS
common sense.  Sole Proprietorship: a business owned and
o It also requires technical skills that allow controlled by a single person
for the absorption and transference of  Partnership: a business owned by two or more
information. individuals
 Just because you have the academic degreedoes  Corporations: a legal entity separate and distinct
not mean that you can function as a high level from its owners
administrator.  Public Enterprises
OCCUPATIONAL APPROACH
 It is where public employees in the world do. PUBLIC ENTERPRISE MANAGEMENT
o People in bureaucratic careers tend to  PE came into existence as a result of the
rise and fall on how well they can write. expanding scope of PA.
In a game of shuffling paper, the person  The advent of the concept of welfare state after
whose memorandum ends up on top the WWII and the increasing developmental
wins. initiative undertaken by Government across the
o Oral presentation are also useful but world, the system of public enterprises was
writing is more decisive. developed.
 PA is idealism in action.  The government sells goods and services to the
 Many people enter public service careers common people through the means of state
because they are idealists; they believe in and owned enterprises system which incorporates
seek to advance noble principles. the characteristics of both public and private
 Idealism draws people into PA because it enterprises.
provides them with worthwhile and exciting o For e.g. the metro rain facility for
things to do with their lives. commuting in big cities, developed,
 It is Academic it is a Cross-disciplinary field – managed and run by government.
political science, sociology, business
administration, psychology, law, anthropology, MEANING OF PE
medicine, forestry and so on.  A.H. Hanson describes “PE mean state
ownership and operation of industrial,
MODELS OF PA agricultural, financial and commercial
 Public Administration (Traditional) undertakings”.
 Public Management (New PM)  Mallaya explains “Pes are autonomous or semi-
 Responsive Governance autonomous corporations and companies
owned and controlled by state and engage in
PUBLIC POLICY commercial activities”.
 PP is the principled guide to action taken by
administrative executive branches of the state OBJECTIVES OF PEs
with regard to a class of issues in a manner  Economic and Social Development
consistent with law and institutional customs  Provision of Employment
 Course of actions, regulatory measures, laws  Regional Balance of the Development
and funding priorities concerning a given topic  Avoiding the Concentration of the Wealth
promulgated by a government entity or its  Reducing the Income Inequality
representatives.
 Policy is an ongoing process; it involves not only CHARACTERISTICS OF PEs
the decision to enact a law but also the  An Economic Activity of Government
  Managed by the Government a public enterprise, by its nature, mostly
 Government Ownership manages public resources, especially public
 Profit Maximization is not the first aim. money and this means that attention must be
paid to mechanisms for enforcing accountability.
PUBLIC ENTERPRISE MANAGEMENT deals with the Thirdly, the combination of financial and
management of the public sector, public policy process, economic objectives with social and political
analysis, its impact, the dilemmas of strategy, effective aims invariably makes it difficult to devise
management and organization in a changing and appropriate performance measurement
complex environment, as well as looking at governance instruments (Obikeze and Anthony, 2004: 248-
and the idea of enterprise in the pubic sectors. 249).

OBJECTIVES OF PUBLIC ADMINISTRATION

The major objectives if public enterprises could be
summarized as follows:
PUBLIC ENTERPRISES
 PE is a business organization wholly or partly a) To promote rapid economic growth and
owned by the state and controlled through a industrialization of the country and create the
public authority. necessary infrastructure for economic
 PEs are by definition intended to be operated in development. Public enterprises are established
the public interest. with the objective of fast-tracking economic
growth and industrialisation. The setting up of
WHAT IS PUBLIC? (FREDERICKSON) public enterprises to engage in economic and
 Interest groups productive activities boosts the gross domestic
 Rational chooser product (GDP) of a country and provides the
 Represented infrastructure needed for economic
 Customer development.
 Citizen b) To earn a return on investment and thus
generate resources for development. Public
MEANING OF PUBLIC ENTERPRISES enterprises are established in certain cases to
 Going by the definitions presented above, public make returns (profits or revenue) so as to give
enterprises essentially have the features of the government more resources needed to
several individuals who act as one. As such, the execute development projects and programs.
enterprise is viewed as an artificial person However, making returns is not the major
authorised by law to carry on particular purpose of governments for setting up public
activities and functions. It is described as a enterprises.
corporate body created by the legislature with c) To promote redistribution of income and
defined powers and functions and wealth. This objective of public enterprises
independently having a clear-cut jurisdiction means that collective resources of the people
over a specified area or over a particular type of (commonwealth) are used to provide welfare
commercial activity (Ekhator, 2002:167). As a services to certain disadvantaged segments of
corporate body, a public enterprise has a legal the population such as the aged, unemployed,
personality separate from that of the handicapped, poor, etc.
government that establishes it. It can own d) To create employment opportunities. One of the
property, enter into contracts, and sue and be main objectives of setting up public enterprises
sued. is to provide jobs for the citizenry. Public
 Public enterprise is part of government enterprises provide an opportunity for people
apparatus and three implications are hereby to get enlisted into public service.
highlighted. Firstly, a public enterprise, by virtue e) To promote balanced regional development.
of its intricate relationship with government, is Public enterprises are established with the
an instrument of public policy and its primary objective of promoting balanced regional
mission is in connection with governmental development since public enterprises are
objectives and programmes. It is therefore spread across all regions of the country. The
naturally under governmental control. Secondly, establishment of public institutions and
 organisations in different regions and geo- and can also dispose of property than ordinary
political zones of the country is to achieve this government departments.
objective. III. Government ownership and management:
f) To assist the development of small scale and Public enterprises are owned and managed by
ancillary industries. Small scale and ancillary the central or state government, or by the local
industries depend on certain services provided authority. The government may either wholly
by public enterprises to survive and grow. The own the public enterprises or the ownership
services of Power Holding Company of Nigeria may partly be with the government and partly
(PHCN), Nigeria Port Authority (NPA), Bank of with the private industrialists and the public. In
Industry (BOI), etc. aid the growth of small scale any case, the control, management and
and ancillary industries. ownership remain primarily with the
g) To promote import substitution, and to save and government.
earn foreign exchange for the economy. One IV. Considerable financial freedom: Except for
main objective of government setting up public appropriations to produce capital or to cover
enterprises is to encourage the production of losses, a public enterprise is usually
certain goods and services in order to independently financed. It obtains its funds
discourage their importation; thus substituting from the treasury or the public and from
for imports. revenues derived from the sale of goods and
services. It is authorised to use and reuse its
ORIGIN OF PUBLIC ENTERPRISES revenues.
 The origin of public enterprises could be traced V. Public welfare: Public enterprises are not guided
to the early 20th century when government by profit motive. Their major focus is on
intervened in economic management through providing services or commodities at reasonable
departmental organisations which did not prices which can be afforded by the generality
involve creating autonomous public bodies. In of the citizenry. Public health and educational
the alternative, it granted license to a private institutions in Nigeria provide services at a
enterprise for the management of natural or highly subsidised rate so that they can be
national monopolies and where public bodies afforded by the masses.
were involved in managing economic ventures, VI. Public utility services: Public sector enterprises
such bodies did not enjoy financial autonomy. concentrate on providing public utility services
Public enterprises made a very strong like transport, electricity, telecommunication,
appearance after World War I for a variety of health, etc.
reasons, including managing the consequences VII. Public accountability: Public enterprises are
of the war, especially the economic crisis of the governed by public policies formulated by the
1930s. However, the public enterprise sector government and are accountable to the
developed rapidly because of the spread of legislature.
Keynesian Interventionist. Between the two VIII. Excessive formalities: The government rules and
World Wars, political and ideological regulations force the public enterprises to
considerations prompted the establishment of observe excessive formalities in their
parastatals in the former colonial metropolis. operations. This makes the task of management
very sensitive and cumbersome.
CHARACTERISTICS OF PUBLIC ENTERPRISES IX. It is ordinarily not subject to the budget,
I. Creation of an Act of parliament: A public account and audit laws and procedures
enterprise comes into existence as a result of an applicable to government departments. Their
act passed by the legislature or a decree under audit is to be done by the Accountant-General
military rule. Public enterprise also defines its of Nigeria or any other person appointed by
aims and objectives, powers and duties, him. However, both the accounts and audit are
immunities, the form of and relationship with commercial in nature.
established departments and ministries.
II. A legal person: It is a legal person, capable of CREATION OF PUBLIC ENTERPRISES
suing and being sued, entering into contracts, The creation of a public enterprise raises some
acquiring and owing property in its own name important legal issues. Whether a government is setting
up a parastatal from scratch or is taking over ventures
belonging to private interest, the choice of the legal of financial and economic objectives with social
status of the enterprises depends greatly on the and political aims invariably makes it difficult to
prevailing constitutional and legal provisions on devise appropriate performance measurement
government intervention in business and on private instrument.
property protection.
I. Creating a Public Enterprise from Scratch In a CHARACTERISTICS OF PUBLIC ENTERPRISES
democratic setting, the primary responsibility I. A public enterprise comes into existence as a
lies with the legislature. This is to restrict result of an act passed by the legislative or a
individual rights and public liberties, as it affects decree under military rule. Public enterprise
free competition and whatever reduces the also defines its aims and objectives, powers and
freedom to embark on economic activity in a duties, immunities, the form of management
society that recognizes private initiative must be and relationship with established departments
backed by law. and ministries.
II. Taking over Private Business The process of II. It is a legal person, capable of suing and being
taking over private enterprises or transferring sued, entering into contracts, acquiring and
the ownership of private enterprises to the owing property in its own name and can also
government is called nationalisation. Enabling dispose of property than ordinary government
law is needed to affect such a transfer, in some departments.
cases the enterprise being taken over is III. It is wholly owned by the state.
specifically mentioned in the law, but in other IV. Except for appropriations to produce capital or
cases, some general criteria are indicated to to cover losses, a public enterprise is usually
delineate the activity or type of entities independently financed. It obtains its funds
concerned. from the treasury or the public and from
III. Dissolving a Public Enterprise Public enterprise revenues derived from the sale of goods and
can be dissolved by liquidation, a transfer to services. It is authorized to use and reuse its
private ownership (privatisation), or a merger revenues.
with another public enterprise. In the last case, V. It is generally exempted from most regulatory
the executive arm of government can handle and prohibitory statues applicable to
this, but in other cases, an act of parliament is expenditure of public funds. There are no hard
required (Adamolekun, 2002). and fast rules behind them in the matter of
making contracts of buying and selling works,
MEANING OF PUBLIC ENTERPRISE etc. thus, a great deal of liability and discretion
 Public Enterprise essentially has the features of is left for the management in the matter of
several individuals who act as one. The procedure.
enterprise thus is viewed as an artificial person VI. It is ordinarily not subject to the budget,
is authorized by law to carry on particular account and audit laws and procedures
activities and functions. It is described as a applicable to government departments. There
corporate body created by the legislature with or any other person appointed by him. However,
defined powers and functions and interpedently both the accounts and audit are commercial in
having a clear-cut jurisdiction over a specified nature.
area or over a particular type of commercial VII. Excluding the officers taken from government
activity. departments on deputation, the employees of
 Public enterprise is part of government public corporations are not civil servants and
apparatus and three implications are hereby are not governed by government regulations in
highlighted. First, a public enterprise, by virtue respect of conditions of service. The
of its intricate relationship with government, is recruitment is not subject to Civil service rules,
an instrument of public policy and its primary promotion is by seniority and personnel can be
mission is in connection with governmental fired easily if they are incompetent.
control. Second, a public enterprise, by its VIII. Corporations are free from the control of the
nature, mostly manages public resources, legislature.
especially public money and this means that
attention must be paid to mechanisms for CLASSIFICATION OF PUBLIC ENTERPRISES
enforcing accountability. Third, the combination
Public enterprises are classified into three; namely 1. Establishing a public Enterprises from
public/statutory corporations, state-owned companies, scratch: This in a democratic setting, the
and mixed economy enterprises. primary responsibility lies with the legislature.
This is to restrict individual right and public
These are explained below: liberties, as it affect free competition and
whatever reduces the freedom to embark on an
1. Public/statutory corporation: These are economic activity in the society that recognize
enterprises, which arise when the government private initiative must be backed by law.
assumes responsibility for the management of 2. Taking over Private Business: the process of
an economic or social pursuit through a special taking over private enterprises of transferring
entity that has its own legal personality and still the ownership of private enterprises to
keeps some of the special prerogative or government is called nationalization. And
privilege associated with a governmental enabling law is needed to affect such a transfer,
organization. The blend of these features is which in some cases the enterprise being taken
aimed at enabling the organization to function over is specifically mentioned in the law, but in
effectively as an autonomous body while it other cases some general criteria are indicated
remains an instrument of government policy. to delineate the activity or type of entities
Enterprises that falls under statutory concerned.
corporations include Central bank of Nigeria 3. Dissolving a Public Enterprise: A public
(CBN), Nigeria television Authority (NTA), and enterprise can be dissolved by liquidation, a
Federal Radio Corporation of Nigeria (FRCN) transfer to private ownership (privatization), or
among others. a merger with another public enterprise. In the
2. State Owned Corporation: these are last case, the executive arm of government can
companies created by government under the handle this, but in other cases, an act of
provisions of ordinary company law, though parliament is required.
they belong entirely to the government. They
are registered in the registry of companies, with A REVISIT TO RECENT PUBLIC ENTERPRISES REFORMS
the government as the Sole Proprietor. (PRE-2011-PRESENT)
Government, therefore, appoint the board of Reforms have been undertaken to reshape, redefine,
Directors as is customary in private companies, and redirect the GOCC sector. Among these were policy
examples of such companies includes New reforms to ensure financial discipline, guidelines for the
Nigeria Newspaper Ltd, New Nigeria creation/definition of GOCCs, disposition, salary
Development Company Ltd, and Odua reforms, performance evaluation and audit, and
Investment Company Ltd. privatization (Mendoza 2007). The more recent of these
3. Mixed-Economy Enterprises: these are reform initiatives include rationalization and the
enterprises where the government is the enactment of the Corporate Governance Act of 2011.
majority shareholder in a partnership with
private entrepreneurs. In such companies, 1. Policy Guidelines for the Creation/Definition
government usually dominates the board since of GOCCs The predominant public policy in the
it is the major shareholder. One examples of country on state intervention using the
such enterprises is Peugeot Automobile Nigeria corporate form has been minimalist. The state is
Ltd. (PAN) not to go into business per se, except in areas,
which are strategic and pioneering in nature,
ESTABLISHMENT OG PUBLIC ENTERPRISES and in which the private sector is either not
The creation of a public enterprise raises some willing or able to do. Such areas should also be
important legal issues. Whether a government is setting crucial in preserving national security and form
up a Parastatal from scratch or is taking over ventures part of an ideological commitment of
belonging to private interest, the choice of the legal government (Tabbada in Iglesias et al., 1989).
status of the enterprise depends greatly on the This philosophy 6 has been “religiously”
prevailing constitutional and legal provisions on adhered to, except during the Marcos years
government intervention in business and private when the GOCCs grew unbridled not only in
property protection. number, size and resources but also in political
clout (Briones, 1985). Thus, in response to this
policy problem, P.D. 2029 reiterates that “… highly meritorious projects. LOI 1366 mandated
direct state intervention in the economy is all GFIs and GOCCs “not to extend or issue
justified only when there exists a demonstrated guarantees, counter-guarantees, standby letters
need for greater flexibility in its operations, and of credit and other forms of guarantees to
when financial viability (capacity to support own secure foreign loans and other foreign
operations) can be reasonably expected.” In obligations of the private sector.”
addition, P.D. 2030 and Proclamation 50 and 50- d) A series of cost-cutting measures, which
A s. 1987 collectively state that “The include, among others (Carague in Gouri (ed.),
government has no business in business and has 1991):
to privatize to 1) Reduction of the number of
a) reduce the financial burden of government government enterprises to only those,
due to losing and inefficient GOCCs; which are necessary for specific
b) reduce involvement of government in economic and social purposes.
economic activities; 2) Granting of equity contribution only
c) promote greater efficiency in government for start-up capitalization requirements
operations; and and only to the extent that GOCC’s
d) raise funds to finance major development internal cash generation and borrowings
projects like the Comprehensive Agrarian could not meet the deficit financing
Reform Program.” required.
These policies were meant to curtail the growth 3) Restriction of subsidy support to the
in number of the GOCCs and limit the creation financing of operating and maintenance
of new ones only to those, which are strategic in requirements of non-profit GOCCs and
nature, for national defense, public interest and to projects that are not financially viable
welfare, and for which financial viability is but are necessary to promote the
manifest. welfare of disadvantaged members of
2. Ensuring Financial Discipline This aims to society.
reduce the financial dependence of GOCCs on 4) Elimination of tax exemptions
the national government, make them self- enjoyed by GOCCs. Instead of outright
sufficient, expose them to competition by tax exemptions, tax subsidy is given but
withdrawing cushions not usually availed of by only for specific activities with high
private sector counterparts, and make them social impact.
financially shape up. Specifically, these 5) Imposition of interest charges on all
initiatives include: government advances for the servicing
a) Imposing a ceiling on public sector of re-lent or national government–
investments and centralizing investment fund guaranteed GOCC loans. Aside from
allocation to all entities under the National promoting fiscal discipline, this practice
Economic and Development Authority (NEDA) 7 aims to enable the national government
b) Issuance in 1983 of Letter of Instruction (LOI) to recover, to some extent, the cost of
No. 1340 to improve the control mechanism money for the delayed repayments of
over borrowing of GOCCs. It provides that a GOCCs.
GOCC, including any of its subsidiaries, “may 6) Enforcement of the requirement that
borrow only when the funds raised are used for public enterprises declare and remit
activities or projects that will yield the dividends to the national government of
necessary return on investment and generate at least 10% to 50% of their net income.
the necessary cash flows in order to enable the (Mendoza 2007)
prompt repayment of interest and principal on
the borrowings as they fall due.” It also 3. Compensation/Salary Reforms These were
mandates the Board of Directors of GOCCs not complemented by policy initiatives aimed at
to approve any borrowing without a “conclusive setting the internal operations of GOCCs right,
showing of return on investment and cash flow mainly through more appropriate compensation
adequacy.” and position classification systems. These
c) LOI 1366, which limited the approval of include the Salary Standardization Act (SSL) of
foreign loans and other foreign obligations to
1989 to 2012 and Memorandum Order (MO) 20, the Board of Directors/Trustees “to
2001. reduce the actual pay package to not
a. Salary Standardization The SSL exceeding two (2) times the
standardized all compensation and standardized rates for comparable
position classifications in the national government corporations.”
bureaucracy, including those of the 4. Performance Evaluation and Audit
GOCCs. It aims to a. Performance Evaluation Like any
1) provide compensation other enterprises, PEs must be evaluated.
systems that would enable Absence of a good performance evaluation is a
GOCCs to attract and retain source of the general impression that PEs are
some of the best and inefficient. Evaluation in the Philippine context
competent resources; and is needed to improve the operations, simplify
2) limit the packages so that the linkages, and clearly define the roles of the
they do not fall too far out of components of the PE system. However, the
line with the general level of initial evaluation system (ES) instituted here was
compensation in the merely to check on the financial performance of
government bureaucracy. some heavily indebted GOCCs. The ES was
Before these measures, the meant primarily to curb government borrowing,
salaries of the employees of especially, external borrowing. More specifically,
GOCCs were “50-80% higher it was intended to monitor corporate financial
than those received in the condition, investments, capital expenditures,
regular bureaucracy.” (Tabbada and borrowings. It was mainly a financial tool
in Iglesias et al., 1989). and not a performance evaluation system,
b. Perks and Pay In 2001, Pres. Arroyo where non-financial 10 and social indicators of
issued MO No.20 entitled, “Directing government performance, efficiency, and
Heads of Government Owned and effectiveness are assessed. (De Guzman and
Controlled Corporations (GOCCs), Reforma 1994) The Government Corporate
Government Financial Institutions (GFIs) Monitoring and Coordinating Committee
and Subsidiaries Exempted from Or Not (GCMCC) is the oversight body for the
9 Following the Salary Standardization monitoring and evaluation of GOCCs. It was
Law (SSL) To Implement Pay created in 1984, reconstituted in 1986,
Rationalization in All Senior Officer strengthened in 1987, transferred from the
Positions.” This was issued in response Department of Finance (DOF) to the Office of
to the findings of the preliminary review the President/Presidential Management Staff
conducted by a Management Consulting (PMS) in 1993 and back to the DOF before 2011.
firm on the pay practices of certain Among the functions of the GCMCC were “to
GOCCs, GFIs, and subsidiaries, which balance accountability and adequate
found that the compensation package in operational flexibility among the GOCCs.” (MC
these sample entities are much higher, 64 1993). It shall also “establish an effective
such that their officers receive at least performance monitoring and coordination
twice what comparable positions system for all GOCCs, which does not curtail
receive in national government their operational flexibility but rather
agencies. The study also found that encourages GOCCs to perform their functions
heads of some of these GOCCs even without undue interference from the National
exceed the average salary of their Government.” (Ibid.)
counterpart positions in the private b. Audit The performance and financial
sector in the Philippines and in the audit of all GOCCs and their subsidiaries
ASEAN Region. MO 20 ordered said lie within the ambit of the Commission
GOCCs to immediately suspend the on Audit (COA). A constitutional body
grant of any salary increase and new or with a dedicated Corporate Group to
increased benefits. It mandated them to oversee accounts of GOCCs and their
prepare a Pay Rationalization Plan for subsidiaries, it goes where government
senior officer positions and members of resources go. COA examines, audits and
 settles all accounts pertaining to the 1) Reduce the financial burden of the
revenue and receipts of, and the government due to losing and inefficient
expenditures or uses of government public enterprises;
funds and property (Philippine 2) Reduce the involvement of government
Constitution, Art. IX-D, Sec 2). For in economic activities;
several years, COA’s orientation has 3) Promote greater efficiency in
been towards traditional auditing, e.g., government operations; and
financial and compliance audit. 4) Raise funds to finance major
However, in the 1990s, with the help of development programs like the CARP
the Canadian Institute of Chartered (P.D. 2029, 2030, Proclamation No. 50,
Accountants, COA shifted to the value 50-A, 82 s. 1986, 1987).
for money (VFM) mode (COA Report, Later, it evolved into a strategy for governance,
1995). It is also known as performance with the participation of other sectors of the
audit or the three-E’s audit, i.e., “the society, particularly, business. E.O. 37 s of 1992
independent assessment of the extent expanded the modes of privatization to include,
to which an organization operates in addition to the sale of physical and other
efficiently and effectively with due assets, “lease, management and maintenance
regard to the economy. Its components contracts, and build-operate-transfer (BOT)
include: schemes.”
• Economy and efficiency E.O. 298 s. 1996 provides for alternative and/or
audits- determine whether intermediate modes of privatization pursuant to
agency resources (men, money, Proclamation 50, to include:
machines, materials, methods 1) “Joint Venture- whereby the Asset
and management systems and Privatization Trust (APT) arranges for the
control) were acquired at the APT-held asset to carry on a specific
lowest possible cost to achieve business enterprise with another
the maximum output in terms person/entity for their mutual benefit,
of quantity and quality. using their combined funds, land,
• Effectiveness audit – resources, facilities and services, either
determine the extent to which through a joint venture, corporation or
program or agency achieves its as separate personalities.
objectives or intended effects or 2) B-O-T Schemes-whereby the APT
legislative intents. finds proponents who will undertake
5. Privatization has always been associated with infrastructure and/or development
free market and liberalization. It has been projects using the APT-held asset.
implemented in the country as part of our 3) Management Contract – whereby a
structural adjustment programs with the IMF corporation undertakes to manage or
and WB. World Bank defines privatization as operate all or substantially all of the
“any action that moves an enterprise or an business of an APT-held asset. This
economy in the direction of private ownership contract may also be designated as a
or that tends to make the behavior of state service contract or operating
enterprises more like that of private entities. It agreement. 4) Lease-Purchase.-whereby
is also the divestiture by the state of the lessee of an APT-held asset would
enterprises, land or other assets.” (WB 1996 as have the right to purchase the same
cited in Sta. Ana 1997). In the Philippines, it has 5) Securitization- whereby the form of
evolved from a purely divestiture mode to get the APT-held asset is changed or
the government out of business to a mechanism modified, such as from physical form to
for governance, implying a redefinition and equities or certificate of participation.”
reduction of the role and scope of the state and (E.O. No. 298)
GOCCs in development. It came to mean as “the 6. Rationalization In line with the government’s
divestment, disposition and liquidation of aim to limit the GOCCs’ focus on their core
nonrelevant and non-performing assets and functions and strengthen their financial
corporations.” Its four-fold objective include to: strategies, the national 13 government
implemented the rationalization of GOCCs since accountability, incoherent disclosure practices,
2001. This would restructure the organization poor oversight and multiple and conflicting
and financial systems of GOCCs and improve the mandates (GCG 2011).
delivery of their services to the people and
attain long-term sustainability (DBM 2005). 1. Creation of the GCG
The rationalization program also involves
performance audit particularly of those GOCCs The marked transformative value of the Act is
which are experiencing financial difficulties. This the creation of the Governance Commission for
will determine the appropriate action the GOCCs (GCG) within the Office of the President,
government has to take to ease their problem, to serve as “the central advisory, monitoring,
whether to abolish, deactivate, consolidate, and oversight body with authority to formulate,
regularize or merge functions. implement and coordinate policies” over the
GOCC sector. In the past, these reform initiatives
were enshrined in different statutes, guidelines
and oversight bodies. Since 2011, these were all
entrusted in one central body, for better
planning, direction and evaluation.

FOCUS ON THE GOCC GOVERNANCE ACTO OF The GCG is entrusted with the following duties:
2021: TRANSFORMATION TO NEW OARADIGM 1) GOCC Evaluation – creating
IN CORPORATE GOVERNANCE performance evaluation systems,
conducting periodic examination, and
Despite these reforms, the GOCCs and their identifying GOCCs for reorganization,
executives have remained embroiled in scandals merger, abolition or privatization (in
after scandals involving among others, graft for consultation with the department or
misappropriation of government resources, agency to which the GOCC is attached),
dispensation of bloated salaries, unauthorized and preparing a semi-annual progress
purchase of assets, and abuse of power. These report for submission to the President
seeming unconscionable abuses and the and Congress (Sec. 5 (a));
mismanagement of the PES led to the 2) GOCC Streamlining – implementing
enactment of RA 10149, otherwise known as the reorganization, merger, abolition or
the GOCC Governance Act of 2011. privatization of the GOCCs (Sec. 5 (a));
RA 10149 aims to provide greater transparency, 3) GOCC Classification – classifying
periodic disclosure and evaluation of operations GOCCs into the following categories: (a)
and finances, creation of appropriate Developmental/Social Corporations; (b)
remuneration schemes, and clear separation Proprietary Commercial Corporations;
between the regulatory and proprietary (c) Government Financial, Investment
activities of GOCCs. It was also intended to and Trust Institutions; (d) Corporations
promote financial viability and fiscal discipline in with Regulatory Functions; and (e)
GOCCs and strengthen the role of the state in its Others (Sec. 5 (b))
governance and management to make them 4) GOCC Manual – creating an
more responsive to the needs of public interest. ownership and operations manual and
The Act is touted as the new “Daylight”– where government corporate standards
things are not done in the dark, where governing GOCCs, which shall be no less
transactions will be clear, honest and rigorous than those required by the
transparent, and where there is full Philippine Stock Exchange, the
accountability. It underscored the need to Securities and Exchange Commission,
enhance the ability of GOCCs to act as stewards Bangko Sentral ng Pilipinas, as the case
of the people’s resources by adhering to the 14 may be, and consistent with the
highest standards of corporate governance and Medium-Term Philippine Development
thus put an end to issues such as weak board Plan issued by the National 15 Economic
governance, lack of transparency and
 and Development Authority (NEDA) higher qualification standards for GOCC officials. They
(Sec. 5(c)); should not only be competent and qualified; they
5) GOCC Accountability – should also be morally fit and prudent in their spending.
recommending to the Board of
Directors or Trustees of the GOCCs the 3. Full Disclosure In the spirit of public accountability
suspension of their member/s who and right of the public to receive public information, the
participate (by commission or omission) Act likewise promotes complete disclosure of public
in the approval of an act giving rise to a information through posting in the GOCC websites of
violation or non-compliance with the the following:
GOCC manual (Sec. 5(d)); (1) Latest annual audited financial and
6) GOCC Nomination – identifying performance report within 30 days from receipt
necessary skills and qualifications of such report;
required for Appointive Directors and (2) Audited financial statements in the
recommending to the President a immediate past five years;
shortlist of suitable and qualified (3) Quarterly, annual reports and trial balance;
candidates for Appointive Directors (4) Current corporate operating budget;
(Sec.5 (e)); (5) Complete compensation package of all the
7) GOCC Compensation – conducting board members and officers, including travel,
studies, developing and recommending representation, transportation and any other
to the President a competitive form of expenses or allowances;
compensation and remuneration system (6) Local and foreign borrowings;
(i.e. the Compensation and Position (7) Performance scorecards and strategy maps;
Classification System) that would attract (8) Government subsidies and net lending;
and retain talent, and at the same time (i9) All borrowings guaranteed by the
allow the GOCCs to be financially sound government; and
and sustainable (e.g. disallowance of (10) Such other information or report the GCG
retirement benefits to directors and may require (Sec. 25, RA 10149).
trustees of GOCCs) (Sec. 5(h) and 8);
and 8) GOCC Adviser and Coordinator – 4. Creation and Acquisition of a GOCC Learning from the
providing technical advice and past misdeeds of former GOCC officers, the Act now also
assistance to the government agencies makes stringent requirements for government agencies
to which the GOCCs are attached in seeking to establish a GOCC, a subsidiary or affiliate
setting performance objectives and corporation, or purchase or acquire controlling interests
targets, monitoring GOCCs performance in another corporation. Accordingly, they are now
vis-a-vis established objectives and required to submit their proposal to the GCG for its
targets, and ensuring GOCCs’ operation review and recommendation to the President (for
are aligned and consistent with the his/her approval). The SEC shall not register the articles
national development policies and of incorporation and by-laws of a proposed GOCC or
programs (Sec. 5 (i)) (also in Butalid subsidiary of affiliate, unless the application for
2012). registration is accompanied by an endorsement from
2. Board of Directors, CEO and Officers of GOCC the GCG stating that the President has approved the
The Act also introduced the Fit and Proper Rule in same (Sec. 27 and 28, RA 10149).
determining who are qualified to become members of
the Board, CEO and officers of GOCCs with due regard to FOCUS ON THE GOCC GOVERNANCE ACT OF 2011:
one’s integrity, experience, education, training and TRANSFORMATION TO NEW PARADIGM IN CORPORATE
competence (Sec. 16). GOCC officers are expected to GOVERNANCE
serve as fiduciaries of the State and always act in the
best interest of the GOCC (Sec. 19 and 21). Thus, they Despite these reforms, the GOCCs and their executives
are expected the highest standard of extraordinary have remained embroiled in scandals after scandals
diligence in their fiduciary duties as officers. They should involving among others, graft for misappropriation of
maintain a term of one year, unless sooner removed for government resources, dispensation of bloated salaries,
cause (Sec. 17, RA 10149). These improvements from unauthorized purchase of assets, and abuse of power.
past 16 reforms underpin the need for criteria and These seeming unconscionable abuses and the
mismanagement of the PES led to the enactment of RA 4) GOCC Manual – creating an ownership and
10149, otherwise known as the GOCC Governance Act operations manual and government corporate
of 2011. RA 10149 aims to provide greater transparency, standards governing GOCCs, which shall be no
periodic disclosure and evaluation of operations and less rigorous than those required by the
finances, creation of appropriate remuneration Philippine Stock Exchange, the Securities and
schemes, and clear separation between the regulatory Exchange Commission, Bangko Sentral ng
and proprietary activities of GOCCs. It was also intended Pilipinas, as the case may be, and consistent
to promote financial viability and fiscal discipline in with the Medium-Term Philippine Development
GOCCs and strengthen the role of the state in its Plan issued by the National 15 Economic and
governance and management to make them more Development Authority (NEDA) (Sec. 5(c));
responsive to the needs of public interest. The Act is 5) GOCC Accountability – recommending to the
touted as the new “Daylight”– where things are not Board of Directors or Trustees of the GOCCs the
done in the dark, where transactions will be clear, suspension of their member/s who participate
honest and transparent, and where there is full (by commission or omission) in the approval of
accountability. It underscored the need to enhance the an act giving rise to a violation or non-
ability of GOCCs to act as stewards of the people’s compliance with the GOCC manual (Sec. 5(d));
resources by adhering to the 14 highest standards of 6) GOCC Nomination – identifying necessary
corporate governance and thus put an end to issues skills and qualifications required for Appointive
such as weak board governance, lack of transparency Directors and recommending to the President a
and accountability, incoherent disclosure practices, poor shortlist of suitable and qualified candidates for
oversight and multiple and conflicting mandates (GCG Appointive Directors (Sec.5 (e));
2011).
1. Creation of the GCG The marked transformative value 7) GOCC Compensation – conducting studies,
of the Act is the creation of the Governance Commission developing and recommending to the President
for GOCCs (GCG) within the Office of the President, to a competitive compensation and remuneration
serve as “the central advisory, monitoring, and oversight system (i.e. the Compensation and Position
body with authority to formulate, implement and Classification System) that would attract and
coordinate policies” over the GOCC sector. In the past, retain talent, and at the same time allow the
these reform initiatives were enshrined in different GOCCs to be financially sound and sustainable
statutes, guidelines and oversight bodies. Since 2011, (e.g. disallowance of retirement benefits to
these were all entrusted in one central body, for better directors and trustees of GOCCs) (Sec. 5(h) and
planning, direction and evaluation. The GCG is entrusted 8); and
with the following duties: 8) GOCC Adviser and Coordinator – providing
technical advice and assistance to the
1) GOCC Evaluation – creating performance government agencies to which the GOCCs are
evaluation systems, conducting periodic attached in setting performance objectives and
examination, and identifying GOCCs for targets, monitoring GOCCs performance vis-a-
reorganization, merger, abolition or privatization vis established objectives and targets, and
(in consultation with the department or agency ensuring GOCCs’ operation are aligned and
to which the GOCC is attached), and preparing a consistent with the national development
semi-annual progress report for submission to policies and programs (Sec. 5 (i)) (also in Butalid
the President and Congress (Sec. 5 (a)); 2012).
2) GOCC Streamlining – implementing the
reorganization, merger, abolition or privatization 2. Board of Directors, CEO and Officers of GOCC The Act
of the GOCCs (Sec. 5 (a)); also introduced the Fit and Proper Rule in determining
3) GOCC Classification – classifying GOCCs into who are qualified to become members of the Board,
the following categories: (a) CEO and officers of GOCCs with due regard to one’s
Developmental/Social Corporations; (b) integrity, experience, education, training and
Proprietary Commercial Corporations; (c) competence (Sec. 16). GOCC officers are expected to
Government Financial, Investment and Trust serve as fiduciaries of the State and always act in the
Institutions; (d) Corporations with Regulatory best interest of the GOCC (Sec. 19 and 21). Thus, they
Functions; and (e) Others (Sec. 5 (b)) are expected the highest standard of extraordinary
diligence in their fiduciary duties as officers. They should
maintain a term of one year, unless sooner removed for
cause (Sec. 17, RA 10149). These improvements from
past 16 reforms underpin the need for criteria and
higher qualification standards for GOCC officials. They
should not only be competent and qualified; they
should also be morally fit and prudent in their spending.