European Western Balkans

Are acting directors of Serbian public enterprises puppets of ruling parties?

Victory celebration of Serbian Progressive Party, 21 June 2020; Photo: Twitter / SNS

According to the research conducted by Transparency Serbia, which is closely monitoring the implementation of Law on Public Enterprises, over 70 per cent of public companies have illegal acting directors. In a recently published research, the organization pointed out that out of 34 public companies, 22 companies have acting directors with the expired mandate, and only a few have legally elected directors.

The recent accidents in the public enterprise Electric Power Industry of Serbia (EPS), the largest company in Serbia which represents the economic and energy backbone of the country, have drawn the public’s attention to this long-standing problem.

After the collapse of the energy system and several incidents at the “Nikola Tesla” thermal power plant, Milorad Grčić, the acting director of EPS, submitted his written resignation. The Government of Serbia confirmed it by publishing the decision in the Official Gazette on 14 January. Yet, such a move was not under the legal procedure, considering that Grčić’s term, since he was appointed in 2016, expired in 2017. That year, a new open call for an acting director of this public enterprise was announced, but it has not ended until that day, while Grčić performed his function illegally.

While the Ministry of Mining and Energy confirmed the incompetence of the former acting director and filed a lawsuit against him, the real question is – who is truly responsible for the damage in the company, headed by an illegal acting director?

Public enterprises – a tool of political elites

On numerous occasions, public companies have been abused by ruling parties. They have appointed acting directors instead of filling the positions through fair selection processes. However, since 2012, this practice has become illegal. That year the Law on Public Enterprises stipulated that all competitions for executive directors of public enterprises must be announced by March 2013. In the meantime, changes were made, which moved the deadline to March 2017. However, that deadline fell between the cracks, as well.

According to the Law on Public Enterprises, acting directors can perform duties until the appointment of executive directors, preceding a public competition. To be elected, the acting director must meet the requirements of Article 25 of the law in question, which also applies to the executive directors. The law guarantees the same powers, rights, and duties to acting directors, as it does to executive directors. Finally, acting directors, unlike executive directors whose mandate lasts four years, cannot be elected for a period longer than one year, while the same person cannot be elected to this position twice.

Apart from the duration of their mandates, it seems that there is not much difference between the position of the acting director and the executive director of the public company. So, the question arises – why is the solution to this problem being constantly delayed?

Kori Udovički, former Deputy Prime Minister and Minister of Public Administration and Local Self-Government, and current President of the Governing Board and Chief Economist in Centre for Advanced Economic Studies (CEVES), explains there are several reasons why the political elite opts for this practice.

“At first sight, the answer to this question is well known and seems obvious: the law says nothing about dismissing an acting director from their post, while serious procedures are needed to replace an appointed CEO. This insecurity means the individual is more vulnerable to political pressure and hence the authorities are more likely to get obedience,” she says.

Yet, Udovički adds that on closer inspection, this is not a full answer. She notes that, in practice, the acting director appointments typically break the legally prescribed maximum one-year term, so the situation becomes illegal anyway while at the same time, the replacement of executive directors appointed through a competitive process, in practice again, is not difficult. Thus, there are other important factors providing the complete answer.

“One factor is that the legal appointment of a director is a competitive process, and it gives more opportunity for the public scrutiny of the adequacy of the appointment. Also, it is administratively demanding – arguments need to be provided for an appointment, and even more so in case a director resists to resign,” Udovički says.

She points out that such processes require that the Government has its papers in order – “in particular, for the removal, it has to have regularly performed the monitoring of the public enterprise’s/director’s performance.”

“Another set of reasons is related to the realm of demonstration of political force. After an acting director’s 12-month term has elapsed, this becomes a personally humiliating and legally risky position. Moreover, the performance of the function past the 12 months creates a very dangerous legal limbo concerning the legality of the decisions made by the acting director,” explains Udovički, adding that at this point, fewer and fewer serious professionals are ready to accept leadership positions in the public sector.

Thus, the appointing of acting directors in public enterprises remains a long-standing practice. Not only are they not elected as a temporary alternative to directors of public enterprises, but they remain in their positions despite the expiration of their mandates although, they do not have the right to do so more than other citizens. Therefore, their position is illegal.

Acting directors – a symptom that indicates a bigger problem

Even international actors, such as the IMF and the World Bank, as well as the European Commission – which has been mentioning this problem in its reports on Serbia for years, have called for the abolition of the position of acting directors in public companies. According to them, this prevents the professionalisation of public companies, as well as their reform.

However, there has been no change.

Furthermore, in addition to their presence in the public companies, acting directors continue to be appointed by the Government in the public administration as well, sometimes also illegally. For example, in April last year, Filip Radović was retroactively appointed by the Government as the acting director of the Serbian Environmental Protection Agency, even though the Law on Public Servants does not mention this possibility.

Zlatko Minić, Member of the Governing Board of Transparency Serbia, explains that the crucial issue, when it comes to the acting directors, is the underlying cause of this problem, which indirectly affects and harms the whole society.

“That (acting directors in public enterprises), as well as the entire situation with acting directors in the public administration, is a symptom that indicates the cause, a much more serious problem that is harming society. And that is disrespect for the law – the non-existence of the rule of law. Until a few years ago, we could talk about the existence or non-existence of political will to fight corruption, as well as to implement laws and mechanisms that should contribute to that. Now we are talking about the political will not to apply laws and create a favourable environment for corruption and all other forms of lawlessness,” he says.

Minić adds that although for almost 10 years, Serbia has had the law that was supposed to lead to the professionalisation of the management of public companies, these entities remained party feuds with easily replaceable acting directors, party pawns, who perform tasks for party needs.

While this situation is indirectly affecting the citizens, Minić warns that there is also the risk for enormous damage that would be more direct – the fact that all decisions made by the acting directors could be challenged in courts.

“There is already court practice in this regard – in the case of dismissal of an employee that was signed by the manager, that was previously authorized by the director, whom the court found to be in an illegal status. Many other decisions could be challenged in a similar way, which could cause financial damage, which citizens would compensate with their own money, from the budget of the Republic or local self-government, or with the money paid to the public enterprise (PE) to do business. Ultimately, the citizens would suffer the consequences due to the inability of the PE to provide services,” Minić notes.

Milorad Grčić resigned, but inadequate management of EPS and mistakes made caused enormous financial damage to the budget, while energy and state security were endangered. There are allegations that Grčić still signs contracts in the name of the company, so the question is whether someone will be held accountable for what has been done at all.

Although President Vučić said that another acting director will be appointed in Grčić’s place, a month later, that did not happen. Meanwhile, Transparency Serbia has warned that the procedure should be completed as soon as possible so that lawlessness does not spread to the post-election period until a new government is formed.

This article was published as part of the project “Civil society for good governance and anti-corruption in southeast Europe: Capacity building for monitoring, advocacy and awareness-raising (SELDI)” funded by the European Union.

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