Private management: from papers to facts

Case study: Nuclearelectrica

2017-01-17 20:53:31 - From the Print Edition

After 20 plus years

It took years of political decision-making, most of the times poor decision-making, applied to strategic national companies before under the guidance and practice of international bodies the Romanian authorities developed new management and leadership tools. The new tools meant private management to state-owned companies. Though, the issue of private management in itself means a wide array of transformations: strategic development, modernization of processes, business oriented measures, transparency of the decision-making act, accountability for the company, shareholders, stakeholders and the public, most of us have reduced this complex change to: replace loss with profit. However, the role of professional management is a whole lot much more than this since some of the state owned companies had already registered profit.
The old problem of these companies is not so much one's ability to turn loss into profit, as their core businesses can ultimately deliver profit, but to transform dysfunctional management systems and eliminate strong political decision-making, to reposition the company in a constantly changing and challenging market environment, to develop economic efficiency practices, long term planning and a competitive market approach driven by the ongoing liberalization in all sectors of the economy.
Staring 2012, 2013 most state-owned companies began the recruitment of professional managers based on GD 109, but few recruited managers managed to deliver the long sought after changes, many of them leaving the office quite early in their mandate.
The question is why? Is it the realization of the fact that these companies were already beyond the positive effects of efficient change? Or is it the fact that the state spoke highly of the importance of professional managers on papers and in interviews but kept the old modus operandi? Is it that further state interference has had a decisive role in managers giving up on their mandate?
Nuclearelectrica, strategic energy producer, is run by a private manager since early 2013, and so far it is one of the longest private mandates among state-owned companies.

Where does the difference come from?

Could be the company's core business? Nuclearelectrica is the sole nuclear energy producer in Romania. Nuclear industry is highly regulated both nationally and internationally. It leaves little room for error so one might think that the company was well to begin with. Or is it so?
Yes, technically the company has had good results throughout time as nuclear reactors are ultimately operated by specialists and Romania does not lack highly qualified staff. But a strategic player like Nuclearelectrica is much more than operation: it is an economic operator, a complex processual machinery that for many years has functioned as a corporation at its minimum mainly because the highly qualified personnel did their job properly and the market ensured that all the energy produced was bought at a regulated price which covered the production cost and ensured some profit.
In addition to nuclear safety related information I, personally, do not remember anything interesting about Nuclearelectrica before 2013. No growth strategies, no legal and market activism, no long-term priorities, nothing. If curiosity makes you google the company, you will not find anything on the company itself, as you will find with most successful corporations, but you will find all sorts of political liaisons and battles over Nuclearelectrica and its promised "political benefits". Nuclearelectrica was a state owned company, in the full meaning of the term.
Google again today and you will find a very different story. You read about the company, either good or bad, but about the company, its specialists, its plans, its investment projects, its rationales on these projects, its activism on market failure, its positioning as a serious economic player in a tough market, its support for nuclear new build in the European and international context, a regional voice, no longer just a national player.
Positioning! That's how you know things have changed!
To what extent? And how difficult has this journey been for its CEO?

The legacy of futility

I had a brief encounter with CEO Daniela Lulache. We met before but never to discuss on matters of private management. It is nearly 4 years since she has started her mandate. I know the before, I wanted to talk about the after. In her own words, based entirely on her experience. Almost 4 years of mandate could give us all something to tackle on.
What is private/professional management all about? Let's go beyond the opinions derived from "it was IMF that required it, the Romanian state complied, but the result was not as expected".
"Professional management is all about transformation, change. It is about taking company x from a self-satisfactory or from a "promised chain of benefits in a formerly unbreakable political chain" to a self-sustainable, solid corporate level. It is about putting together knowledge, experience, accountability and good will to strive and achieve an equivalence between private and state-owned. Erase the differences in processes, factual strongly argued decision-making, legislation flaws, market strategies, internal structuring. It may sound easy as I speak out these pretentious words, but it's not. Change takes time. Change affects people. And these people were fed up with the formerly political changes in management that it has become quite difficult to argue and get them to support a different type of change. There was no continuity. No solid medium or long-term strategies, no major impacting factors anticipation, no fight for the interests of the company. Of course, all these determined a state of mind, that of :it doesn't really matter what we do and think, what we believe in, what we try to achieve because all these are entirely dependent on political games and shifts and turns. Aloofness, indifference. Employees were usually not motivated enough to see beyond the 8 hours shift, to plan ahead, to have initiatives and to support them. And they cannot be blamed. It was a major system flaw and failure they had to put up with for years. Hence, a change towards the idea of a modern corporation is in fact a change that the manager has to inspire in people. Regardless of the fact that you are a professional manager or not, you need the people. They are your base".
What CEO Daniela Lulache talks about is well too familiar to me. I've heard this from so many people in so many state-owned companies. It takes both time and a lot of willingness.
"We started to rethink processes and activities, to restructure, to create strong correspondences between the headquarters and the subsidiaries, to function as one major corporations as opposed to three different companies. Simplification, coherence, right people at the right places, controlled operational and informational flows, a clear network of integrated actions and responses for an effective, efficient integrated management. We recruited specialists where we lacked them, we enhanced to the maximum internal functions and created new ones in order to be able to face nuclear industry requirements, capital market requirements, energy market challenges, legal and fiscal challenges, transparency standards. A nuclear producer is about nuclear related activities, with safety as top priority, but beyond that a nuclear producer is and has to be a fully-functional entity on the different stages it activates on. Our company doesn't have just one public and one message, but many such publics and different messages to all of them, as different approaches are needed in order to stay relevant and trustworthy to all the stakeholders. No nuclear producer, regardless of its operational performance, will resist if the market fails, if the legislation is a stopper and not a facilitator, if within a very competitive environment its representatives, top managers, do not support the company's interests in order to allow the company to operate smoothly and to grow".

Change beyond figures

People judge in terms of figures: profit, loss, growth and related measures. Romanian energy producers are 100% market dependent. Romanian market dependent. Realities of the past years are not so figure friendly: prices are down, fiscal burdens are up, investment projects have become a no go, corrections are lost in finely tuned speeches. So, given these facts, based on what do we assess private managers and their results? As always, we have a very special way of doing it: we either position to completely ignore market and legislation factors and blame it entirely on the manager for the sake of keeping the context "interesting" and have an excuse to maintain the status quo, or we build on the premises that the entire private management concept does not operate at its full potential, hence market and legal challenges raise at every corner and they must be corrected first in order to assess the efficiency of the private management. The truth is always in the market data.
"Companies are not isolated. They are market players based on market rules. If the market is functional and the management does not strive for the best capitalization of its production, then we definitely have a huge management problem. But if the market is not functional and competitive, than it is the duty of the manager to ask constantly for corrective measures. This goes with fiscal changes as well. Legislation, market regulation, fiscal regime: all these have to make sense for the state, market and companies at the same time.
I would say that the greatest challenge for any type of manager is to try and change obsolete legislation in order to maximize the benefits of the company. Diversifying is a very complex story. Accountability should dictate you when diversifying is the best strategy for the company based on its core business. You cannot cling to any possibility in the market because you've got energy market failure. And there are little to no possibilities that would allow both financial growth, added value and complementarity of business scope.
As well, market failure cannot determine the investment decision-making. The well-being of the company is based on in time investments. The market can be corrected if we push hard enough for this, but the robustness of your equipment cannot wait for that".
Are these external barriers reason enough for some managers to quit? "Yes, they can be because one might expect that the whole idea of private management must be compulsory accompanied by implied changes in market and legislation. Some of them have expected facilitating measures from the very beginning. However, we all knew the reality. The biggest challenge of the start-up private management is to correct so that the company gets long-term advantages and the new managers can have a clear path to continue to grow these companies. You know, the typical profile of a private manager is that of a very experienced professional with a long career, whose main motivation is the difference he or she can make. The most satisfactory thing, at a certain point in one's career, is what you have managed or struggled to change given the initial barriers. It is so easy to be a successful manager when all variables, conditions and facts fall into place. A good manager will make a lot of noise, the higher the stake of remnant professionalism, the louder the noise. If us, as individuals, if the state, by means of authorities, are really willing to let the old ways become unfortunate history, we might have a strong chance to become a positive comparison for others. As old ways die hard, we'll have to push hard for that final destination. So, the first wave of private managers should not be so much about profit at all expenses, investments included, it should be about building step by step the appropriate development framework."
I would argue indeed that we lack the culture of long-term thinking and we are easily satisfied by the lure of the immediate gain. Take a closer look at the most developed, mature companies abroad and you will see that their maturity is based on creating the flourishing environment and then taking every opportunity to grow.

A little too late to save the most, a little too early to lose hope

We've had 20 plus years of personal interests dictating the fate of national companies. Most of these companies are gone, what is left struggles for the mere survival. Macro-strategies and policies are paradigm change so it becomes even harder for these companies, especially in the energy industry, to keep up. In addition, level playing field has become a nice to tell bed time story. What if we had implemented all this private management story 20 years ago? Where we'd be today?
Going back to Nuclearelectrica and its private CEO, you know she means what she says when you read their reports and realize that this is the only company that willingly decided to sacrifice short-term profit, even though the judgement fell hard on the management, to have long-term benefits by investing wisely. This is what I call professional decision-making. It doesn't really matter how we call these managers, it is what and how they decide what to do that counts. It also doesn't matter that much if the state still has the tendency to interfere more than the acceptable if these managers speak loud in a single voice.