Jointly owned companies as instruments of local government

Giuseppe Grossi & Anna Thomasson -

Jointly owned companies as instruments of

local government: comparative evidence

from the Swedish and Italian water sectors

A criticalanalysisof a case study

Dario Di Nucci

University of Salerno

OutlineResearch project Case studies

Conclusions Research projectanalysis

Context

NewPublicManagement

AimHow such companies can be governed in order

to avoid lack of accountability

Focus

Focus

Focus

• Cost price principle

• None of the companies is listed on any stock exchange

• CEO can’t be a member of the board

• Shareholders cannot directly interfere in the management

• Shareholders can appoint or remove the board of directors

• Special shareholder’s meeting

• City council members can be board membersFocus

Focus

• Companies expect to break even

• Cross-transfers from local goverments as «social costs»

• Big municipalities are often traded on the stock exchange

• Board has executive and supervisory functions

• Board members are appointed by the shareholders

• Rappresentation in the board can be proportional or not

• City council members cannot be board members

The SwedishCompany

A limited company in the Stockholm region

Founded in 1989 by 1 municipality, but by 2008 participated by 6

Increasing regulation

Increasing demand for more advanced techniques

Increasing improvement request for the delivered service

The ItalianCompany

A limited company in the Tuscany region

Founded in 1938 by 16 municipalities, but now is a joint-stock company

Framework

ExternalControl

Swedish Company Act

General law for local government

Laws for delivery of public services

56 municipalities in the areas of Grosseto and Siena

1994 Water Act

Optimal Territorial Area (OTA) governedby Area Water Authority (AWA)

Convenzione per la gestione del servizio idrico integrato

Piano d’Ambito

Ownershipand InternalControl

Annual General Shareholder meeting

Director lasts 4 years

Managing directors, chairman and financial

board develop directives and agreements

Owners ensure control the management

With less owners, CEO become more

independent

Patti parasociali between public and private owners

The industrial partner has a strong knowledge and experience in the service provisioning

One or two tier organization

Top Management

A parent company and 4 subsidiaries

Parent company board consist of politicians from the 4 largest owners

4 directors, 4 substitutes, 1 chairman

2 board members could be water and sewage services’ experts

Owners make decisions based on management proposals

9 members:

1 president

1 vice-president

1 CEO

6 directors

Members last 5 years

5 members appointed by public

4 members appointed by private (including CEO)

Financing Mostly by customer fees

Fees are based upon the actual cost of services in each specific municipality

Budgets are separated in every subsidiary

No cross-subsidisation

Fees are calculated within an OTA

Public owners seek continuous improvement of the services without tariff levels increasing too suddenly

Private partners are interested in profits and in raising tariffs

Conclusions

Tensions can arise when companies have fragmented ownership.

In the Italian case the conflict of interests emerges between the CEO and the chairman.

In the Swedish case the conflict of interests emerges between the company and the owners.

Issues in external control and internal management.

The best governance mechanisms is foundation (secure inner accountability).

External control doesn’t solve the potential conflicts of interests of hybrid organization with fragmented ownership.

Supplementary case-specific mechanisms are needed.

Case StudyAnalysis

Case StudyAnalysis

Case StudyAnalysis

Case StudyAnalysis

Case StudyAnalysis

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ReferencesGiuseppe Grossi & Anna Thomasson (2011) Jointly owned companies as instruments of local government: comparative evidence from the Swedish and Italian water sectors, Policy Studies, 32:3, 277-289, DOI: 10.1080/01442872.2011.561695