COMMENT: Port reform processes gradually lead to a port industry where port authorities remain under government ownership, but have autonomy, are financially self-sustaining and operate as port development companies, writes Peter de Langen.
In this framework, these port authorities are, like many airport companies, state owned enterprises, or SOEs. The good news is that there is an increasing understanding of how and how not to manage SOEs. The bad news is that some of these insights are not being applied to the ports industry.
Take the case of the governance of SOEs. A study in Italy – Board composition, political connections, and performance in state-owned enterprises – yields an interesting finding: across various types of SOEs, there is a clear positive relationship between the political connections of the top management of the SOE and the number of employees of the SOE, and a negative relationship with SOE performance.
In addition, it is increasingly acknowledged, for instance in a set of OECD guidelines on managing SOEs, that a model with independent supervisory board members that are selected based on the expertise required for monitoring and providing direction to the SOE, is advisable over a model with supervisory board members related to administrative positions. An example of this would be the mayor of a city being on the supervisory board of the municipal SOE for water management.
In past and ongoing port reform processes these two lessons are often not applied to ports. Many directors or presidents of port authorities have strong political connections, and many supervisory boards consist partly of members based on administrative positions.
In one example, until 2014, the state of New York appointed the executive director of the Port Authority of New York and New Jersey (PANYNJ) while a deputy executive director was appointed by the state of New Jersey. To secure a ‘balance’ between the states of New York and New Jersey, the supervisory board chair was appointed by New Jersey and the vice chair by New York. A 2014 report concludes this governance structure was not effective. While the reform of PANYNJ in 2014 provides greater clarity, the political interference with the PANYNJ decision-making remains substantial: both states appoint six board members, which are supposed to secure the interests of ‘their’ states. This set-up does not promote a board focussed on PANYNJ’s overall performance.
While one can downplay the relevance of such governance choices, in my view they are critical. Unless it is clear to all employees and external stakeholders that the government-owned port authority makes decisions based on commercial logic, there is a serious risk of continued politically motivated decision-making, which ultimately is not in the public interest.
First published by The Analyst in his Port Strategy column
