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Management Basics for Stocks That Everyone Owns

20 September 2007 - Features - Editor

Business Management is not for profit making corporations owned by private investors alone. All the major concepts and techniques, which are taught in business schools, can be used by government bodies, and by organizations that work to achieve social objectives. Celebrity executives from the worlds of commerce and industry may steal the media limelight, but the stark facts are that nondescript public servants may be far more accomplished in managing their resources well. This is not to rubbish all talk of public sector obsequiousness, but to suggest that just as there are excellently managed corporations and lesser ones listed on every Exchange, so too do some gems hide under the skirts of large government bureaucracies.

Awareness that public sector organizations can be run well should come as relief for uncertain investors, because stocks of formerly government owned and run entities are increasingly becoming available for private purchase. The bulk of the banking sector in India for example, is under the Central Finance Ministry, though rumors of stake offers to the investing public keep surfacing in the national media and other informed circles. How do such investment offers compare with buying stocks of corporations which have always been in the private sector?

Lessons from London for Public-Private Transfers of Stocks

The United Kingdom, during the decade between the 1980s and 1990s, was in a similar corporate evolution, as Russia, Eastern Europe, China, India, much of Africa, and South America, are in today. The Soviet Union, Chairman Mao, and the days when socialism was still an acceptable term, seem to be far away, save for islands such as Cuba, but the economic structures of communism remain to be dismantled in large parts of the globe. The UK was never subject to hard-core leftist ideology, but built enormous public liabilities in the years before Margaret Thatcher’s reign. The public sector in this country now runs on par with stars from the corporate sector.

The transfer of the public sector to private control, as well as the imperative to provide utilities and essential services efficiently provides large new spaces for the application of Business Management principles. Everyone has stakes in making the public sector use resources optimally and in professional manner. Moreover, some of the best values hidden in listed stocks on all Exchanges relate to organizations in which the State shares ownership, or transfers its stocks entirely in to private hands.

Similarities and Differences When Stocks Pass From Public to Private Hands

It is not as though federal, state, and local government bodies are bereft of management disciplines. Indeed, the analyses of policies, review of projects, and fiscal control processes, are some areas in which the best public sector undertakings could teach a thing or two to many companies which operate for profits. International and neutral studies have established that even public sector entities in countries with relatively poor administrations, may display better fiscal discipline and control procedures than is available from most regulatory bodies of Exchanges in the first world. However, marketing and some human resource management issues change in perspectives when stocks of government owned companies pass to private owners. We may not be concerned with the effects of nationalization of oil exploration and refining assets in some South American companies, but the true values of public sector entities in nations such as India, which are about to offer stocks to the investing public, are matters for careful evaluation. Are these opportunities for superior returns, or simply dead ducks?

The European Union offers an unlikely but most relevant solution to the conundrums, which follow major changes in how public sector entities are run. Brussels is able to effectively over-ride prerogatives of national and local bodies in terms of how revenues are generated, and on pressures to improve productivity and accountability. Widespread reform results from such pressures. Individuals, who consider buying stocks in corporate bodies, which were once under total government control, should weigh the likelihoods of such changes in functioning taking place in their target organizations.

Alternative Stocks to Profit from Public Sector Reform

India is a telling example of the uncertainties in public sector reforms. Powerful sectarian interests may halt or even reverse any moves to transfer stocks to private investors, and to make public organizations run efficiently. However, whichever way the dice of reform may finally fall, service providers who consult for public bodies and to which projects are covertly outsourced, always end up as winners. Information Technology, Accounting, Human Resource Development, and other Management Services, form arrays of offers from which entirely private enterprise can generate interesting profits. Even the most secretive government departments routinely offer large contracts to professional consulting firms. Stocks of such service providing companies may be best bets for investors while the evolution of public-private partnerships remains fluid.

 


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