The Committee of Public Enterprises (COPE) has come into the limelight recently in its quest to investigate alleged malpractices of state or quasi state bodies such as SriLankan Airlines, Ceylon Electricity Board, etc. COPE chairman Jeyaraj Fernandopulle, who is also an MP from the opposition, has been cited as saying he has proposed new laws to bring some of the public enterprises especially companies registered under the Companies Act, of which shares are owned by the state, within the ambit of parliamentary scrutiny. Fernandopulle will invariably attract kudos if he could prove his mettle on the exploration of hitherto-not- well-probed territory.
Before bringing new legislation into force, it is essential to understand the provisions in the existing acts with regard to public enterprises. There are several acts which have provisions about public enterprises.
The Public Enterprises Reforms Commission (PERC) Act No. 1 of 1996 is in force followed by the Commission to Investigate Allegations of Bribery or Corruption Act No. 19 of 1994, the Human Rights Commission of Sri Lanka Act No. 21 of 1996 and the Foreign Loan Act, etc.
A public enterprise according to the PERC Act is a corporation or a government-owned business undertaking or a company where all or a majority of the shares of such companies are held by the government. According to Clause 5 (f) of the Bribery or Corruption Commission Act the commission has the power to direct by notice the person in charge of any company in which the government owns more than 50 percent of the shares to produce documents in his possession.
The inclusion of public enterprises especially companies registered under the Companies Act, in which the government is the main shareholder, shows the importance of government having some control over these institutions contrary to the much-vaunted privatisation.

However, on the other hand some other important acts such as the Companies Act and Offences Against Public Property Act No. 12 of 1982 doesn't give any pride of place to government-owned companies.

According to this particular law, public property means the property of the government, any department, statutory board, public corporation, bank, co-operative society or co-operative union. Unfortunately government companies don't come within the purview of this Act.

The issue at stake is the extent and ability of the government to control these state companies. It should be noted that a majority of the state companies have been formed with the majority of shares being held by the government. These shares are vested with the Secretary to the Treasury.

Where the government is the major shareholder, it should direct the affairs of such companies because naturally in a poll the majority votes are held by the government. According to the Companies Act such shareholders could appoint directors, request special general meetings or demand a poll at such a meeting. The government has a lot of powers in state companies but is it exercising its right and its powers?

As the main shareholder the government could intervene if it has a genuine desire to stop corruption and mismanagement. The most unfortunate thing is that the representatives appointed by the Treasury most of the time act for the benefit of the parties other than the government.

The non-government directors who are at the helm of affairs of these companies know the ropes and they have succeeded in making state representatives swallow the bait, hook, line and sinker of the benefits of personal glory of all parties - throwing public accountability out of the window. These companies using their financial power retain the services of reputed audit and legal firms to justify unlawful acts and audit and law firms are ready to dance to their tune because the fees are enormous.

A recent global example is the famous Enron case where the company directors and auditors acted in unison to defraud the public. There are several local Enrons via government companies which are "doing great business" with the help of these law and audit firms.

Unfortunately the government is not fully aware or it does not want to deeply investigate the nasty dealings taking place in the state companies. Public finance comes under the Ministry of Finance and is also subject to parliamentary scrutiny. The call for new laws by the COPE chairman is because COPE cannot deal with government firms under the present law. If effectively used, there are many provisions in the existing laws especially in the Companies Act which could be used to bust corruption and mismanagement in government companies. COPE should, however, first seek expert legal advice as these company barons have their own highly paid and talkative legal teams who are very convincing.

The first thing COPE needs to do is to summon the Secretary to the Treasury and his representatives on these companies and explain their effective role - or whether they are effective - in representing the government's interest vis-à-vis the public interest.

Secondly, if there are complaints on mismanagement and the particular company does not comply with the summons, dodges or hedges questions the directors of the company could be ousted if the government by virtue of being the main shareholder calls for a Special General Meeting (SGM), demands a poll and uses its majority voting power. The government being the major shareholder (even a minor shareholder for that matter) could go to courts against mismanagement. There are many provisions in the Companies Act regarding the powers of court in investigating company affairs.

Thirdly, the Registrar of Companies has wide powers under the Companies Act to deal with mismanagement but he doesn't make use of it. The Registrar could commence investigations on his own volition if there is evidence of fraud or corruption. Despite widespread newspaper reports of fraud, mismanagement or corruption at these companies, the Registrar hasn't thought it fit to probe these allegations or call for a report from the companies despite having the power to do so.

The Registrar's office is also blind to the fact that some government companies blatantly violate the Companies Act by registering Employee's Share Ownership Plans (ESOPs) in the form of trusts after getting an authentic label from Enron-styled auditors and the blessings of state representatives helping themselves to the spoils. These share trusts do not conform to law as the shares are held in trust with the trustees appointed by the Board of Directors of the company who are directors themselves. A case of - You scratch my back and I scratch yours! These trusts are formed not for the benefit of the employees but to overshadow government control and make sure the major shareholder is not the government but the trust to escape state checks and balances. The control of government companies is a complex issue and a very careful study is needed in formulating laws if COPE has a genuine desire to stamp out corruption and mismanagement, though there are sufficient laws and a course of action to probe state companies even under existing legislation.
A concerned citizen

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