CSI - Center for Strategic Initiatives
CSI - Center for Strategic Initiatives

Death before approval

Written by Alikhan Baidussenov, Zamanbek Shopanov, Azamat Seitkhaliuly

July 1, 2019
In general, the Kazakh government and the quasi-state sector have correctly identified the strategic directions of development - almost all strategic documents set correct and achievable goals and objectives. The only question is how quickly and correctly these strategies are implemented. But unfortunately, the bureaucracy breaks down the state planning system.

Due to bureaucratic procedures, some state-owned companies not only poorly implement strategies, but cannot even begin them due to the long and complicated adoption process. Usually these are subordinate state-owned companies that are not part of the structure of the NWF “Samruk-Kazyna”, which constantly experience problems with the process of timely development and adoption of their strategies.

The point is that the mechanism for the development, adoption and implementation of strategies for the development of national management holdings, national holdings, national companies - the shareholder of which is the state - is regulated in the law on state property, as well as in the order of the Minister of National Economy of the Republic of Kazakhstan "On the adoption of the Rules for the development, adoption of strategies development and development plans of national managing holdings, national holdings, national companies, the shareholder of which is the state, as well as monitoring and evaluating their implementation."

In practice, the procedure for agreeing and adopting the development strategies of national companies resembles a shuttle race, when the approval of a document is returned to the same place several times. This leads to a delay in approval, loss of strategy relevance, unnecessary expenditure of human resources and constant overload of executors in ministries.
Three rounds of approval
This is what the process looks like. After the development strategy of the national company is developed, it is approved by the management board of the national company. The approval of the strategy by the board testifies that the management, who was entrusted with the management of the company and which logically, should not only understand all the details of the company's business, but also be well-versed in government development programs, is ready to fulfill the goals specified in the document.

After approval by the board, the document is sent to the supervising ministry, and then for approval to the Ministry of National Economy and the Ministry of Finance so that the relevant state bodies, looking "from a bird's eye view" at all strategic documents, can timely adjust the goals and objectives of the strategy of the national company in case this strategy does not correlate with strategic documents of the highest or adjacent levels.

If the strategy meets all the necessary criteria, then the document goes for approval to the board of directors of the national company. Let us emphasize that it is for approval, not adoption, since representatives of the supervising and relevant ministries are traditionally present on the board of directors of the national company.

As you can see, the approval procedure alone is quite extensive and affects all the approvers necessary for a comprehensive assessment - both from the side of the development of the national company itself, and from the side of the state development and a dedicated sector of the economy. But the truly bureaucratic machine kicks in after the strategy is approved by the board of directors.

Firstly, the board of directors, as a rule, “preliminarily” approves the strategy, thereby relieving itself of the burden of responsibility for the attainability of the set goals. Secondly, after the approval by the board of directors, the supervising ministry drafts a government decree on adopting the strategy, which is re-sent to the ministries for approval. It would seem that there is nothing left to be agreed upon, except for two or three lines, where it says, "adopt the development strategy ..."? After all, the main document, the strategy of the national company, has already passed through government agencies. Unfortunately, at this stage, the relevant ministries begin to re-examine the development strategy, returning the process to the previous round.

Considering that the relevant minister is a member of the board of directors of a national company, it turns out that the ministries consider the same document three times: before the board of directors, at the board of directors, and when agreeing on a regulation of the government of the Republic of Kazakhstan. This raises a subsequent question: why do companies and government agencies attract consultants "from outside" and not solve their problems themselves? Business and government seem to have enough of their own ideas and specialists.

The answer is much simpler than it may appear – specialists are busy with their daily work and often just do not have enough time. In addition, self-assessment has its own deficiencies in that government agencies or businesses tend to make limited evaluation and does not provide an opportunity to make an all-round assessment of the situation. That is where consultants come into place – to provide an external bird-eye view of the current status and propose ways of achieving desired outcomes based on cross-sectoral expertise.

Figure 1. In the current mechanism for coordinating the strategy, the board does not adopt, but only approves the document.
Deficiency of corporate governance
The whole process ultimately leads to the delay of the procedure for coordinating and adopting a development strategy for 7-8 months. For example, if a national company began developing a strategy at the beginning of 2019, then its preliminary approval by the board of directors would take place no earlier than August-September 2019. Further, the company would have to consider the budget for the implementation of the strategy in 2020. But this would not work, since first it is required to get a government decree. With a successful combination of circumstances, the corresponding decree would be issued at best in January-February 2020. But the budget has not been adjusted, so the financing of strategic events will be adjusted in the second half of the year. That is, the national company will lose at least a year before starting to finance the new strategy.

If the process of approving a government decree is delayed - and such a risk is very likely - there will be no new strategy activities in the budget of 2020, and only in the 2021 it will be possible to include project financing in the budget based on the strategic document, the development of which was completed in 2019. How relevant will these projects be after 2 years?

By that time, it will be necessary to start the process of revising the strategy or preparing a new document. Such procedure not only significantly delays the start of the strategy implementation, but actually leads to the erosion of the responsibility of the boards of directors of national holdings, transferring responsibility to the government, since the board of directors in this matter bears a formal burden, "pre-approving" the document and waiting for the approval of the government decree. In addition, the competence of the company's board and its members is called into question: it turns out that they may not know strategic documents of a higher level and may incorrectly determine the promising directions of development of their company. In this case, it makes no sense to introduce corporate governance and it is better to switch to manual control mode, since the time for making strategically important decisions would be reduced.

Long-term approval can cause a high chance of failure to meet the deadlines for the implementation of the tasks specified in the strategy, bad timing of allocation of resources, and postponement of the organization of work. In the end, the management of the national company, and its partners, and all other stakeholders, including the government, lose precious time and, accordingly, move further and further from the implementation of the strategic goals of not only the company, but the whole country.

It is possible to simplify the procedure for coordinating the development strategy by transferring the level of adoption of the development strategy to the level of the board of directors, the body that is inherently responsible for the long-term development of the company. This will allow to significantly shorten the approval procedure, while supervising and relevant ministries, coordinating the document before the Board of Directors, as well as being members of the Board of Directors, will be able to comprehensively assess the strategy, both from the point of view of the company's development, and from the standpoint of the development of the entire state.

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