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Part 5
Management of the Privatized Enterprises

The predominant part of the privatized enterprises are managed directly by their new owners which is largely determined by the employed privatization techniques. I.e., the selected approach to privatization in this country leads to the creation of real owners immediately involved in the management of their enterprises. Their direct participation in the management is also conditioned by the character of the privatized enterprises. It also follows from their legal status - mainly limited liability companies, partnerships and sole merchants, where executive power is generally directly exercised by the owner. In the privatized joint-stock companies there predominates a one-tier system of management with the major shareholders once again exercising executive power.

In this sense the management of the privatized enterprises reproduces the predominant mechanism in the private sector for immediate management of the enterprise by the owner as opposed to the public or anonymous management by persons appointed by the owner in the state-owned enterprises.

One of the principal shortcomings of the adopted market privatization model in Bulgaria is the limited participation of management in denationalization. The preparation of privatization is reduced to the preparation of the legal analysis and asset valuation, without any promotion campaign within the enterprise itself aimed at involving the personnel and the managers in the process. Privatization is not preceded by financial recovery and actual commercialization. A formal transformation is carried out of the enterprises into companies as defined by the Commercial Law without this being related to specific measures for stabilization of the market positions and restructuring of the state-owned enterprises subject to privatization. This further limits their liquidity.

According to the Privatisation Law, the management of the enterprise is not treated differently from the personnel and there are no additional conditions attached to their participation. The ministries, which exercise the property rights on state participation in the respective sectors, tend to have a distrustful attitude to privatization through management buy-out. Managers are isolated from the preparation of privatization and the procedure for its implementation. In this way, privatization is deprived of technical and managerial experience, the managers assume a negative attitude to the process and therefore very frequently create problems regarding the provision of information and the access to the enterprises.

Of all privatization transactions concluded by the end of December only 4 enterprises were bought by managers. In the remaining cases managers are frequently "concealed" behind personnel buy-outs, which, as becomes evident from the case studies rise to postprivatization problems in the management of the enterprises. The equal treatment of managers in the course of personnel buy-outs makes both the rationalization of the organization and management structure of the enterprise and the investment policy difficult to implement. The personnel are typically inclined to reinvest a smaller part of the profit, leaving a larger part aside for incomes and social benefits. This gives rise to difficulties in the restructuring of the privatized enterprise.

When the personnel buys the enterprise it usualy keeps the executives acting up to the privatization, regardless of the former conflicts between managers, workers and employees, and their trade-union organizations. It is not by chance that opinion polls among managers of state-owned enterprises about their preferred privatization technique indicate a decided preference for personnel buy-out.

This tendency finds its explanation in the active role of the management of the enterprises subject to privatization. The studied cases indicate that it is the executive management of the enterprise who not only initiate, but actually direct the entire participation of the staff in the privatization. There are only isolated cases of open efforts by individual members of the management to buy out the enterprise independently without involving a larger part of the staff. This is accounted for by the management's fears of possible tension and opposition from the staff and the union organizations, both during and after privatization.

There is a general tendency in the privatized enterprises towards active efforts for the simplification of the management structure and functions, as well as towards discharge or reorientation of part of the administrative staff. In all five cases the financial and accounting departments were abolished, with only a chief accountant remaining in their place, often assuming the duties of a paymaster as well. That is a typical phenomenon in the presence of direct management by the owner. In the same direction, efforts are being made for certain typical administrative and managerial activities to be detached in economic and organizational terms or moved out of the enterprise altogether on a contractual basis.

On the whole, privatization leads to an imperative rationalization and simplification of management in the direction of greater pragmatism and economy.


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