1. Legal Status of the Privatized
Enterprises
The majority of the privatization transactions concluded up to
now involve the sale of separate parts or entire enterprises
(according to Chapter VI of the Privatization Law). The number of
enterprises privatized through sale of interests and shares is
smaller. To a great extent this is determined by the legal status
of the privatized enterprises. In most cases the privatized fixed
assets, separate parts or entire enterprises under Chapter VI of
the Privatization Law become part of the assets of the buyer
company. As a result, the corporate body of the privatized
state-owned enterprise is either subject to termination or has to
indicate the changes in capital with the sale of the respective
separate part or fixed asset.
Typically, when incorporated in the newly formed or already
operating private company the state-owned enterprises privatized in
this manner constitute the principal part of its assets. This is
particularly true in cases when the buyers are smaller or newly
formed companies, which seems to speak of the critical role that
privatization is to play for the future development of this type of
economic agents. In this sense it is closely related to the process
of formation of new firms or to the development and expansion of
the activity of already existing private enterprises.
When the buyers under the provisions of Chapter VI of the
Privatization Law (privatization of entire enterprises or separate
parts thereof) are larger private companies, there are cases when
the acquired enterprise becomes a subsidiary company or branch.
Even if more limited in the practice to date, privatization
through sale of interests and shares of commercialized state-owned
enterprises will predominate in the future owing to the nature of
the changes in the existing regulations and legislation. The
post-privatization outline of the legal state of the enterprises in
this type of transaction is the following:
- preservation of the corporate body of the enterprise with a
registration of the changes in ownership;
- acquisition on preferential terms of part of the interest or
share by the staff (there are nearly no instances of failure to use
this preference);
- when the buyer of the majority share is not the staff or part of
the staff, in a number of cases those who have acquired a share on
preferential terms wish to sell it at the higher price to the major
shareholder. Even if economically and socially justified, this
possibility has been abolished with the changes in the
Privatization Law.
2. 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 - above all small and
medium-sized. 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.
The management of privatized enterprises bought entirely by the
staff is of particular interest. What is characteristic in this
case is the keeping of the executives acting up to the
privatization - an almost universal phenomenon, 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.
3. Changes in the
Organization of Labor
Most privatized enterprises tend to preserve or increase the
number of workplaces. This is related to the fact that up to now
privatization has essentially involved the creation of new private
enterprises or expansion of the activity of already operating ones.
To some extent the increase in employment is also due to the fact
that preserving or increasing the number of jobs is stipulated as a
condition in the contracts in most privatization transactions. As
indicated by the study, that condition was present in the contracts
of 4 out of the 5 enterprises, with only one of them having made
500 workers redundant (see Table 1).
The extensive increase in employment also results from the
general expansion of production and enhanced efficiency of the
overall activity of the privatized enterprises.
Another characteristic tendency related to the organization of
labor in the privatized enterprises is the change in working hours,
with modifications in the organization of shift work. Furthermore,
there appears to be greater interchangeability and rotation,
especially in the enterprises bought by the staff.
In all of the studied enterprises the system of remuneration of
labor was changed after privatization. The common tendency was to
change the relative share of, or abolish payment by the hour and
replace it with piecework or a payment-by-results system. In view
of the size and characteristics of most of the privatized
enterprises, the relative extension of the piece rate system of
labor remuneration is often combined with internal economic
differentiation of separate structural units and occasionally even
specific workplaces.
The observed tendencies in employment and organization of labor,
even if of a fragmentary and non-representative character, are an
indicator of extensive increase in the employed labor force and the
effectiveness of labor in most enterprises privatized to date. This
is largely dependent on their being small and medium-sized
enterprises, mostly in the spheres of services, trade, and certain
effective and market-adapted manufactures. It is to be expected
that in the privatization of large industrial enterprises the
measures for their subsequent restructuring and financial recovery
will enhance labor efficiency and lead to a discharge of labor
force.
4. The Activity and
Financial State of the Privatized Enterprises
Table 2
Enterprise
|
Procedure instituted
|
Procedure completed
|
Bought by
|
Final privatization technique
|
Other privatization techniques
|
"Druzhba"-Avto '93 Ltd Sofia |
Jun 93
|
Oct 93
|
employees
|
tender
|
2 tenders
|
"Stil" joint-stock company
Dimitrovgrad |
16 Aug 93
|
Mar 94
|
employees
|
negotiations with potential buyers
|
-
|
"Penkiler" Sole Merchant Gotse
Delchev |
Jun 93
|
Dec 93
|
Sole Merchant
|
auction
|
conducted
3 times
|
"Yurukov & ELIS-D" Partnership Gotse
Delchev |
Oct 93
|
-
|
2 partners
|
tender
|
-
|
"Teda" joint-stock company,
Haskovo |
-
|
used preferences
|
sale of shares
|
-
|
-
|
The activity of the privatized enterprises is characterized
by:
First. Retaining the principal field of activity, with
substantial changes in the organization of labor and production.
That is very often a non-financial condition stipulated in the
privatization contracts, especially in the services sector.
Second. Increasing the output. This is a typical phenomenon,
resulting from the active role of the new owner in making an
optimal use of production reserves, improving production
organization and the use of the labor force. In some isolated cases
the output has been temporarily reduced for the purpose of repairs,
expansion, and other investments.
Third. Introducing and developing additional activities in the
enterprise. This process is particularly characteristic of
enterprises in the sectors of trade and services. It stems from the
new owners' wish to increase revenues as much as possible and
secure a good return on investment, as well as from the need to
meet the commitment to preserve or increase the number of
workplaces in the privatized enterprises, as required in most
privatization transactions.
Fourth. A certain improvement and diversification of the
inventory of services and goods produced by the enterprise, both
within its main field of activity and in the newly added ones. This
seems to indicate that the privatized enterprises are adjusting
their activity to the market conditions, i.e. they are flexible and
easily adaptable to market conditions.
Apart from the outlined, generally positive tendencies in the
activity of the privatized enterprises, there are other more
unfavorable developments concerning their financial state that
should equally be noted.
While retaining their legal and financial independence, after
privatization most enterprises find themselves under considerable
financial strain related to the servicing of investment loans
received at the time of privatization. To most enterprises paying
off the loans and the interests on them is the chief characteristic
of their financial state. Nevertheless, and partly due to the
limited number of privatized objects and the short period under
consideration, almost none have been forced into insolvency.
In a number of cases, in relation to the need to secure credit
resources, fixed assets of the enterprises are mortgaged or other
assets are put up as security. There also appears a certain
reduction of the assets with a view to optimizing production
reserves and finished products in storage.
Measures are being taken to reduce certain production and other
operating costs and to make them commensurate with the respective
activity and the revenues it brings. In most privatized enterprises
which have retained their independence there lack any substantial
additional investments in liquid assets and expenditures on fixed
assets. At the same time, however, the incomes from the activity
and the additionally revealed resources prove sufficient not only
to cover the generally increased operating costs, but likewise the
investments required by the conditions of the privatization
transactions.
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