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.
|