Corporate Governance Issues in State-Owned Enterprises: The Case of NV GEBE in Sint Maarten

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The recent power crisis in Sint Maarten, caused by the failure of multiple generators at the utility company NV GEBE, has painfully demonstrated the importance of good governance and oversight in state-owned enterprises. This situation is not an isolated incident but the result of years of structural problems in corporate governance. Two comprehensive reports from the General Audit Chamber of Sint Maarten in 2016 and 2017 paint a worrying picture of appointment procedures and oversight of government companies and foundations. In this blog post, we analyze the findings of these reports and use NV GEBE as a case study to illustrate how poor corporate governance can lead to serious operational problems with significant societal consequences.

The General Audit Chamber Reports:

Download report 1

Download report 2

In 2016 and 2017, the General Audit Chamber of Sint Maarten published two critical reports on administrative appointments in government companies and foundations. The key findings were:

  1. Lack of transparency: There was little to no transparency regarding appointment procedures for directors and supervisors.
  2. Possibility of political appointments: The procedures allowed room for politically motivated appointments, rather than selection based on qualifications.
  3. Involvement in important decision-making: Supervisors were often involved in crucial decisions without adequate checks and balances.
  4. Absence of security screenings: Most supervisory positions did not require security screenings, despite access to sensitive information.
  5. Non-compliance with procedures: In many cases, legally prescribed appointment procedures were not followed or could not be shown to have been correctly applied.
  6. Inadequate information provision: Ministers often failed to provide the required cooperation in supplying information to the General Audit Chamber.

The Case of NV GEBE:

NV GEBE, the utility company responsible for electricity and water supply in Sint Maarten, is a glaring example of how poor corporate governance can lead to operational problems. Some observations specific to GEBE from the reports:

  1. Frequent changes in management: Between 2014 and 2017, there were multiple CEOs and CFOs, indicating instability in leadership.
  2. Unclear appointment procedures: For several directors, it could not be determined whether the correct procedures were followed in their appointment.
  3. Political influence: There were indications that political considerations played a role in appointments, rather than purely competence-based selection.
  4. Lack of profiles: Clear profiles were not established for important management positions, making selection criteria unclear.
  5. Insufficient oversight: The role of the Supervisory Board in ensuring good governance appeared limited.

Consequences for GEBE and Sint Maarten:

The current power crisis at GEBE, caused by the failure of multiple generators, can be directly linked to these governance problems:

  1. Lack of expert leadership: Frequent changes and potentially unsuitable appointments have led to a shortage of experienced and capable management.
  2. Insufficient long-term planning: Political appointments and short tenures of directors hinder adequate planning and infrastructure investments.
  3. Neglect of maintenance: Lack of continuity in management may have led to deferred maintenance of critical equipment.
  4. Inefficient decision-making: Unclear responsibilities and political interference can lead to delayed or suboptimal decisions in crisis situations.
  5. Diminished trust: The lack of transparency and perception of cronyism undermine public confidence in GEBE and the government.

Lessons and Recommendations:

The situation at GEBE underscores the importance of sound corporate governance in state-owned enterprises. Some crucial lessons and recommendations:

  1. Transparent appointment procedures: Implement clear, public procedures for the selection of directors and commissioners.
  2. Competency profiles: Establish clear profiles for management positions, based on required skills and experience.
  3. Independent oversight: Strengthen the role of independent supervisors and the Corporate Governance Council.
  4. Long-term planning: Encourage stability in management to enable effective long-term strategies.
  5. Political independence: Limit direct political influence on operational decisions of state-owned enterprises.
  6. Transparency and accountability: Improve information provision to supervisory bodies and the public.
  7. Security screenings: Introduce mandatory screenings for all key positions in critical infrastructure companies.

The power crisis at NV GEBE is a wake-up call for Sint Maarten and other countries facing similar challenges in corporate governance of state-owned enterprises. It shows that poor governance and oversight are not just abstract concepts but can have direct and serious consequences for society. By taking the recommendations of the General Audit Chamber seriously and implementing structural improvements in the governance of state-owned enterprises, Sint Maarten can not only prevent future crises but also restore citizens’ trust in their institutions. Good corporate governance is not a luxury but a necessity for the functioning of vital services and the stability of the country.