The Research Network for Corporate Governance in the Ports Sector

1. The Research Network for Corporate Governance in the Ports Sector

2. Agenda • What is Governance? What Do We Know About It? • Why the Research Network? • The Network Participants • Presentation of Country Specific Baseline Research to date • Research Areas • Governance of port functions • Governance of port configuration • National differences • Port performance • Next Steps

3. What is Governance? (OECD) the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the corporation, such as the board, managers, shareholders and stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which corporate objectives are set, and the means of obtaining those objectives and monitoring performance

4. What is Governance?(Sternberg, 1998) ways of ensuring that corporate actions, assets and agents are directed at achieving corporate objectives established by the corporation’s shareholders This means: • Corporations are not meant to achieve public policy objectives (e.g., economic development) • Corporations are not required to accord greater importance to the views of stakeholders (e.g., employees, customers, the greater community, advocates for the environment, etc) than to the views of shareholders

5. What is Governance? • The practice of “good governance” requires the imposition of rules and responsibilities compatible with the strategic intent of the organization. • Governance principles act as guideposts to assist the organization in realizing the potential of a fit between its strategy and its structure (following Chandler, 1962) • Corporate governance principles can therefore be applied to more than just private sector organizations, including ports devolved under non-privatization models.

6. Why a Research Networkon Port Governance? (1) Excellent research is available on corporate governance: • In the private sector (Keasey et al, (1999), Conference Board of Canada (1998), Toronto Stock Exchange (1994), Cadbury Commission (1992)) • In government (World Bank Institute, 2000) • In the non-profit sector (Carver, 1990)

7. Why a Research Networkon Port Governance? (2) There is limited research on governance in cases of devolution, particularly those using mixed models (public-private partnerships, franchises, concessions, etc.) There is almost no research on governance in the port sector (World Bank’s Port Reform Tool Kit and Valentine, 2001). Sachs et al (2000) concluded that governments need to ensure good governance practices to maximize the benefits of devolution.

8. Why a Research Networkon Port Governance? (3) • The wide variety of devolution models in use adds complexity to the problem of governance (public/mixed/private plus). • Case-based research is needed to explore the issue adequately (Brooks, 2001). • Transnational empirical research is needed if we are to understand what works best. • The research network was established to do this. “Society wins if governance works” (Roe, 1994)

9. The Timetable to Date July 2001 Convene meetings of interested researchers in Hong Kong August 2001 Confirm team participants Sept-Dec ‘01 Develop research model for country-specific implementation. Jan-May ‘02 Develop financing proposal for next phase. June-Oct ‘02 Preliminary country research conducted Nov 2002 Panama workshop; finetune research model for country-specific implementation

10. The Network Participantsby Country (Researchers) Canada (2+1) United Kingdom (2) Belgium(2) China (Hong Kong) (2+1) Turkey (1+3) USA (0) Australia (2+2) Italy (1+3) Argentina (2) The Netherlands (1)

11. The UK Experience (Baird) • The UK privatized entities using a variety of models • Port devolution involved outright sale, even of regulatory functions. (The UK ignored the middle ground.) • Result: there was no port regulator, although other privatizations were accompanied by oversight agencies Baird’s conclusions: • The model is flawed and has not be copied • The government only reacts when there is a demand for a public inquiry • Congestion issues have no public solution • Uncertainty has led to market failure to provide necessary long-term solutions

12. The HK Experience (Cullinane et al.) Teng-Fei Wang reported on behalf of the HK team: • Hong Kong government provides oversight to private development • There is a partnership of private and public parties to achieve progress to date • Past experience has been successful Conclusions: • Long-term planning is problematic • The absence of a dedicated government public body to work closely with industry is likely to cause failure of long-term plans to develop the maritime industry

13. The Belgian Experience (Van de Voorde et al.) Trevor Heaver reported on behalf of the Belgian team: • Key issues are maritime accessibility, inland investment, and superstructure investment (private) • Needed baseline research includes • privileged loans, • conflict of interest with participating bodies, • tax and subsidy policies, • transparency, • port governance rules and consequences of abuse

14. The Italian Experience (Valleri et al.) Maria Lamonarca and Paola Papa reported. • The team reviewed the history of reform and concluded that authorities were not given full autonomy or sufficient financial power for investment (the dues to the government were too high to allow for adequate re-investment from operating) • However, there was considerable discussion about the investment process for Gioia Tauro, for example. It was concluded that alliances between regional governments and shipping lines overcame bureaucratic barriers.

15. The Turkish Experience (Cerit et al.) Guldem Cerit reported on behalf of the Turkish team: • In Turkey, the coastline belongs to government, facilities investment can only be done by government • There needs to be better use of existing facilities • The ports need to be more competitive • There are too many regulatory and policy bodies making governance complex and confusing; private ports are regulated differently from public ones • There is a need for less centralization

16. The Argentinian Experience (Sanchez & Sgut) Ricardo Sanchez reported on behalf of the Argentinean team • Noted that Argentina’s reform led to an environment of low uncertainty and low complexity • Devolution had been a success because of accompanying improvements in institutional frameworks and • competition to reduce port fees • less regulation plus clarity of guidelines • labour reform • resulting in faster vessel servicing and increased investment in equipment • all resulting in lower insurance and security costs

17. Cross-Cutting Issues • Investment and financing issues impose limits on devolution; users need to be involved in port development (Sanchez) • Allocation of responsibilities for “public goods” and what ports should provide (Baird) • How do we measure performance and what should be measured? (Brooks) • National differences and the impact of differences on performance outcomes (Baltazar)

18. Research Areas Governance Areas Port functions Port Performance Port configuration National differences

19. Research Areas Governance Areas Port functions Port Performance Port configuration National differences

20. The Port Devolution Matrix(Baltazar & Brooks, 2001 - adapted from Baird, 2000) Port Functions Governance Regulator Functions LandlordOperator Public Licensing, permitting Waterside Cargo handling Vessel traffic safety maintenance Passenger handling Customs and immigration (dredging) Pilotage and towage Port monitoring Marketing of location Line handling Mixed Emergency services development strategies Facilities security, Public/ Protection of public interest planning maintenance, Private on behalf of the community Maint. of port access and repair Determining port policy and Port security Marketing of operations environmental policies Land acquisition, Waste disposal Private applicable disposal Landside and berth capital investment

21. = may not be provided = location dependent mixed The Port Devolution Matrix Applied to Devolved Local/Regional Ports Port Functions Governance Regulator Functions LandlordOperator Public Licensing, permitting Waterside Cargo handling Vessel traffic safety maintenance Passenger handling Customs and immigration (dredging) Pilotage Towage Port monitoring Marketing of location Line handling Mixed Emergency services development strategies Facilities security, Public/ Protection of public interest planning maintenance, Private on behalf of the community Maint. of port access and repair Determining port policy Port security Marketing of operations Determining environmental Land acquisition, Waste disposal Private policies disposal Landside and berth capital investment

22. Scale of Ownership and Management by Port Function • Three levels (public, p/p, private) not truly adequate • A proposed scale to “numerically” define typology for each port function in the devolution matrix 1 Fully public with central government control 2 Government owned but locally managed 3 Government owned but managed by a corporatized entity 4 Government owned but managed by private sector via a concession or lease arrangement 5 Privately owned and managed

23. Research Areas Governance Areas Port functions Port Performance Port configuration National differences

24. Matching Framework(Baltazar & Brooks, 2001) Configuration 1Configuration 2 Low uncertainty High uncertainty Environment Low complexity & High complexity & dynamism dynamism Efficiency-oriented Effectiveness-oriented Strategy Focus on delivery of Focus on delivery of basic product or service peripheral products and services Mechanistic Organic Structure Centralized decision- Decentralized decision- making characterized by making characterized by procedural standardization mutual adjustment

25. Preliminary Assessment of the Canadian Configuration(Baltazar and Brooks, 2002) Configuration 1Configuration 2 High uncertainty Environment High complexity & dynamism Efficiency-oriented Strategy Focus on delivery of basic product or service Mechanistic Decentralized decision- Structure Procedural standardization making

26. Preliminary Assessment of the Italian Configuration(Valleri et al., 2002) Configuration 1Configuration 2 High uncertainty Environment High complexity & dynamism Efficiency-oriented Strategy Focus on delivery of basic product or service Mechanistic Structure Procedural standardization Centralized decision-making

27. Preliminary Assessment of the Argentinian Configuration(Sanchez & Sgut, 2002) Configuration 1Configuration 2 Low uncertainty Environment Low complexity & dynamism Efficiency-oriented Strategy Focus on delivery of basic product or service Mechanistic Structure Procedural standardization Centralized decision-making

28. Research Areas Governance Areas Port functions Port Performance Port configuration National differences

29. Culture and Configuration Preferences • CULTURE • ASSUMPTIONS • ABOUT • Uncertainty • Organization Rationality • CONFIGURATION • PREFERENCES • FOR • Fit • Sequence • Decision process

30. Scale Reliabilities

31. Research Areas Governance Areas Port functions Port Performance Port configuration National differences

32. EffectiveEfficiency Marketing Efficiency & Effectiveness H Satisfied CustomersHigh Marketing Costs Satisfied CustomersLow Marketing Costs Effectiveness Alienated CustomersHigh Marketing Costs Alienated CustomersLow Marketing Costs L L H Efficiency American Marketing AssociationMarketing Encyclopedia (1995: 222)

33. Performance Metrics at the Firm Level Most corporate reporting focuses on internal, system, financial metrics Most port research focuses on system efficiency measures (e.g., Tongzon & Ganesalingam; 1994; Valentine & Gray, 2001)

34. Internal Functional Performance Metricsat the Firm Level Activity-Based Performance Examples: ship calls /employee, revenue /vessel call, delay hours to berthExamples: TEUs /crane, lifts /crane hour, cargo tonnes/hectare of terminal area Example: concession revenue/hectare of terminal area Example: marketing cost/tonne serviced

35. Next Steps (3 year time frame) • Governance of port functions • Fine tune matrix of functions and the scale for measuring the governance associated with each each port related functional activity • Governance of port configuration • Complete the baseline research through archival and interview research • Governance of national differences • Finalize the research instrument • Develop research implementation program • Port performance • Identify appropriate dimensions and measures

36. The Port Performance Research Network

37. Thank you!Questions and comments?

38. Methodology • Phase 1 - Survey of senior port managers • Cultural antecedents of configuration preference • Organizational antecedents of performance • Firm level performance • Phase 2 - Interviews and archival research • Environmental variables • System level performance (includes WCY statistics) Who to survey (top level senior management in the key ports e.g., CEO, VP Ops, VP Finance, VP Marketing Who to lead each cross-cutting team?

39. Methodology • Cultural antecedents of configuration preference (Survey of senior managers, Phase 1) • Organizational antecedents (Survey of senior managers, Phase 1) • Environmental variables (Survey Phase 1, Interviews and archival Phase 2) • Performance • At firm level (Survey of senior managers, Phase 1) • At system level (Interviews, Phase 2; WCY evaluation on selected factors Phase 1) Who to survey (top level senior management in the key ports e.g., CEO, VP Ops, VP Finance, VP Marketing Who to lead each cross-cutting team?

40. Constructs and Methods • Cultural antecedents of configuration preference (Ramon Baltazar’s measures) • Organizational antecedent of organization performance (Management & ownership typology by port function) • System performance • Efficiency, effectiveness and satisfaction of stakeholders • Position on World Competitiveness Factors • Control variables • Environmental variables (country-specific) • Governance codes (the 12 questions...) • Demographic data (managerial levels, span of control)