Sunday, 12 July 2009

Reform at the Edges

12th July 2009
The  Malta Independent on Sunday

Corporate history is riddled with examples of restructuring exercises that prove superficial, avoiding the core of the problem it is meant to address. Moving around boxes of the hierarchal structure, shifting responsibilities from one box to another, cutting here and padding there, and many other visible changes, come with a lot of promises for positive change which, in the end, fizzle away as the real problem remains unaddressed.

Probably the best current example of this is that of General Motors (GM), a hundred-year-old company which, at one time in the sixties, symbolised America’s industrial power with the famous dictum of “What’s good for GM is good for America”.

As it happened, GM became over-confident, lethargic and detached from its changing image in the eyes of the American consumer as they started being offered better quality cars at cheaper prices from foreign producers in Europe and in Asia. GM’s history over the last 20 years is a series of insufficient attempts at restructuring to stop the drift in its market share. Unfortunately, these restructuring attempts were always behind the curve of the changing realities in the market place.

These realities were that competitors were quicker to offer new models to suit the changing taste of the consumer and quicker to add on more bells and whistles to the basic product which in GM cars remained unavailable or subject to a supplementary charge. These could be things as important as better security features (airbags) or as trivial as nicer fabrics or a cup holder.

The other reality was a matter of costs. GM’s long history was forcing it to carry an ever-increasing burden of legacy costs through the health care and pension responsibilities for its retired employees. New entrants to the market, especially from Japan and South Korea, were free from such burdens and could therefore compete not only on quality but even on price. Gradually, the GM brand started losing its near monopoly and came to be regarded as a laggard, selling old-fashioned cars at expensive prices. GM’s management, in the various reorganisations attempted to catch up, never addressed the core issues, i.e. that the company could not compete effectively unless legacy costs were either reduced or compensated for by higher efficiency and greater flexibility of the current workforce.

In the end, a meeting with reality could be delayed but never altogether avoided. As the financial crisis of last autumn spread to the real economy, causing a sharp reduction in demand for new cars, GM had to run for help to the government, using its size and history as the reason why it should be bailed out. The government demanded a reorganisation plan to ensure that any financial assistance did not become permanent and when this was presented, the government found it short on realistic expectations. It imposed its own, far more courageous plan, which started with the firing of the chairman and CEO Richard Wagoner.

The government forced the company into Chapter 11 bankruptcy protection, a process whereby a huge chunk of company debts were converted into equity, obligations covering legacy costs were also similarly converted, product lines were reduced, factories closed, whole sectors of the company, including the Hummer brand and Opel and Saab European operations, were sold off. This week, the new GM has emerged from bankruptcy after just 40 days – a much leaner and meaner outfit, ready to compete free from past burdens and with fresh capital injected by the US and Canadian governments that are eager to keep their countries’ share of car manufacturing.

That’s real restructuring!

The blueprint for Mepa’s reform published this week resembles one of GM’s many unsuccessful reorganisation plans, as its started losing its dominance. There is obviously no contention on the objective to render Mepa consistent in its decisions, efficient in its operations, accountable to society and better equipped to enforce its decisions.

Consistency, efficiency, accountability and the capacity to enforce are all laudable objectives – just as laudable as were the objectives of GM’s various unsuccessful reorganisation attempts to regain its lost power. The problem lies with the measures proposed to achieve such objectives.

These measures are mostly steps in the right direction, even though, in essence, they are little more than shifting of the corporate boxes which, in the end, may very well leave the situation largely unchanged.

What is missing is that the plan does not address the core problem related to Mepa.

This is that people’s experience of Mepa is of an obscure organisation, interpreting its policies inconsistently, changing its policies frequently – often to suit particular developers and overall a fake attempt by politicians to hide behind it in order to exercise their political patronage. People view Mepa as an organisation that is strong with the weak, making it extremely difficult to get the simplest of permits, and weak with the strong, often guiding the large developers in working their way through to overcome the spirit if not the legality of its own policies.

Whether this is true or not is hardly the issue, because in business and in politics, perception is reality.

To address this perception/reality Mepa needs a reform in its core that is not being addressed in the proposed blueprint. It needs to become much more transparent and to delegate its powers downwards rather than concentrate its power upwards. Mepa’s main role should be that of regulating and enforcing government policy, and this policy should be stable, fair, well explained and available for all citizens to know, leaving no room for interpretation. It should be available region by region, town by town, village by village and, if necessary, street by street, so that everybody knows what is permissible and what is not.

When we reach this point, most development applications can then flow through the DNO route with final responsibility for proper execution on the architect concerned. To take an analogy from the medical profession, Mepa must not be the family doctor who regularly supervises minor domestic ailments without any reference up the line. It must be the hospital for treating acute cases. This does not mean that the family doctor is free to do whatever he/she likes, it simply means that the family doctor is trained and equipped to treat directly minor ailments with the necessary professionalism without further reference up the line and that if he fails, his licence could be at stake.

Only if we come to this point will Mepa appear to be consistent and efficient. Then it will apply its resources to the treatment of acute cases, mostly large projects outside well-defined policy lines and ODZ application; it is here that Mepa has to appear accountable. Finally, both for DNO procedures and for its own approvals, Mepa must have the means to enforce its decisions.

The proposed reform goes in the right direction but it certainly does not go far enough. The mountain must give birth to a hill, not a mouse.

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