What are municipal companies

Management of municipal companies

Like all public companies, municipal companies do not primarily serve to make a profit, but have to fulfill a defined factual and political mandate - at least that is how it should be. In contrast to employment-oriented companies, their economy is therefore primarily geared towards:

  • the interests of consumers
  • the environmental and social implications of their business operations.

Public companies therefore also have to include external costs or external benefits of their activities in their calculations. Furthermore, the interests of the employees they employ can (and should) be given greater consideration than in private companies.

The fulfillment of such a political mandate can be associated with additional costs that must be shown as such. These additional costs should be passed on to the provider or - as far as socio-politically justifiable or according to the polluter pays principle - the consumers. If this does not happen, which is often the case, the profitability of municipal and private companies cannot be compared.

In order to be able to operate efficiently despite the political mandate, a sensible division of competencies between the political sponsor and the company is necessary in municipal companies. The following should be considered:

If essential decision-making rights reside with the agency, the following risks exist:

  • Felt and Klüngelwirtschaft could be reflected in the decisions.
  • The budgetary situation of the institution can be obscured by borrowing from the company; the debtor's level of indebtedness appears to be lower.
  • The executing agency can obtain additional funds from the company to improve its budgetary situation.
  • "Unobjective" decisions can be made as a result of overwork and a lack of professional competence on the part of the executing agency's representatives in the company's committees.
  • If too many competencies lie with the executing agency, the company management can be demotivated and no longer feel responsible for their actions.
  • For reasons of election tactics, prices or fees are set "uneconomically".

The risks of a strong management position are:

  • The carrier can no longer assert his interests.
  • The company is no longer controllable.
  • The management becomes independent and no longer pursues the objective of the public company.

On the other hand, having a strong management position also has advantages:

  • The management can bring their often higher level of expertise to bear.
  • It can react flexibly to market developments.

This conflict situation cannot be resolved in principle. The conflicting goals can, however, be minimized by choosing a company form suitable for the respective task, by stipulations in municipal commercial law and by specifying the respective competencies in articles of association, company or company statutes and in employment contracts.

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