BUSINESS OPINION:The next minister for finance has cunningly been presented with an impossible task, writes JOHN McMANUS

AMONG THE various hospital passes that the outgoing Government have cynically thrown to the next administration in the Budget the cap on State company executive pay is probably the most cunning.

Minister for Finance Brian Lenihan must have found it hard to keep a straight face when he told the Dáil that, “I think the position of the Minister for Finance as a shareholder or statutory stakeholder in these companies can be used to enforce the objective of the maximum salary within a reasonable time frame”.

What this really translates into is “I look forward to watching from the opposition benches as my successor gets skewered on an ongoing basis over his failure to implement this nonsensical idea”.

Whoever takes over as minister for finance really has two choices. He or she can dismiss the plan to cap the salaries of State company executives at €250,000 for what it is – an unworkable, politically motivated gimmick – or else look forward to being humiliated as the various vested interests at play in the boardrooms of State companies conspire against them.

None of the above, by the way, should be interpreted as saying that there is not a valid issue about the salaries paid to the senior executives of State companies and whether they represent value for the taxpayer. The point is that, having allowed a culture to develop in State companies where these sort of salaries are paid, you simply cannot put the genie back in the bottle because its politically expedient to do so.

The very generous salaries enjoyed by the senior executives of State companies and boards are a product of the dysfunctional relationship between Government and the various commercial bodies it owns.

In the normal way a shareholder in a commercial entity is looking for a return on their capital. The type of business they invest in depends on things such as the type of the return they are hoping to get.

Governments as shareholders have other objectives, some of them of good and some of them not so good.

The good are arguably mostly historical and spring from the need in the early years of the State for Government to step in with investment in things such as electricity supply when the private sector wouldn’t or couldn’t.

In more recent years the not so good have been in the ascendant and nothing epitomised this more than the relentless filling of the boards of State companies with political appointees who have little or no qualifications for the job.

The extent to which State boards are stuffed with political cronies is beyond embarrassing for any country that takes itself seriously. Sadly it is in keeping with a country that has bankrupted itself in large part through political incompetence.

The absolute refusal to take the issue of board appointments and corporate governance in State companies seriously must rank as one of the most profoundly debilitating aspects of the Government’s role as shareholder in state companies.

You cannot separate out-and-out disasters such as the Dublin Docklands Development Authority from the lack of strong independent, properly qualified boards. Neither can you divorce the potential white elephant that is Dublin airport’s Terminal 2 – or wage levels in the ESB that seem to have no grounding in economic reality – from the fact that seats on the boards of these companies are seen by and large as sinecures for party hacks.

It is laughable to think these same boards should have a culture of corporate governance that the Minister for Finance believes will now deliver the sort of executive wage restraint that he wants to see come about.

But of course the Minister does not believe anything of the sort. He knows that if his successor is stupid enough to take up the challenge he will pretty quickly get bogged down in trench warfare with the boards of the various State companies in much the same way that the boards of the banks fought him to a standstill on the issue of reform, executive pay and recruitment.

If the banks could do this when they were broke and their management devoid of credibility, what chance does Lenihan’s successor have against the boards of strong State companies?

If his successor really wants to tackle this issue he would have to bring about a profound change in the way the boards of State companies are constituted. If the boards of these companies had been populated by individuals who would actually question whether these companies could or even should pay such salaries in the first place we would all have been better served.