Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
7. Administering the Railways
of highly skilled potential candidates—particularly with private sector and international
expertise and experience. Incorporating international experts into the
Board is a good idea (although rarely followed), when the country involved lacks
experience or expertise in the railway domain. A good example of this approach is
the Board of the railway infrastructure manager in Great Britain (currently Network
Rail, former Railtrack), which included foreign experts.
Board members must be professional, independent of political influence, and act
in the sole interest of the railway, rather than represent interests of any other
constituencies. To this end, the supervisory entity should develop guidelines or a
code of ethics for its own members and board appointees, including state officials.
Any potential conflicts of interest should be carefully evaluated and relevant
trading regulations should be adhered to for those who have any personal financial
stake in the railway, suppliers, or customers.
Board members should have a clear mandate and full responsibility for company
performance, and must be fully accountable to the owner(s) for their actions.
7.4.3 Appointing the CEO
The CEO must be nominated and appointed against professional criteria using
transparent rules and procedures that maintain a line of accountability from the
CEO to the board and the ownership entity.
Appointing and dismissing the CEO is a key board function and responsibility.
Without authority over the CEO, boards would be unable to fully exercise their
monitoring function or take responsibility for state-owned railway performance.
Sometimes, the board consults with the ownership entity to select the CEO, or the
CEO is appointed directly by ownership entity decision, in which case it is highly
recommended to consult the board to preserve its authority.
Since the board must assess management performance, it should decisively influence
CEO compensation, which should be tied to CEO performance, and publicly
disclosed.
7.4.4 Separating the board chairman from the CEO
A well-functioning board should be structured to facilitate objective and independent
judgments, accurate monitoring of senior management, and strategic
decision making.
To enhance board independence, the OECD Principles of Corporate Governance
consider it good practice to separate the chair from the CEO if the state-owned
railway is organized in a single board structure, “achieving an appropriate balance
of power, increasing accountability and improving the board’s capacity
for decision making independent of management.” Implementing this principle
requires clearly defined board and chair functions to prevent conflicts with company
management 71 .
71 For example, the President and CEO of Amtrak, the most important passenger transport
company in the USA, is by law NOT Chairman of the Board.
The World Bank Page 116