Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
10. Corporate Governance
Generally, railways management is responsible for enterprise organization but
may call upon the board to help implement significant or strategic changes to
company structure, especially in response to industry restructuring, new legal
requirements for structural changes, or while implementing a board-developed
strategy that requires organizational changes.
During times of change, the board may hire specialist-consulting firms to assist
with human resources, pension/compensation, or organizational structure. Usually,
management hires actuaries and other advisors to develop pension contribution
requirements, but if pension and staff demographics threaten company financial
future, the board can also hire an actuarial firm to advise on sustainable
pension and staffing options.
Investment planning and strategy
Usually, the board has an investment planning and/or strategy committee to
oversee management in developing company mission and vision statements that
drive the company strategy; this committee also directs management in developing
the company strategy, business plan, investment plan, and future operating
and capital budgets, based on underlying assumptions, market assessments, strategic
market direction, and other issues.
The CEO and management will prepare company strategy, investment plans, and
budget for a full board presentation, then answer board questions and participate
in discussions. The board can then modify the programs before they approve
them, and the management team is responsible for implementation.
The board will direct management on requirements for progress reports on each
program, strategy development, investment plan, spending, marketing and operations
activities, and budgets, or planned spending/actual spending.
The CEO and management team will prepare overall presentations and progress
reports for the full board, but the board committee on investment planning/
strategy will scrutinize detailed management reports.
Alternatively, the board may hire specialized consulting firms to review management
team plans and strategies, or to conduct a diagnostic analysis of the railway, develop
a strategy, and propose investment and business plans. This is more common among
railways that are transforming to state-owned enterprises or undergoing significant
restructuring and reforms in response to new railway laws, or government efforts to
restructure the rail industry. This process is unusual, but if reforms are significant
and the board is new, it is often the only way to achieve an independent evaluation of
the new enterprise and future prospects.
Finance and risk management
The board must be familiar with company financial health and any major risks.
Consequently, most boards establish a finance and risk-management committee
to provide oversight and develop board policy on these complex issues. The
committee will specify the amount and type of debt the enterprise will assume,
develop policies for long- and short-term financing, leasing practices, and decide
when and how to raise equity any financing. In addition, the board must consider
The World Bank Page 161