Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
10. Corporate Governance
10.3.3 Board of directors relationship to railway management
A well-functioning railway enterprise depends on a good working relationship
and communications between the CEO and board of directors (board chair). A
general principle is that the board and the board chair deal with strategic issues
only and do not interfere in operational matters, which means that within the
railway organization, board communications and contacts are always conducted
through the CEO, or that the CEO must be informed of them.
10.4 Management Accountability and Transparency
The transparency of the railway company’s performance should follow normal
rules of business as determined for a publicly listed company, i.e., continuous and
regular communication to the owner on matters that might affect the value of the
railway company as a whole.
10.4.1 Transparency and confidentiality
Tension exists between the need for transparency in the information provided to
shareholders and the need for confidentiality. Some railway information should
remain confidential, for example, personnel information, shipper contract terms,
or quantities of goods that a client ships to customers. On the other hand, stateowned
railway business should be transparent to its owners and its board of directors.
For public companies, only limited claims of confidentiality should be
permitted by the Board – limited to personal information about staff and contractual
relationships that truly need to be kept confidential (for the protection of
shippers). Railway organizations and their boards face the challenging task of
being active, open, and transparent in their activities and communications, without
revealing commercially sensitive or confidential information. The board of
directors and the CEO are responsible for developing ethical practices related to
maintaining transparency of operations and confidentiality. A third party, such
as an external auditor, can audit confidential information so the essential facts
are reported and confidential information is kept secret.
10.4.2 Standards and systems
To ensure transparency of operations, a railway company applies rules and standards
for publicly listed companies, which includes financial information normally
reported under IFRS, or other approved financial reporting standards. The
CEO is responsible for ensuring that the rules are applied. The internal audit
function and the board audit committee supervise application of the rules.
A railway company should issue a description of its applied corporate governance
system in connection with publication of its annual statements. 118 The applied
corporate governance system should include the following descriptions.
• Internal controls and risk management relating to financial reporting system
• Activities and composition of board of directors and board committees
• Identity of the CEO and key managers, their qualifications duties, and responsibilities
118 If required or not by a listed company.
The World Bank Page 165