Boards of directors’ effectiveness in Maltese public sector entities : an analysis

Abstract

PURPOSE: This study had two objectives: First, to analyse BE within MPSEs through an examination of five fundamental aspects, namely, Board selection and appointment, Board role, Board composition, Board remuneration, and Board performance evaluation, and second, to propose recommendations that could enhance BE within MPSEs for each of these aspects. DESIGN: A qualitative mixed-method research approach was adopted. Semi structured interviews were conducted with 22 participants, consisting of 18 MPSE BMs, a representative of the Malta Institute of Directors, 2 corporate lawyers, and 1 corporate advisor. FINDINGS: It transpired that all five fundamental aspects of BE are compromised in MPSE Boards. It was found that, in Malta, the selection and appointment process of MPSE BMs lacks transparency, and relies on political ties. The tendency to continuously appoint members of the ‘people of trust’ network of ministers creates a barrier to new talent outside the network, and deters competent individuals from accepting appointments, who fear that political bias in the selection process may harm their reputation. Meanwhile, the identification of BMs as PEPs upon appointment further hinders the MPSE Boards’ ability to appoint diverse talent, particularly entrepreneurs. Furthermore, Board training is neglected, and tensions exist between political party loyalty and fiduciary duties, hence obstructing MPSE BMs from fulfilling their roles optimally. Additionally, it seems that ministers value academic qualifications as political connections complement, rather than supersede qualifications in Board appointments. However, female representation on MPSE Boards is considerably lacking, and foreign Board appointments are a rare occurrence, weakening Board composition. Moreover, MPSE Board remunerations are too low, when compared to the private sector, thereby reducing Board quality. Finally, Board performance evaluations face resistance, as they would make the shield of political protection obsolete, at the expense of optimal performance and BE. CONCLUSIONS: The study concluded that the journey towards achieving BE within MPSEs is still far from complete, and there remains considerable work yet to be done by the Maltese Government for Malta to reap the rewards from BE and good CG in MPSEs. IMPLICATIONS: This study attempted to raise awareness of the need to strengthen CG practices and enhance BE within MPSEs. It is hoped that the recommendations presented assist the Maltese Government in achieving BE within MPSEs, which is an essential step towards building a thriving economy and creating a positive legacy for future Maltese generations. Additionally, it is hoped that this study proves valuable to future scholarly researchers investigating CG in the context of PSEs within small island states.