DOCTOR’S TIPS: Jerzy Zdrzalka from Stikon on what a businessman can learn in the civil service
Jerzy Zdrzhalka, a member of the Board of Directors of Stikon, a construction company in Odesa, Doctor of Economics, told Leadership Journey how to manage a public company and what you can call a good corporate governance.
Leadership Journey (LJ): You have a rich professional background: science and teaching, public service, and business in banking, insurance, and now construction. Why at one time a doctor of economics found himself in the public service?
Jerzy Zdrzhalka (JZ): I began my career in 1976 as a reader in economics and tried to help students understand the principles of a market economy, although I was to convince them in the superiority of the socialist model of society. I did not think that my knowledge would ever really come in handy but in 1989, a new era began: Poland’s economy started to transit to a market economy and I was invited to take part in this process. At that time, the civil service opened up great opportunities for those who wanted and could change the country. It was stormy, but a very interesting period with political games, large-scale privatization of state property and a deep reform of the economy and society as a whole.
LJ: How have the views of a researcher changed in the public service? What was your professional skills enrichment?
The logic of functioning of the public sector and business differs in many ways.
JZ: My public service has not changed my fundamental views of the economy. This was essential for a simple reason; we faced an important task: to create a countrywide structure that would allow building an efficient economy based on private property, a free market and a reasonable share of state participation. This was to be kept in mind regardless of the burden of the still strong bureaucracy and social tension.
As a result, my professional experience was enriched in two directions. Firstly, I took part in the country’s transition from a centralized planned economy to a market model and from a single-party system to democracy. Secondly, I was convinced in practice that the logic of the functioning of the public sector and business differed in many ways.
LJ: Business is a more dynamic environment than a civil service. Nevertheless, in 2014, many successful Ukrainian businesspersons became civil servants. What qualities should possess a businessman to achieve a result in the civil service? Does not a civil service endanger a loss of a business sharpness?
BUSINESS PURPOSE IS TO GET PROFITS FROM COMPETITIVE ADVANTAGES AND AN EFFICIENT USE OF RESOURCES
JZ: There is a fundamental difference between these worlds. The purpose of a business is to make a profit from competitive advantages and an efficient use of resources. The role of the state is to create equal rules for all market participants, to provide for the organization and financing of certain types of activities, as well as the creation of a favorable investment climate. However, there is one thing in common: this is an effective management of various processes. In this area, the experience of business managers will come in handy, although they need to understand and realize how complicated the decision-making process in the public sector is due to political aspects and bureaucratic regulation.
LJ: After working for the Polish government and in the banking sector, you became the head of the JWCH construction company, one of the largest in this industry in Warsaw. What can a former civil servant and a banker contribute to the development sector?
JZ: My main function was to prepare the company for IPO and to place its stocks on the Warsaw Stock Exchange. Together with colleagues, we successfully coped with this task.
LJ: In 2007, JWCH appeared on the Warsaw Stock Exchange and became a public company. Does it help or limit more to be a public company? How does the management change when you become a public company?
JZ: It is difficult to give a clear-cut answer to these questions. Being a public company helps to attract additional capital to the company and increase the trust of investors and customers. Besides, the necessity to inform investors regularly about the state of business increases the level of internal responsibility of the company and strengthens the importance of clear corporate governance. On the other hand, preparing for an IPO and maintaining the status of a public company is a costly “pleasure” and in some situations, it is limiting the elasticity of the company’s reaction to changes in the market conditions. Many other factors should be considered when deciding to go public. My main problem was compliance with the rules of corporate governance in a company that was for many years managed by the founder, who after the IPO remained the main shareholder.
LJ: Once the Warsaw Stock Exchange was a very popular platform for the Ukrainian companies, especially the agrarian firms. There was even created a separate WIG-Ukraine index. Some Ukrainian companies met the expectations of investors, others did not, and some were completely de-listed. In addition to financial indicators, what should the management of a company claiming to be public take care of? What is the role of the majority shareholder in a public company?
The majority shareholder is a strong person, well perceived by the market and capable to communicate with it.
JZ: The main factors when you make a decision to enter the stock exchange include an additional investment to develop the company, as well as, more trust of investors and customers. A long-term capability of the company to comply with the rules regulating public joint-stock companies is important. A clear development plan is the main thing in going public. This will convince potential investors in the prospects of cooperation.
The role of the majority shareholder is very important: he must have a vision of the company’s strategy and a determination to adhere to it. This is a strong man, well perceived by the market and capable to communicate with it.
LJ: Can the Ukrainian construction companies be competitive abroad participating in international tenders?
JZ: They should soberly assess their capabilities if they want to win a tender and implement contracts. This is a difficult market. In Poland, for example, despite the huge investments in the construction of roads and highways, many construction companies were in a difficult financial situation. Therefore, I would recommend the Ukrainian construction companies to start participating in international tenders as subcontractors or partners in a consortium of firms.
LJ: You are a member of the board of directors of the Stikon construction company. Why do private companies, which do not plan IPO or private placement on the exchange, need a board of directors?
THE BASIC ROLE OF THE BOARD OF DIRECTORS IS TO FOCUS ON THE IMPLEMENTATION OF LONG-TERM GOALS
JZ: The size of the company and its structure are much more important than the plans for IPO or private placement. The main role of the board of directors is to focus on the implementation of long-term goals. In small companies with one or several large shareholders, the business owner, along with operations management, is often in charge of a strategy. In large companies, it is necessary to divide these roles. Then the time comes to create a board of directors to control the long-term processes.
LJ: Today in Ukraine only 0.1 square meters of housing per year is built per inhabitant, while in Europe this figure reaches 1.5 square meters. What does it imply – to work in such a small market?
JZ: The Ukrainian construction market will increase following the growth of the economy, which will lead to an increase in personal incomes of the population and effective demand for housing. It is very important to keep inflation under control so that banks have the possibility of lending to developers and end customers. Creating and maintaining conditions for the development of the industry’s potential is, first and foremost, the task of the state, and developers will be able to adapt to the size of the market. As you know, only the best survive.
LJ: The construction industry in Poland is about $ 46 billion against $ 2.7 billion in Ukraine. A large pool of opportunities for Polish construction companies is obvious. What are the challenges and threats facing the players in the construction market in Poland?
The main thing to fear is an economic downturn and falling prices in the real estate market.
JZ: If you compare the population in our countries, it becomes obvious that in Ukraine the construction industry has a great potential. The Polish market, although it is larger, is not trouble-free. It is highly competitive and growing, fueled by a rapid economic growth, a low inflation, and bank financing. However, there is a danger of overheating. The main thing to fear is an economic downturn and falling prices in the real estate market.
LJ: Many industries are now radically transforming, but construction remains one of the most conservative sectors. According to a McKinsey report, in 2016, 70% of construction companies invested less than 1% of their income in new technologies. What does the future of the construction industry look like in the digital age?
JZ: Now in New York the Steinway Tower is under construction. This building, 13 meters-wide and 433 meters-high, will be the narrowest skyscraper in the world. Just imagine the complexity of this project and its technological level! There are more examples to demonstrate that the construction industry is using the most advanced materials, technologies, and management methods. This is natural and inevitable.
LJ: What is your understanding of a company with good management? What values is it based on?
JZ: Managers with high managerial competencies should head such a company; it should have an understanding of its goals and objectives in the market and the ability to transform its own potential in accordance with the real needs of customers. A clear structure, a clear separation of duties and responsibilities, as well as the involvement of employees in the implementation of the objectives of the company.