The MDC – going forward Options – pros and cons!
by Bennette Roach
Opposition Leader Reuben Meade and Mr. John Ryan
It is time, now that the PDM Government, less than a month shy of two years, do what should have been their first order of business. This is so even after they had botched the Montserrat Development Corporation (MDC) failure, and given that they had not been prepared for where they were on the morning of September 12, 2014. They were less prepared for the decisions which they definitely had not done any due diligence, rushing into appoint a Task Force, very ill equipped for the job at hand, which in our opinion, basically continued the very deficiencies and in competencies they so poorly reported.
Premier Donaldson Romeo
We present here from the Report, hoping that those people, at home and abroad, so concerned about Montserrat’s future will all impress upon their Government the action necessary to move forward; the mistakes from decisions, by action or inactions, so far, notwithstanding.
Knowing the contents of the Report it will become obvious the corruptible advice that lie herein, where in one instance a member or members of the Task Force positioned themselves, misdirecting the Government, obviously too ignorant and unprepared to avoid falling into a mess.
There are also the contradictions which have caused many missteps by Government who must be confused, but if the saying remains true, those who should read, do not, and it would appear no one does for them either.
Ivan Browne formerly of MDC.
Even now, our own recommendation is that the Government get a Committee of people, made up as recommended from time to time, people who within the public and private sector can truly inform and produce creditable advice. They may even be required to recall some of those people who informed the Task Force for verification of the conclusions drawn by the Task Force.
We would therefore direct our readers whether to the hard copy of the newspaper as we dealt in some details on the issues coming out of the MDC and the report, not forgetting there are still considerable taxes due from people who probably should otherwise be disgraced.
MDC Task Force options with pros and cons;
- The options are discussed in detail below:
- Option 1: Status Quo
The first option is to retain the Status Quo; that is for MDC to continue but with clear targets to address the Governance and other issues.
This is an option that should always be considered because of the time, effort, resources and more over the impact to livelihoods of employees that come with liquidation.
Pros
- Mandate: this is the strongest argument for maintaining the status quo. The original, and subsequent mandates, remain valid.
- Employees: there is a significant number of employees within MDC that are enthusiastic and committed to their work.
- Sunk Costs: Significant investment has already been made in MDC and cannot be recovered.
- Spin Doctoring: From a Public Relations perspective the image of MTB as strengthened through its merger with the MDC and open for business will be attractive to the international travel trade and Travel media, even if this has not been the case in practice.
Gov Davis and Martin Dawson
Cons
- Persistent poor Governance: MDC has been the subject of at least two consultancies (initially GHK and later Upper Quartile) and sensible recommendations regards governance were made with respect to the Corporation. Despite this, poor governance persists and indeed not just at the level of the Corporation but the Board also. In addition, DFID completed an Intervention summary which found the same and made yet more recommendations; this did not address the issues. Therefore, it is unlikely that it will be sufficient to do the same thing again and expect improvement.
- Legal structure: Currently MDC is a public limited company under the companies Act. This can work but it requires an organisation with a skilled and trained Board and an understanding that they are a Government owned company and therefore must comply with government public financial management regulations. The challenge is with this type of legal structure the governing instruments of the Memorandum of Articles of Incorporation, whilst specifying the objects of the company as its own legal person the company can easily change its objects without necessary having to file such a change. Moreover, the By-Laws can also be similarly easily changed. Therefore, one would need to draft some rather onerous documents to safeguard good governance in the context of being a government owned company which would restrict the autonomy that is the key benefit of being a public limited company.
Kato Kimbugwe, DFID
- Fit for purpose: Whilst the mandate of the MDC is still relevant; it is not sufficient. MDC recognised the link between, Trade, Investment and Tourism and this sought to be addressed by subsuming the MTB into the organisation. However, this was not well thought through and with the repeal of the MTB Act there is now no clear mandate for Tourism. This needs to be addressed and this would have an impact on the current structure of MDC. In addition, it should be noted that the government has not yet made a decision as to the direction it wishes to go as regards the Little Bay/Carr’s Bay Master Plan; that decision could have substantial impact on the Infrastructure mandate, and structure. Lastly, regarding the Trade and Investment Promotion Division there is a need to review the mandate if it is to operate as a national Trade and Investment Promotion Agency, rather than focusing on the Little Bay/Carr’s Bay Master Plan and this will likely impact the structure.
- Employees: It is reiterated that the majority of employees are enthusiastic and passionate about their work. However, some employee’s background and experience is less than optimum for the level the position is set at. Therefore, the issue of value for money from the remuneration packages being paid is a point to note; particularly because the DFID Audit Report found that salaries of employees contracted directly though MDC appeared to be higher than in similar organisations within the region.
- Institutional Decline: The life cycle and growth of the Tourism Administration has been stagnated for 2 decades having gone through cycles of unproductivity, and ineffectiveness.
There is np evidence to suggest that the administration will perform any better under the present structure.
Conclusion: In short- the cons outweigh the pros as regards this option; therefore maintaining the status quo is not the Task Force’s preferred option.
- Option 2: Immediate closure and all activities subsumed into government
Pros
- Control: This option provides the government with significant control and ensures congruity between Trade and Investment policy and promotion functions, and, the same for the tourism policy and promotion functions. It would also provide an opportunity to firmly re-establish the tourism mandate.
- Current examples: There are examples of Trade and Investment Promotions Agency’s within the region, and more specifically within Overseas Territories (OT’s) that use this model and the TIPA is a Government Department, namely Cayman Islands and is reported to be a success, and in Turks and Caicos they wound up their Trade and Investment Promotions Agency, (also a limited company) and subsumed it back into government.
- Synergies: As mentioned in this report MCWL and PIU have a mandate to construct buildings on-behalf of Government; however there have been challenges with these Divisions. Both do not have sufficient capacity (both competencies and numbers) to expand their remit. It could be that these entities if merged with the Infrastructure Division of MDC could find greater synergies, prevent duplication and enhance the project management and construction of Government infrastructure. Indeed this was a suggestion made by the Director of Infrastructure, as well as other suggestions for a more integrated approach to management of infrastructure across government.
- Credibility: The Upper Quartile report noted that the credibility of the MDC was low at that time, and the DFID intervention summary confirmed the same. Moreover, as regards public opinion following the Pipers Pond project this seems to have been further eroded. It could be that subsuming the MDC back within Government credibility would be resTORed.
Cons
- Lack of Autonomy: To subsume the MDC back within government would curb the autonomy of the entity; the point of an arms-length entity is to allow it to apply commercial principles which is difficult to achieve from within central government.
- Bureaucracy: It is reported that MDC was set up as an ‘arms-length’ entity to provide investor confidence as when managed from within government there was much red tape. The MDC One-Stop-Shop was to be an answer to this.
- Appropriate skills: Often, specialized skills as are required for an MDC type organisation are difficult to attract into central government because salaries are thought to be uncompetitive.
- Credibility: Clearly, the case for credibility could go either way; without feedback from the market one does not know. It could be, given what was reported as the rationale for having an ‘arms- length’ agency (investor confidence in Government low) that this could be seen as a step backwards by investors; though the local population might welcome it given the discontent regards the Pipers Pond project.
- Fragmentation: If the MDC was subsumed back into Government the most likely scenario is that the Trade and Investment Promotions and Tourism divisions would be merged with the policy component which resides in the Office of the Premier. However, the Infrastructure division would likely be within MCWL or PIU. This could lead to fragmentation if the divisions within government fail to collaborate.
- Employees: At first sight this appears to be a potential way to avoid redundancies. However; that would not be possible concerning employees contracted directly by MDC as their remuneration packages are far in excess of the government pay scales and therefore could not easily be subsumed without creating inequality; this is already an issue within central government and this would compound it. It is more likely that one would need to make these employees redundant in effect ‘buy-out’ their contracts and re-hire only those that are needed.
- Tourism Best Practice: It would be perceived as a step backwards for Tourism to have the promotions function subsumed back within government because this is contrary to what has become best practice. The rationale for the separation between Tourism policy and promotion/execution is to eliminate potential conflict of interest between the regulator, the developer and the promoter/ marketer of the tourism product.
Conclusion: The Con’s for this option outweigh the Pros and as such this option is not recommended.
- Option 3: Immediate closure, followed by the creation of a new entity with clear separation between the entity and government and temporarily subsume any on-going activities into government or outsource (as necessary).
Pros
- Cost Savings: this option ensures that no further sunk costs are incurred in the MDC which is clearly not functioning at full capacity as several staff advised and the CEO confirmed, given the lack of financing to build out the Little Bay/Carr’s Bay Master Plan. DFID funding of MDC operations was to take the organisation to July 2016. A decision to liquidate now could save those costs and re-apply them to getting government the support it needs to get the new entity right.
- Time to reflect: If MDC’s operation ceases then with the exception of key strategic initiatives it provides an opportunity for government to determine what should happen with the Master Plan and assisting with the development of National Trade & Investment and Tourism policies & strategies. These actions are critical to ensuring any new entity is properly positioned, in-terms of its relationship with central government and the scope of its mandate.
- Get it right – this option provides the opportunity to get the governance issues resolved from the out-set, and ensuring that central government officers who are responsible for the respective policy areas are intimately involved in this. This could include developing a new DFID business case that would consider (i) changing the legal structure from a public limited company to a State Owned Enterprise, or an Executive Agency (though the Attorney General advised that the Constitution may not permit this). Either of these options would have their own enabling Act which would make clear that government regulations for public financial management and procurement must be complied with and placing penalties in the act for contravention by the Board; (ii) reviewing the mandate to include tourism, (iii) developing the business plan, (iv) developing an appropriate structure that will execute the business plan, and, has the key positions needed, positioned at the correct level, with robust job descriptions and remuneration at the correct levels, (v) ensuring all the governance requirements are addressed prior to startup of the new entity, i.e. develop all the policies, systems and procedures needed to run the operation
- Restore public and investor confidence: If, which is not known both investor and public confidence in MDC is low; a new organisation, properly launched should restore confidence to these stakeholders.
- Re-tool for Sustainability: Tourism has lost its way in light of debilitating circumstances. This option presents the best opportunity, to simultaneously retrofit the institutions responsible for tourism policy and regulation as well as the marketing and promotion machinery, and to streamline and refocus attention on planning developing and promoting a new and sustainable tourism industry
Cons
- Redundancies: Immediate closure would of course impact the MDC staff. All MDC contracts can under the contract be terminated on one months’ notice, or one month’s pay in lieu; the latter would be the preferred approach so as not to compound the hardship employees may experience;
- Credibility: The same arguments above as regards credibility could be made, even though the subsuming into government concerns only key ongoing initiatives such as: Estate Management of Marine Village leases; Small Business Loan Facility, Some Tourism activities. Annex 7 shows the current on-going activities
- Complacency: The possibility that the short term arrangement for temporarily placing the execution aspects of the tourism under the Office of the Premier will extend beyond into the long term. (Note long-term, policy, strategy and regulation of the tourism product will reside in the Office of the Premier permanently as recommended in the on-going Functional Review of that Office)
Conclusion: The Pros far outweigh the Cons with this option. It is the reviews teams preferred option.
- e) Option 4: Immediate scale down and only essential activities continued before creation and handover to a new entity with clear separation between entity and government
Pros
- Manage ongoing activities as before- Assuming there are key initiatives that cannot easily be subsumed back into government, pending the establishment of a new entity, then this option allows a few core employees to be retained ensuring that there is continuity of the work activities with minimal upheaval to the clients of MDC (currently only the Small Business facility and infrastructure (Marine Village) have active clients)
- Saves some costs: In this option since only core employees needed for on-going activities would be retained and the remainder made redundant there would still be a cost saving that could be applied to preparing for the new entity
- Presence in the market: It is possible that as concerns investors that MDC has connected with previously; though they don’t appear to be active, and government may wish to review whether these potential investors are consistent with the policy direction the new government has, but if they are it might be more beneficial for MDC to continue to make contacts with those investors until the new entity is established.
Cons
- Unfairness; If some employees are retained over others it may be seen as unfair; the selection criteria would need to be clear and transparent;
- Management; The biggest cost of MDC is Senior management salaries. Whilst it is possible for an Executive Chair to remain in position to manage the MDC in the short-term there are serious issues with the Directors, e.g. A complainant, an under-performing Director who appears to disregard instructions and a Director whose background and experience is less than desirable for the position and unlikely to be able to carry the relevant function without a more experienced technician which would mean further costs would be incurred.
- Presence in the Market: On the flip side if MDC is to be liquidated they would be unwise to contract with any further clients on-behalf of Government as the contract would be frustrated as the contracting party (MDC) would cease to exist. This is likely to negatively impact investor confidence, and cause frustration in the changeover
- Credibility: To keep MDC operational when it may have suffered even further knocks to its credibility, and then transition straight to the new entity may actually negatively impact the new entity as it may be seen as “business as usual’’ with just a name change.
- Capacity Building: A skeletal operation at MTB will mean that the remaining tourism staff will be even more isolated and lacking direction in executing their functions.
Conclusion: The pros and cons with respect to this option, though not equally weighted, are close. However, the most significant factor in the decision not to recommend this option is there little in the way of on-going activities are what there is can easily be subsumed into government temporarily; in addition it would be cleaner both in-terms of administration, staff morale and adverse publicity to make one clear decision to liquidate. Also, this would enable the full the cost savings to be realized.
