ZBO

Blog

5 October 2018

The Country has hundreds of different tasks. The responsibility for carrying out these tasks lies with the executive power. This is the government, supported by its civil service. For some of these tasks it’s better to outsource them.

This can take various different forms. Those forms range from complete privatization through divestment (such as, for example, parts of public transport) to remote management. A well-known form of privatization is by transferring the relevant tasks to a public limited company. Then there’s still some connection when the shares are held by the Country. This is the case with government-owned limited companies such as Aqualectra, Curoil et cetera. The tasks can also be transferred to a foundation. This ensures greater independence. Examples are SOAB (Stichting Overheidsaccountantsbureau) and BAB. In the case of complete privatization, little or no responsibility is given to the government (except for the divestment!). Partial privatization involves a certain degree of involvement and responsibility.

“A well-known form of privatization is by transferring the relevant tasks to a public limited company”

Often insufficient thought is given to the size, form and consequences of privatization. This lack of prior reflection costs a lot of money and time. Even though former governmental tasks are transferred to others, it doesn’t mean that the Country no longer has anything to do with them. The sense of responsibility often continues to exist to a certain extent, even if it’s only according to society. When the only local airline is on the verge of collapsing, everyone will look at the government to do something about it. This is not entirely logical. A fully privatized company must be able to handle its own business. Otherwise, we’ll all have to pay for the failure of some private parties. If they make a profit, it doesn’t go towards our general resources either.

A frequently occurring but relatively seldom discussed form of privatization is the ZBO. A ZBO or Zelfstandig Bestuursorgaan is a non-departmental public body. These are entities that have a form of administrative responsibility and authority. Our Central Bank is an example of a ZBO, for instance. The SVB, the Chamber of Commerce and the FTAC (our recently established competition watchdog) are also ZBOs. A ZBO can legally take the form of a foundation, but can also be established by law. In that case, the ZBO isn’t a public limited company or a foundation, but a legal entity purely because the law says so. An institution such as this doesn’t have articles of association. Its governance is regulated in the relevant act itself. Obviously this is only possible to a limited extent. The question then arises how to deal with problems that aren’t covered by the establishing act. In that case you cannot simply fall back on the company law that is regulated in Book 2 of our civil code. After all, that law only applies to ‘normal’ legal entities. So be careful with those ZBOs. There is another reason for taking a moment to reflect before you set up a ZBO.

In the Netherlands, the number of privatized watchdogs such as our FTAC has increased enormously. By now, there are about four hundred of them! Even in our country, one or more are added every year. I advocate keeping their numbers limited. It’s also necessary to think very carefully beforehand about the governance of these entities. Often they are quite easily given legal powers in order to strengthen their supervisory duties. They are allowed to enter places, request documents and issue penalties. But who is monitoring the ZBO? Although citizens who are subject to their supervision can turn to the administrative court, this isn’t very effective by definition, because it’s always done after the fact, is cumbersome and expensive. If the people who are vested with administrative authority within these institutions, are insufficiently aware of or able to handle this great responsibility, problems are lurking around the corner. There’s also the danger of arbitrariness. Sometimes, the approach of similar ZBOs is very different. In the Netherlands it’s a well-known problem that the two watchdogs of the financial sector, De Nederlandsche Bank and AFM, each use a completely different enforcement method. This makes things difficult for the supervised institutions, such as the banks and insurance companies.

The moral of the story is that our elected representatives must carefully examine the underlying reasons of each privatization and what its intended (legal) structure should be. There must be a clear and verifiable philosophy and approach behind every intention to privatization. Otherwise you shouldn’t do it!

This blogpost is also available in Papiamentu. Download the PDF version.

Do you have a question about corporate governance? Please email it to governance@ekvandoorne.com and perhaps your question will be discussed in the next blogpost.