When trustees take advantage

What are we supposed to do when the directors or trustees of government corporations award themselves huge compensation packages unheard of in public service and totally out of proportion to the actual services they render? It will not be enough to shame them into moderating their greed, or resigning. The state ought to sue them and reclaim the perks they have awarded to themselves.

“Breach of fiduciary duty”—that was the term used by Judge Richard Posner of the US Court of Appeals 7th Circuit when he argued that chief executive officers (CEOs) and directors of private mutual fund companies are subject to a cap in compensation. Against Posner’s view, investment banks and companies have contended that the rates they pay to their executives are set by the market and are therefore competitive.

It is difficult to use this argument against Judge Posner, given his background. Besides being a judge, he is a prodigious legal scholar best known for his intellectual defense of the free market. Last year, however, in the wake of the financial devastation caused by the unaccountable behavior of Wall Street companies, he took the uncharacteristic view that in the matter of CEO compensation, the market had failed to provide regulation. The boards of directors of these companies, he said, had feeble motivation “to police compensation… because directors are often CEOs of other companies and naturally think that CEOs should be well paid.”

Note that the object of dispute in the above case is the responsibility of CEOs and directors in private companies. If shareholders can sue the highly paid executives of private investment companies to whom they have entrusted their money for breach of fiduciary duty, with more reason can we demand accountability from government-owned and -controlled corporations (GOCCs) like the Metropolitan Waterworks and Sewerage System (MWSS).

It is interesting that the charter of the MWSS provides for a board of trustees, rather than a board of directors. I suppose the word “trustee” was chosen because it carries a greater fiduciary weight than “director.”

Merriam-Webster’s definition of “trustee” is instructive: “a natural or legal person to whom property is legally committed to be administered for the benefit of a beneficiary (as a person or a charitable organization).” The trustee is not supposed to be the beneficiary!

MWSS officer-in-charge Macra Cruz offered no defense for the cornucopia of privileges, honoraria and bonuses enjoyed by their trustees, executives and employees, except to say that all these benefits had the approval of the MWSS board. The MWSS, she maintained, has its own charter that gives financial autonomy to the organization. Ms Cruz, of course, is right.

Republic Act 6234, which created the MWSS, does provide that part of the funds (the word used is “residue”) is to be allocated “to enhance the efficient operation and maintenance of the System, which include increases of administrative expenses or increases or adjustments of salaries and other benefits of employees.” (Sec. 13) This sounds pretty much like a standard provision in the articles and by-laws of any company, yet in the hands of the MWSS trustees, it seems to have become a blank check to award themselves the most fabulous perks.

Considering that—after the privatization of water services—the MWSS practically lost the bulk of its original functions, including the provision of water service connections, one has to ask what is left for the MWSS to do that has to be compensated in the most generous ways possible. I looked up the original law that carved the MWSS out of the old Nawasa. I realized this is a perfect case study for the dysfunctional way in which we have run government in this country.

The mandate of the agency has been defined, re-defined and mangled almost beyond recognition by successive presidential decrees and executive orders. What is left, at best, is a government agency with ambiguous functions, and, at worst, an institution that has obviously outlived its usefulness. That its executives, trustees and employees have been allowed, despite all this, to pay themselves extraordinary compensation only shows the depth to which the governance of many of these government-owned corporations has sunk. They have become, in truth, no more than sinecures for political lackeys, emblems of the perverse idea of government as a gravy train.

The damage to society would probably not be so much if these were merely sinecures for faithful servants like Gloria Macapagal-Arroyo’s gardener and manicurist. But we are talking here of government offices into whose care public pension funds, lands and other properties belonging to future generations have been entrusted. It is bad enough that the former president has tended to appoint to these boards people who know little about the offices to which they are named, and whose only qualification is that they have the right connection. It is unconscionable that these same individuals are given the power to dispose of the patrimony of an entire nation.

In the Philippines, we take for granted that this practice is integral to the exercise of presidential prerogative. But this is a crime, and there is a term for it in modern societies. In the United States, it is called “breach of fiduciary duty.” In Europe, it falls under the general category of “abuse of social goods.” One can go to jail for this offense.