Privatisation, Governance and Restructuring of Enterprises in the Baltics

The three Baltic countries show many similarities in the development of new ownership structures, but they have followed different paths of privatization and this has to some extent resulted in differences in the structures of enterprise governance. The first part of the paper describes the privatization process in each of the three Baltic countries. The process is divided into different stages dominated by different privatization methods. It is shown how these different methods have resulted in different ownership structures in each stage. These descriptive sections are summarized with comparative overviews which also include the main elements in the institutional framework for corporate governance.
In the second part of the paper the resulting ownership structures are described, and it is shown how these struc
tures have changed after the initial privatization. All three countries have a quite high degree of both management ownership and broader employee ownership. This was especially the case for the early stage of privatization and concerned mainly small and medium sized enterprises with quite low capital intensity. For Lithuania also larger and more capital intensive enterprises were taken over by a broad group of employees. Estonia has been the fastest to
promote significant foreign investment, but the other countries have been catching up the latest years. Some of the differences have been leveled off in the dynamic changes of ownership structures. The strongest change has been managers taking over the ownership from other employees.
Finally, findings from our studies on the relationships between ownership and economic, performance are presented. Foreign owned enterprises takes the lead when it concerns pro-active restructuring: developing new markets, new products and new production methods. They have a high capital intensity and this has not yet paid off. Profitability is lower and factor productivity on the same level as in insider owned enterprises although foreign ownership have advantages in management and easy access to international market networks. Insider owned enterprises have more defensive restructuring with some downsizing, relatively low wages, problems of getting
bank-loans, relatively low investments. However, at the same time they can show relatively good results on profitability and factor productivity. Compared to domestic outside owned enterprises insider ownership are doing surprisingly well in most measures across the three countries.