Skip to content Skip to navigation

Application of Relational Governance in Infrastructure Privatization

TitleApplication of Relational Governance in Infrastructure Privatization
Publication TypeConference Paper
Year of Publication2017
AuthorsIn, SYoung, Sharma, R, Monk, A
Conference NameThe Engineering Project Organization Conference 2017 held in conjunction with the 5th International Megaprojects Workshop: Theory meets Practice, Stanford Sierra Camp, Lake Tahoe, CA, USA

Infrastructure privatization is expected to bring operational efficiency gains and diversified, greater financial access. But due to the heterogeneous and politically salient nature of infrastructure, performance of privatized infrastructure firms is often hindered by misaligned stakeholder interests and frequent government intervention. This study takes a new approach in examining infrastructure privatization challenges by applying traditional relational governance analysis to the privatized firm. Although relational governance can encompass economic, legal, sociological and psychological governance perspectives, we borrow MacNeil (2000)’s two distinct definitions of “relational”; one is socio-political influences on the exchange and the other is the continuing nature of contracts. These two aspects are correlated to each other in an inverse relationship; when socio-political understanding breaks down, the need of contract enforcement rises, and vice versa. This inverse relationship is illustrated in two contrasting airport privatization cases—British Airport Authority (BAA) and Auckland International Airport Ltd. (AIAL). For instance, the regulatory backlash that followed the acquisition of BAA reveals the need for socio-political understanding to manage interpersonal and inter-organizational dynamics among investors, management bodies, airport users, and local community. In contrast, the AIAL case shows how the government can play a central role in building strategic and nationwide consensus, leading to favorable investment and economic impact. Consequently, the New Zealand government can maintain a relational form of light-handed regulatory contract. Thus, we suggest that understanding socio-political interactions and wider political economic contexts can overcome the shortfalls of the governance structure created by formal contracts. 

Keywords: infrastructure privatization, corporate governance, relational governance, stakeholder management, light-handed regulation, airport privatization