State-owned enterprises (SOEs) play an important role in the ownership landscape and in global markets. How well these state-owned enterprises are governed will have a significant impact on their performance and value, as well as on public finances, economic growth and competitiveness.
Note to the Reader
Governments face complex challenges in improving the governance of state-owned enterprises. Having worked for the Swedish government handling state ownership for more than 15 years, I have firsthand experience as a practitioner on how the governments struggle to improve the governance of SOEs. One of the main challenges in doing so is to put in place appropriate accountability and transparency processes. It is only with such systems that the state as an owner will be able to act as an informed owner, without interfering in day-to-day management, two essential recommendations of the OECD Guidelines. The Swedish government, having been an advocate of reforms, has been able to appreciate how useful it is to put lights on the performance of SOEs and on how the state exercises its ownership function. Greater transparency is usually very effective in triggering further support for reforms.
Accountability requires benchmarking performance against clearly defined objectives. The fist step is thus to define objectives at different levels: firstly, for the state as an owner, with the "ownership policy" for high-level and long-term objectives and then specific yearly targets; secondly, for the SOEs themselves, with their high-level mandates, then their yearly objectives with specific performance indicators. This chapter will cover how to develop an ownership policy for the state as an owner, then how to develop specific yearly targets for the state ownership entity(ies). It will also describe how to define and review SOEs’ mandates, i.e. simple and brief descriptions of the high-level objectives and missions of the individual SOEs in the long run. It will then discuss how to identify SOEs’ public services and other special obligations, decide on their relevance, evaluate their cost and fund them transparently, which is a fundamental prerequisite to decide on SOEs’ objectives and targets. Finally, it will review how to develop an objective documents and specific performance indicators for individual SOEs.
This chapter will discuss how to review SOE performance, both on an on-going and annual basis. It will describe the different systems and processes that can be put in place to track and review SOEs’ performance on a regular basis, in order to identify problems early and react to them promptly. It will also review in-depth how to evaluate SOE’s performance on a yearly basis, i.e. what are the processes involved and the typical information included in performance documents. Finally, it will give some indications on how to develop relevant benchmarking, as the basis for discussing the SOE strategy and assessing the evolution of its value and potential risks.
This chapter will discuss how to ensure appropriate audit of SOE performance. It will cover three different types of audits, namely internal, external and state audits, discussing their respective role, what kind of information and reports they provide to whom, how and to which point these are disclosed to the public, and what is the relationship of these different auditors with the audit committee.
Reporting on Performance
This last chapter covers how to report on SOE performance, both at the aggregate level for the state as an owner and at individual SOE level. It will thus describe how to develop Aggregate Reports, i.e. which processes need to be put in place to collect and synthesise relevant information into a short and easy to read report providing the general public with an overview of the overall performance of the state sector. It will also briefly discuss web-based communication, as a mean to ensure greater transparency towards the general public. It will review how SOEs and ownership entities should report to Parliaments, thus which are the appropriate processes to compile, check, review and question information provided by SOEs on their performance, still maintaining an appropriate balance between lack of accountability and excessive oversight, thus avoiding political interference into SOE management.
Ensuring Adequate Disclosure and Transparency at Company Level
This chapter will describe how the ownership entities should develop a disclosure policy for SOEs and how they could encourage and monitor effective implementation of transparency requirements by SOEs. One specific session will cover the critical issue of how to ensure an equitable treatment and communicate actively with of all shareholders. Another specific session will provide guidance on how to avoid abusive related party transactions. Finally, this chapter will also address the issue of how to report on stakeholders’ relations and encourage SOEs to do so.
This Guide is intended to facilitate the practical implementation of the OECD Guidelines on Corporate Governance of State-Owned Enterprises (the "SOE Guidelines"). It is focused on ensuring a high quality of transparency and accountability, which is the very basis of any sound corporate governance regime. It aims to help evaluate existing practices, identify their strengths and weaknesses and provide examples of successful practices. The Guide provides viable policy options and a "road map" of the practical steps that might be taken to implement the SOE Guidelines, pointing at typical difficulties, risks and hurdles that may be encountered during the implementation process. It also provides examples that illustrate the implementation of provisions and can serve as references and inspiration to governments that are confronted with similar challenges.
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