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Risk Management by State-Owned Enterprises and their Ownership

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Taking risks is a fundamental driving force in business and entrepreneurship. To reap the full rewards of risk-taking, however, firms need to have in place effective risk management practices. This publication provides a stocktaking of ways in which SOEs and those exercising the state’s ownership role address the issue of risk management from the perspective of corporate governance (“risk governance”), as recommended in the OECD Guidelines on Corporate Governance of State-Owned Enterprises. The report looks at this issue from three perspectives: by taking stock, first, of national legal and regulatory SOE risk management frameworks, and then by taking stock of risk-management practices at the level of the SOE and then at the level of the state.

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Executive summary

Taking risks is a fundamental driving force in business and entrepreneurship. To reap the full rewards of risk-taking, however, firms need to have in place effective risk management practices. According to a 2014 peer review of risk management corporate governance practices conducted by the OECD Corporate Governance Committee however, many firms continue to underestimate the cost of risk management failures. These costs may be greater in state-owned enterprises (SOEs), where the two main disciplining factors bearing on private firms – the risks of bankruptcy or hostile takeovers – are weaker or non-existent. In addition, public ownership may raise additional concerns about the degree of oversight, at the level of general government, over the actual and contingent liabilities vis-à-vis corporate risk management practices.

English

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