1. The risk of undue influence in SOEs

This report aims to shed light on one of the main concerns related to the integrity and governance of SOEs – that is, the risk of undue influence in SOE operations for personal or political benefit and at the expense of the firm or even citizens as the ultimate shareholder. This issue is pronounced in the legal text of the ACI Guidelines (OECD, 2021[1]), “[recognising] that SOEs should not be operated as conduits for political finance, patronage, or personal or related-party enrichment”. The Guidelines state that the risk of SOEs being used deliberately by high-level public officials for these purposes must be considered.

When surveyed in 2017, over half of the SOE leaders participating around the world expressed concern about “a lack of integrity in the public and political sector”, ranking it the number one challenge to improving integrity in their companies.1 SOEs rated interference in decision making, favouritism (nepotism, cronyism, and patronage) and non-declaration of conflict of interest among the top five risks in their companies (out of 24).

Since those findings were issued in 2018 and the Guidelines were adopted in 2019, public controversies have indicated that many SOEs remain vulnerable to being exploited or used as ‘cash cows’ to support personal and political aspirations of individuals or groups. Information gathered through the Working Party’s country reviews and regional networks point to some lingering weaknesses in corporate governance and ownership arrangements that can expose SOEs to such exploitation. SOE leadership positions are often politicised at the expense of merit-based nomination processes that leave key decision-making bodies open to undue influence. Objectives can be unclear and communications opaque, leaving room for high-level officials to assign SOE decision-makers with instructions that are nonstrategic or operational in nature.

Table 1.1 below presents the multiplicity of ways that public officials or those in their networks (in third-party positions or within SOEs) can influence decisions in their favour (for political financing, or personal or related-party enrichment).

Based on an assessment of the typology of the manifestations of the risk of undue influence of SOEs and the cases of corruption that underpin it, it emerges that there are certain commonalities regarding the risk of undue influence or common red flags (Table 1.1):

  • Exploitation usually relies on patronage or placement of orchestrators’ “people” in key (that is, decision-making) positions (whether at the state or company level).

  • There is usually a combination of exploitation, threats, pressure, or coercion as well as, at the same time, a degree of opportunistic behaviour. SOEs (or individuals within) can be perpetrators, victims, or both at once. In other words, there are both facilitators and followers – as will be discussed in the case study presented in Chapter 2.

  • There is most often a combination of an absence of controls and override of controls but depending on the corruption scheme one will be more prominent than the other. Undue influence in SOEs could include ignoring roles and responsibilities correctly established by law.

  • Corrupt individuals create a situation where individuals – in decision-making positions in government or at the SOE level – are unable (often in the presence of threats, pressure to follow or perform) or unwilling (opportunistic behaviour or self-seeking behaviour, or fear of reporting or ‘doing the right thing’) to walk away from known corruption risks.

  • There is often multiplicity of patronage, political financing and personal or related party enrichment. Or at least patronage, plus political party financing or enrichment. For instance, funds from SOEs may be used for individuals and families and/or political parties – with the latter usually requiring a broader network of facilitators within the company.

The Working Party identified that corruption risks “may be heightened in instances of (i) a general lack of integrity in the public sector; (ii) a lack of professionalism in the exercise of state ownership; (iii) risk management and corporate controls that are insufficient or ignored, and; (iv) weak enforcement or undue protection from legal enforcement and other disciplining forces”. The above conclusions demonstrate that these basic premises established in the ACI Guidelines still hold.

Tackling actual or potential exploitation of SOEs is inherently complicated and would probably call for a full implementation of both of the Working Party’s instruments. The report’s scope however will be narrowed to protecting key decisions of ownership entities and SOEs from undue influence by high-level public officials. Explanation is provided below.

This thematic report of national practices looks at means of insulating SOEs from undue influence in decision making as a proxy for limiting political financing, patronage, and enrichment. Interfering in key decisions is one of the main ways in which high-level officials can manipulate SOEs to secure those gains. In other words, it is the means to the end. In order for corrupt individuals (or groups of individuals) to improve chances of re-election by having an SOE cater to their jurisdiction, skim bloated contracts or mandate that an SOE hires a company ultimately owned by them, they most often need to control or at least interfere in key decisions.

In jurisprudence, undue influence implies that the exertion of power renders the exploited party unable to freely exercise independent will. In the case of state ownership entities, representatives may be pressured to make decisions that are incongruent with the rationales of state ownership and ignorant to due process for setting objectives, nominations, and monitoring. In the case of SOEs, representatives’ free will (that is, autonomy) to make decisions in the best interest of the firm are at best limited. Undue influence is not corruption by definition but, for the purposes of this report, will be considered as such when high-level officials abuse their authority to tilt operations towards their personal or political gain.

Political patronage is itself a form of undue influence in decision making when high-level officials bypass or ignore formal processes, requisite qualifications, or limitations on their personal or state power to nominate or appoint members of boards or executive management. Insofar as exploitation of SOEs by high-level officials usually relies on at least one ‘insider’ in the company to be acting in concert with or on their behalf, political patronage also paves the way for other forms of corruption.

The scope of this thematic report is limited to good practices in limiting interference in (i) the decisions of those responsible for exercising ownership on behalf of the state (e.g., in ownership entities and/or line ministries) and (ii) SOE decision-making bodies (including executive management). In other words, the assessment is of practices and behaviours of natural or legal persons that fall more clearly under the purview of the state ownership entity. It follows that the thematic report would offer good practices on what the ownership functions can do and are doing to limit the possibilities of SOEs being exploited by representatives of government. The report however may also be instructive for countries seeking to limit influence by third parties (e.g. private firms, intermediaries, or foreign interests), as well as useful for promoting increased autonomy and integrity of SOEs around the world.

The ACI Guidelines’ (and SOE Guidelines’) provisions most relevant to the thematic report are grouped into four key themes. The four themes are provided below, and each are unpacked by relevant ACI Guidelines’ provisions in Chapters 2-6 of this report:

  • Specific legal protections. The ACI Guidelines recall that SOEs are autonomous legal entities that should be subject to and protected by the general rule of law in their countries of operation. Protection should extend to abuse of SOEs as conduits for political finance, patronage, or personal or related-party enrichment.

  • Protection of state ownership entities’ integrity and decision making (particularly regarding setting clear objectives, merit-based nomination processes and monitoring SOE performance). The ACI Guidelines promote transparency around objectives and the objectives-setting process, in part to make it harder for illicit interests to change SOE directions at will. Merit-based and professional nominations to SOE boards help to limit the likelihood of patronage, nepotism, and cronyism in appointments.

  • Protection of boards’ integrity and decision making (particularly regarding strategy and appointing and monitoring management). As established in the SOE Guidelines and elaborated upon in the ACI Guidelines, it is a prime responsibility of the state to ensure that boards have the necessary authority, diversity, competencies, and objectivity to autonomously carry out their function with integrity.

  • Transparent ownership arrangements and communication. The ACI Guidelines seek to limit opportunities for instructions or dealings that fall outside of formal channels of communication by encouraging state owners to establish with whom, how and when communication should occur.

There are naturally other factors that reduce SOE exposure to corruption and the likelihood that undue influence occurs in decision making. Public sector integrity (covered in ACI Guidelines’ recommendation II) and effective enforcement and sanctions regimes (covered in ACI Guidelines’ recommendation V) are critical in this regard. These provisions will not be explored in detail in this particular report but could form the basis of future thematic studies or assessments of the instrument’s implementation.


[2] Commission of Inquiry into State Capture (2022), Judicial Commission of Inquiry into State Capture Report: Part I, Vol. 1: South African Airways and its Associated Companies, https://www.gov.za/sites/default/files/gcis_document/202201/judicial-commission-inquiry-state-capture-reportpart-1.pdf.

[1] OECD (2021), Guidelines on Anti-corruption and Integrity in State-Owned Enterprises, http://www.oecd.org/corporate/Anti-Corruption-Integrity-Guidelines-for-SOEs.htm.

[3] OECD (2018), State Owned Enterprises and Corruption: what are the risks and what can be done, https://doi.org/10.1787/9789264303058-en.


← 1. In 2017, the Working Party surveyed 347 SOE representatives across 213 SOEs (confidentially) and 28 state ownership entities across 34 countries. The results are presented in the OECD report (OECD, 2018[3]), State Owned Enterprises and Corruption: what are the risks and what can be done?, https://doi.org/10.1787/9789264303058-en.

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