Implementing the OECD Guidelines on Corporate Governance of State-Owned Enterprises: Review of Recent Developments

Executive summary

Notable changes have taken place in the corporate governance of SOEs over the last five years in a majority of the countries reviewed by this report. Twenty-eight individual countries including 26 OECD countries and two partner countries have undertaken recent reforms in at least one policy area covered by the OECD Guidelines on Corporate Governance of State-Owned Enterprises and consistent with the Guidelines’ recommendations. Countries that practiced relatively high standards of SOE governance at the time of the SOE Guidelines revision in 2015 report in 2019, as would be expected, relatively few policy changes relevant to the implementation of the Guidelines.

Based on the information from the participating countries, progress has indeed taken place, mainly in areas such as the state ownership function, disclosure and transparency, responsibilities of boards of SOEs and stakeholder relations and equitable treatment of shareholders and other investors (i.e. national corporate governance codes). According to the findings, there is an increasing tendency toward establishing mechanisms for ensuring transparency and accountability of the state’s exercise of ownership rights through developing a rationale for state enterprise ownership, establishing a centralised or co-ordinated state enterprise ownership function and undertaking regular and publicly disclosed aggregate reporting on the SOE sector.

Key findings

• Around two-thirds of the surveyed countries have put in place or updated key elements of their ownership policies and key objectives during the period under review. They have taken steps to separate ownership and regulatory functions and are in the process of improving ownership policies and SOE governance through laws, regulations, company-specific acts or the code of conduct for SOEs. Some countries have also improved the more general legal and regulatory frameworks for SOEs. With the still ongoing fiscal tightening in some countries, notable efforts have been made to facilitate commercialisation of SOEs, particularly through incorporating SOEs under the company law.

• Ownership of SOEs in several other countries is still exercised on an ad-hoc basis by individual ministries rather than on a whole-of-government basis. A couple of post-transition economies have even closed their state ownership entities (or ministries) during the period under review. In those countries the set of laws that concern the legal form of SOEs and provide the framework for the governance and operation of SOEs remains complex. Reforms to streamline this complex set of laws and its SOE governance framework should be a priority for the concerned countries.

• Less than one-fourth of the reviewed countries have reported changes in their legal regulatory frameworks and national practices relevant to ensuring competitive neutrality in the presence of SOEs during the relevant time period. Several countries have pursued competitive neutrality to a certain degree in various ways through ownership, competition, public procurement, tax and regulatory policies or a combination of these policies. With an increased presence of commercially oriented SOEs, regulatory agencies and competition authorities should be empowered to enforce safeguards against market distortions and ensure the full and impartial implementation of all relevant laws and regulation.

• Around half of the reviewed countries report having made progress regarding “equitable treatment of shareholders”, which is a trend that is contrary to what was identified in the 2011 progress stocktaking report. They have made material changes in practices in the reviewed period concerning equitable treatment of SOE shareholders particularly by subjecting SOEs wholly or partially to national corporate governance codes (or SOE-specific codes where applicable).

• One third of the reviewed countries also report progress toward establishment of government policies, requirements and expectations regarding responsible business conduct (RBC). This seems to indicate an increasing awareness among policy makers of the importance of RBC as a core business issue within the corporate sector. Inter alia, increasing pressure to improve accountability and transparency in all forms of corporate behaviour is supporting innovations and improvements in practices by SOEs.

• Governments are increasingly aware that high standards of transparency and accountability are critical for ensuring efficiency and performance of SOEs. Governments have consequently translated their awareness into relevant legal regulatory frameworks. Two-thirds of the reviewed countries have implemented aggregate reporting during the review period, or have enhanced the disclosure systems regarding the annual reporting that they had already in place. At the same time, while there is a clear tendency for enhanced disclosure and transparency in line with the SOE Guidelines, the relevant subject areas vary greatly across different countries. Most commonly included subjects are the state ownership policy, financial statements, employment in SOEs, public policy objectives and board composition. Ensuring a comprehensive legal regulatory framework and policies for an implementation of a whole-of-government basis still remains a challenge when enhancing transparency of SOEs.

• Around two-thirds of the reviewed countries have made notable efforts, and reported progress, in enhancing the professionalism and governance of SOE boards of directors. However, among the surveyed countries, only four have implemented a comprehensive board nomination framework consistent with best practices in stock-market listed companies. Another three report having made steps in this direction, including also with regards to enhancing the autonomy of boards in appointing and dismissing CEOs. In a majority of the surveyed countries, criteria and conditions for independence of SOE board members are in most cases not explicitly defined in their legislations. Framework for nominating and appointing board members and senior executives should be more transparent and consistent since some countries report cases of close ties between the senior executives and the political decision makers which can affect the decision process for appointment.