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

2. Legal and regulatory framework for the state ownership function (Chapter I and Chapter II of the SOE Guidelines)

Abstract

According to the OECD Guidelines on Corporate Governance of State-Owned Enterprises, the state should act as an informed and active owner, ensuring that the governance of SOEs is carried out in a transparent and accountable manner. This chapter provides an overview of various country efforts on improving the legal regulatory framework for the exercise of the state ownership function through adoption of the co-ordinating agency model and/or other requirements of the law. Insofar as these changes have introduced greater transparency regarding the rationales for state ownership and improved coordination of state ownership practices across the public administration, around two thirds of the reviewed countries have brought national practices closer to the standards of the SOE Guidelines during the review period. However, in several other countries, ownership of SOEs is still exercised on an ad-hoc basis by individual ministries rather than on a whole-of-government basis.

Main trends

Around two thirds of the reviewed countries have seen changes in the last five years in the overall objectives and governance of state ownership. They have made efforts to improve the legal regulatory framework for the exercise of the state ownership function through adoption of the co-ordinating agency model and/or other requirements of the law. Insofar as these changes have introduced greater transparency regarding the rationales for state ownership and improved coordination of state ownership practices across the public administration, they have brought national practices closer to the standards of the SOE Guidelines.

At the same time, there is still a strong continued decentralisation of state ownership portfolios in some countries. Mostly, these countries have yet to develop an explicit, whole-of-government ownership policy clearly outlining the rationales for state ownership. Such departures from the “ownership centralisation” standard of the SOE Guidelines have been mitigated in several countries through the recent introduction of policy documents (e.g. on board nomination practices, internal controls, etc.) establishing corporate governance requirements or standards applicable to all SOEs. In this respect, Argentina and Chile have issued corporate governance guidelines on a comply-or-explain basis. However, the Argentinian government has not yet articulated the rationales for state ownership nor an ownership policy. Also, except for listed companies, there is no proper establishment of commercial and/or sectorial objectives in the country.

In several economies, such as Argentina, Brazil, Chile and Costa Rica, the set of laws that concerns the legal form of SOEs and provides the framework for the governance and operation of SOEs remains complex. For instance, many SOEs in those countries have been established by statutory laws with differing requirements, while some of their subsidiaries have a varying, corporatised legal form. Reforms to streamline this complex set of laws should be a priority for the concerned countries.

In response to questions about the rationale for state ownership a number of countries invoked recent privatisation experience, citing privatisation as evidence that a rationale for ownership was no longer present. For example, in Israel, Italy and Japan there have been no significant changes in the rationales for state ownership, but in accordance with the government’s existing privatisation policies and their stronger focus on commercial orientation of SOEs, some important sales of shares by the government have taken place in the past five years, which are elaborated below. The Norwegian government has also indicated in the latest 2014 white paper a clear intention for strengthening private ownership in the country and reducing direct state ownership over time. In the government’s view, private ownership should be the main rule in Norwegian business and industry and direct state ownership should be accompanied by a special justification. Austria, Poland and the Slovak Republic have made it clear in their new legislations and policy documents that they do not intend to undertake further full-scale privatisation in the future.

Some countries have moved towards a more decentralised state ownership model. Both Poland and the Slovak Republic terminated the existence of their state ownership entities. In 2017, Poland liquidated the Ministry of Treasury, which previously had exercised most ownership. In 2015, the Slovak Republic terminated the existence of the National Property Fund, which had exercised state ownership rights in 33 out of 92 SOEs at central government level and used to be the biggest ownership entity in the country. In Poland, the previous tasks of the Ministry of Treasury have now been divided among several ministries with a co-ordinating role for the Prime Minister. Similarly, in Hungary, more than 100 companies have been moved from state holding company MNV Zrt. to other ownership exercising entities. The ownership exercisers are now mostly ministries and ministers without portfolio. It is not clear whether the ministers without portfolio oversees SOEs at arms-length considering its close links to the political powers.

However, the development of several key ownership policy documents coordinated at the level of the Prime Minister in Poland also suggests a significant effort to make ownership practices consistent in the context of a decentralised system, which would be considered in line with the SOE Guidelines. Also, as for the Slovak Republic, it remains to be seen whether the Ministry of Economy acting as successor of the now defunct National Property Fund and new Act on Strategic Enterprises will help mobilise institutional efforts to enhance the co-ordination function of state ownership. The reviewed countries’ material changes in the state ownership function with respect to disclosure requirements and board nomination practices are elaborated in the sections 6 and 7 respectively.

Table 2.1. State enterprise ownership rationales and/or governance in 30 jurisdictions

Country	Type of rationale	Source of rationale/state ownership policy
		Decision, regulation or decree	Policy statement	Specific legislation	SOE-specific measures	Soft law/guidelines
Argentina	Implicit	●	-	●	-	●
Belgium	Implicit	-	-	-	-	-
Brazil	Implicit	●	-	●	-	-
Chile	Explicit	●	-	-	-	●
Costa Rica	Implicit	-	●	-	-	-
Czech Republic	Explicit	●	●	●	-	-
Estonia	Implicit	-	-	●	-	-
Finland	Explicit	●	-	-	-	-
France	Explicit	●	●	●	-	-
Germany	Explicit	-	-	●	-	●
Greece	Implicit	●	-	●	●	-
Hungary	Explicit	●	-	●	-	-
Iceland	Explicit	-	-	●	-	-
Israel	Explicit	●	●	●	-	-
Italy	Implicit	-	-	●	●	-
Japan	Implicit	-	-	-	●	-
Korea	Explicit	●	-	●	-	-
Latvia	Explicit	-	-	●	-	-
Lithuania	Explicit	-	-	●	-	-
Netherlands	Explicit	-	●	-	-	-
New Zealand	Explicit	-	-	●	-	●
Norway	Explicit	●	-	-	-	-
Poland	Explicit	-	-	●	-	-
Slovak Republic	Implicit	-	-	●	-	-
Spain	Implicit	-	-	-	●	-
Sweden	Explicit	●	-	●	-	-
Switzerland	Explicit	●	-	●	-	-
Turkey	Implicit	-	-	-	-	-
United Kingdom	Implicit	-	-	-	-	-
United States	N.A.	-	-	-	-	-

Source: Author based on questionnaire responses from the national governments and OECD (2018)

Box 2.1. Privatisation and the broadening of ownership of SOEs in Israel, Italy and Japan

Israel, Italy and Japan have undertaken some important sales of government shares in line with their privatisation policies, which have consequently influenced the overall state ownership frameworks in all three countries.

In the past three decades the majority of SOEs in Israel were privatised. In the past 5 years, major developments in this regard were the privatisation of the Israel Military Industries (IMI), which was completed in 2018, and the commencement of partial privatisation processes of the Israel Postal Company and the Israel Port Companies. In 2014 the government passed a resolution regarding a multiyear plan for privatisation of SOEs, mainly through the public offerings of minority interests in the companies.

In Italy, during the last 5 years, several SOEs were divested by Initial Public Offerings (IPOs) and specific decrees were issued in order to maintain a relevant supervision of the public tasks managed by these companies.

Also, the country has seen some material changes in the financial and non-financial objectives of individual SOEs. In order to limit the State owner’s involvement in commercial activities of SOEs, which could potentially cause a market bias, the government indicated new rules in a Consolidated Act on Public Participated Companies (Legislative Decree no. 175 – issued on August 2016) in order to prevent public administration from establishing new companies whose purpose is to produce goods and services, which are not strictly necessary for the pursuit of their shareholders’ institutional mandate. The same Act also aims at restricting the public administration from financing SOEs which have reported losses in previous years).

In Japan, while there have been no significant changes in rationales for state ownership in the past five years, in accordance with the government’s privatisation policy, several important sales of shares by the government took place in the same period. From 2014 to 2016, 5.8% of issued stocks of the Japan Telegraph and Telephone Corporation (NTT) were sold for JPN 657 billion leaving the government to hold one third of the company’s shares, which is a minimum holding requirement by law. In 2013, 16.7% of issued stocks of JT were sold for JPN 976 billion, leaving the government to hold one third of shares, which is a minimum holding requirement by law. From 2015 to 2017, 43.1% of stocks issued by Japan Post Holdings were sold for JPN 2.83 trillion. In 2016, Kyushu Railway Company (JR Kyushu) was listed on stock exchanges, and 100% of issued stocks were sold for JPN 416 billion, which eventually led to full privatisation of JR Kyushu.

Source: Questionnaire responses from national governments.

National developments

Changes to the state ownership function

State-owned enterprises in Argentina are in general governed in a decentralised manner by their sectoral ministries without a proper SOE performance management system in place. While the government has not yet articulated rationale for state ownership nor an overall ownership policy, the objectives of most enterprises are nonetheless specified in their respective statues or creation laws. Two SOEs have been recently created by a presidential decree, “Contenidos Públicos SE” and “Corredores Viales SA” (Public Contents State-Society and Road Corridors Company).

At the same time, Argentinian SOEs have been going through important reforms since the change in government in 2015. The SOE reform has been facilitated by a strong political will for the reform, introduction of some degree of a co-ordinating function through the Chief of the Cabinet of Ministers (Jefatura de Gabinete de Ministros– JGM) and promoting international co-operation including undertaking an OECD Review of the SOE sector in Argentina. As part of the reform efforts, the government has developed the Good Governance Guidelines1, a comply-or-explain guide for good governance of SOEs in 2018.

In Austria, a new law entered into force on 1 January 2019, replacing the state holding company, Austrian Federal and Industrial Holdings (ÖBIB), with a new organisation called Austrian Holdings AG (ÖBAG). The purpose of the reform is to actively exercise Austria’s ownership responsibilities, regain its strong representation on the supervisory boards of the partially state-owned companies and give ÖBAG a degree of flexibility to effectively cope with developments at owner level. The conversion of ÖBAG was decided at the General Meeting of Shareholders, and the Finance Minister appointed a 9-member Supervisory Board. The new structure should enhance the autonomy of the holding company, but whether or not the government will in practice exercise control over the company’s board should be monitored. The Austrian government at the time of publication of this report has stakes in companies including the oil company ÖMV, Austrian Post and Telekom Austria. Both the government and ÖBAG have made it clear that they have no plans to sell them for now and that privatisation is not their objective.

In Brazil, a major headway regarding ownership policy during the review period is the enactment of the Decree No. 8945/2016 in the year 2016, which led to an establishment of State Responsibility Law No. 13303/2016 in the same year. Reflecting some elements of the SOE Guidelines and good governance practices laid down in the Brazilian market law, the new Law established new corporate governance rules for SOEs owned and controlled by the federal government. The Law has requirements on transparency, accountability, risk management and internal control practices including having a Statutory Audit Committee as an auxiliary body of the Board of Directors.

The Law is applicable to all companies that are under the supervision of the Secretariat of Coordination and Governance of State-Owned Enterprises DEST (or SEST in Portuguese) attached to the Ministry of Planning, Development and Management, as well to SOEs held at the provincial or municipal level. Under these, there is Federal Law 6,404 (dated 15 December 1976) which governs all listed and unlisted companies in the country. In addition, the government issued the Decree 9,589, dated 29 November 2018, stipulating procedures and criteria applicable to liquidation process of SOEs controlled directly by the federal government. Under the Corporation Law, all state-owned joint stock companies are considered to be commercial entities regardless of their corporate purposes.

The enhanced legal regulatory framework for SOEs has introduced some degree of separation of ownership and regulatory functions through the DEST’s role in co-ordinating ownership policies and expectations, taking over some of those responsibilities from the individual line ministries. As of now, the state ownership functions are mostly shared between the DEST, the Ministry of Finance and the line ministries. As such, it can be said that Brazil follows a hybrid ownership model of which regulatory arrangements can be described as something between co-ordinated and decentralised. In 2016, the Ministry of Transparency (CGU) and the Ministry of Planning issued an instruction aimed at enhancing internal controls and risk management of public entities including SOEs.

In Chile, Public Enterprises System (Sistema de Empresas Públicas, SEP) which is a main ownership entity of the government, has made efforts to enhance soft-law regulations such as the Corporate Governance Guidelines (hereinafter the ‘SEP Code’) by adding new chapters on procurement, relations with audit entities, crisis management, and responsible business conduct. The SEP Code, first drafted in 2008 includes corporate governance rules and a set of ethics. To strengthen reporting systems to monitor and assess SOE performance and compliance with governance standards, the state ownership entity has also specified additional indicators in the new Chapters of the SEP Code. In mid-2018, the SEP Council approved a regulation for the appointment of board members in SEP SOEs.

In the course of its OECD accession review process, Costa Rica created the ownership entity Presidential Advisory Unit (PAU) in 2018. The Council of Government’s Secretary has been appointed as the Head of the PAU and the unit received three additional analysts, with an intent to add additional staff in the coming years. The PAU has developed and issued an ownership policy entitled Protocol of Understanding of the Relations between the State and the Enterprises under its Property on 13 October 2019. The Protocol also contains a discussion of the rationale for state ownership and expresses Costa Rica’s commitment to improving the direction of SOEs governed by the Executive Branch and seeks to implement the principles and guidelines of good corporate governance adopted by the international community, with particular reference to the G20 and the OECD. The PAU has issued an aggregate report on SOEs with financial and non-financial information on SOE performance and governance practices; nominations policy; a website to manage board nominations; and legal requirements for compliance with IFRS.

Additional legal and regulatory changes include a law to remove the Minister of Energy and Environment from the Board of the state-owned petroleum refinery company RECOPE; submission of a draft law to Congress to remove the Minister of Agriculture from the board of the institution that supervises the national liquor production company FANAL; a decree on boards’ roles and responsibilities; and a decree on transparency of SOEs.

In the Czech Republic, while there were no changes in the institutional arrangements for the exercise of the state ownership function during the review period, the government has made some important changes to the legal regulatory framework for governing SOEs. Ownership policies are determined (state enterprises are regulated) through legislation, in particular by the Act No. 77/1997 Coll. on SOEs (State Enterprise Act), which has been regularly updated. The last amendment was made by the Act No. 253/2016, Coll., which became effective as of 1 January 2017. The amendment refined the definition of a state enterprise as a legal entity as well as a state organisation that carries out business with state property in its own name and under its own responsibility. The amendment also defines competences and responsibilities of directors and members of supervisory boards of SOEs and their relationships with the Founder's Ministries.

Over 2015-2017 the Government Anti-Corruption Strategy focused on formulating a state ownership policy around a related Action Plan for Fighting Corruption. According to this Strategy, the Ministry of Finance prepared a draft of the state ownership policy for the government in 2017.

Estonia hasn’t developed an explicit ownership policy document. State specific requirements on managing and controlling SOEs are stipulated mainly in the State Assets Act and other regulations related to auditing and public procurement. During the recent years, Estonia has compiled two reports about ownership policy– the green book for detecting problems concerning SOE ownership policy and the white book providing potential solutions. Following one of the proposed solutions, the Nomination Committee for SOE supervisory board members was established. The State Budget Act was amended to include a net debt regulation that is applicable to SOEs belonging to the central government sector. Such regulation has been put in place to meet the Maastricht criteria of EURO zone. Additional change has been reflected in the Auditing Act to improve the independence requirements of audit committee members from SOEs and from the controlling owner.

In Finland, the ownership policy is determined through cabinet decision in the beginning of each electoral term, which is four years. The current ownership policy paper was published on 13 May 2016, but will be updated in the end of 2019 by the new cabinet following general election in May 2019.

In France, in line with the SOE Guidelines, the government formalised for the first time in 2014 an investment principle for the State as a shareholder. The State Shareholder Guidelines were published in 2014 to clarify the role of the State shareholder with four key objectives, including: (i) to ensure that the government has a controlling interest in companies of strategic public interest operating in critical areas for France’s sovereignty; (ii) to guarantee the existence of resilient corporations so that they can fulfil the country’s basic needs; (iii) to support corporate growth and consolidation, especially in sectors and industries that are important for French and European economic growth and, (iv) to bail out companies on an ad-hoc basis and in compliance with EU regulations in cases involving systemic risk.

Given the growing economic challenges and considering that intervention of the state shareholder remains indispensable to the national economy, the French government concluded that it is necessary to be more selective with respect to shareholding and change this principle. The government has also noted that there are public equity investors (Bpifrance) that follow complementary investment doctrines. As such, in 2018, the government further clarified its role as a shareholder and now plans to shift the focus of the portfolio of the government shareholding agency (APE: Agence des Participations de l’Etat) to the following three priority areas.

• Strategic companies that contribute to the sovereignty of France (i.e. defence and nuclear)

• Companies participating in public/national/local service missions for which the State does not have sufficient non-shareholder levers to protect public interests

• Interventions in companies when there is a systemic risk

The main development in recent years affecting the State shareholder is introduction of Ordinance No. 2014-948 dated 20 August 2014 relating to the governance and capital transactions of companies with public participation. The Ordinance enhances a legal regulatory framework applicable to the State shareholder since it has taken into account the evolution of good governance practices by bringing those companies with public participation closer to the common law of companies (See Box 2.2.).

Box 2.2. Ownership policy reform in France: Ordinance No. 2014-948

Ordinance No. 2014-948 has strengthened the role of the State both as a shareholder and as an administrator, with as much weight and authority as a reference shareholder under ordinary law. This ordinance has simplified the administrative rules applicable to the State shareholder and has reduced the number of applicable procedures or thresholds, in particular with regard to the rules applicable to capital transactions. Thanks to this modernisation of the governance framework of public enterprises, the State now exercises its role through the APE in governance bodies within the following standardised governance framework for SOEs:

• Clarification of the role of the administrators appointed or proposed by the State (only one representative of the State legal person generally resulting from the APE, possibility of proposing to the general assembly the appointment of a certain number of administrators according to the level of state ownership);

• Distinction between the State’s role as a shareholder and its other roles as a client or a regulator whose representative sits as a Government Commissioner;

• Possibility for the State to propose to the General Assembly directors from an extended pool (public or private), in order to benefit from their experience;

• Preservation of certain specificities of publicly-owned enterprises, in particular the representation of employees in governance bodies.

The Ordinance was ratified by the Law No. 2015-990 of 6 August 2015 for economic growth and equality of economic opportunities. The Law also reintroduced the mechanism known as "offers reserved for employees" when the State sells a stake held in a company whose shares are listed (Article 31-2 of Order No. 2014-948). Several new regulations applicable to all companies including SOEs particularly concern the activity of a State shareholder as the following:

• Law 2014-384 of 29 March 2014 generalises the double voting right in listed companies.

• Law No. 2016-1691 of 9 December 2016 on transparency and anti-corruption has notably modernised the approval system for remuneration of leaders of listed companies (Article 161) by putting in place a binding vote of shareholders in any joint stock company whose securities are admitted to trading on a regulated market.

• Law 2017-399 of 27 March 2017 on the duty of care of parent companies and ordering companies (Article L. 225-102-4 of the French Commercial Code) provides for the obligation for companies or French groups of a certain size, to establish and implement effectively a “plan of vigilance”.

Source: Questionnaire response from the French government.

In Germany, the ownership policy is mainly determined through legislation (Bundeshaushaltsordnung– “Federal Budget Code”). The policy was not reviewed within the relevant time period. Management of SOEs is defined by soft-law entitled “Principles of Good Corporate Governance for Indirect or Direct Holdings of the Federation”, which include (i) the Public Corporate Governance Code of the Federation, (ii) Guidance Notes on Good Corporate Governance of Corporations in which the Federation holds an equity share, and (iii) Appointment Guidelines. The Public Corporate Governance Code of the Federation is not applicable to any companies in which the Federation holds an equity share that are listed on a stock exchange and are thus subject to the German Corporate Governance Code (DCGK)2. The Principles have not been reviewed within the time period relevant for this paper but they are currently under review and are scheduled to be finalised by 2020.

Box 2.3. Changes in Germany’s reporting system to monitor SOE performance

In 2016 the German Federal Ministry of Finance implemented a “standardized monitoring system” (Standardisiertes Beteiligungsmonitoring, SBM) for state-owned SMEs upon request of the German Parliament (i.e. the Federal Finance Panel, “Bundesfinanzierungsgremium”). In 2017 the German Ministry of Finance further implemented a monitoring system designed specifically for the company group DB AG and its subsidiaries (DB AG monitoring). Both monitoring systems are designed to provide the government authorities responsible for federal holding management and Federal Finance Panel with an analysis and alert tool that shall inform about potential financial business risks and shall avoid unexpected burdens on the federal budget.

Standardized Monitoring System (SBM)

Currently, the SBM is conducted at the beginning of each year based on the companies’ financial statements for the previous fiscal year. The uniform calculation of financial ratios and description of each companies’ business situations in one standardised data sheet per SOE increases transparency and comparability within the portfolio of the federal holdings management. The SBM focusses specifically on companies that are engaged in economic or commercial activities. Thus, the following SOEs are currently not covered by the SBM:

• SOEs that receive government grants;

• SOEs within the financial sector that are monitored by the Federal Financial Supervisory Authority (BaFin);

• Companies listed on the stock exchange and rated by international agencies, e.g. Deutsche Post AG, Deutsche Telekom AG;

• Small SOEs with annual sales of less than EUR 5 million.

DB AG monitoring

A monitoring specifically designed for the state owned company Deutsche Bahn AG (German Railway, DB AG) has been implemented. The monitoring is conducted twice a year based on selected financial ratios and the DB AG Interim report (January through June), and the DB AG Integrated report (January through December), respectively. Similar to the SBM described above, the selected relevant company information is presented in one standardised data sheet. The data sheet is however adjusted to cover DB AG specific issues, e.g. the company’s foreign operations or capital expenditures.

Source: Questionnaire responses by German authorities.

In Greece, SOEs are governed by Law 3429/2005 (SOEs and Public Entities Law) and Law 2190/20 (General Corporate Law for Societe Anonymes (SA)). Law 4548/2018 constitutes an amendment to the General Corporate Law (Law 2190/20) which had previously represented the Greek legal framework for societes anonymes (SA). The degree of state supervision up until 2019 has been dependent on the share capital of the company (threshold of EUR 3 million). This has been abolished and replaced by the size and type of the SA. According to the new Law, a SA should be registered with a prior approval by the supervising authority, in case of a large undertaking of a public interest entity or an entity licensed by the Capital Market Committee. In line with the new Law, the financial statements for all SAs (including non-listed SOEs) should be prepared according to the Greek Accounting Standards which have adopted the International Accounting Standards (IFRS). However, the Law has not yet articulated a rationale for state ownership.

In 2014 the government established the “Privatisation & Equity Management Unit” within the Ministry of Finance, a state ownership entity which is responsible for monitoring the compliance of SOEs with the legal framework for SOEs (Law 3429/2005), exercising voting rights for all SOEs under the form of S.A., appointing the board of directors in collaboration with line ministries and monitoring the internal auditor function in large SOEs. In 2016, the state established the SA Hellenic Corporation of Assets and Participation (HCAP), a holding company aiming at grouping and managing a wide range of Greek State owned assets and participations was established with a mandate to own and manage a great number of assets belonging to the Greek State. Inter alia, the new Law got rid of a Public Holdings Company (EDIS), transferred the State’s shares in the 17 SOEs directly to HCAP and increased the maximum number of members of HCAP’s Board of Directors, from seven to nine. The HCAP is subject to all relevant legislations for SA and additionally the Ministry of Finance has mandated it and its affiliated companies with its strategic objectives. A management information system has been established within SOEs to monitor their performance.

In Hungary, until May 2018, the state holding company MNV Zrt. was entitled to exercise the ownership rights over all state assets based on the 2007 Act CVI. which defines major rules on how SOEs should be managed or controlled. With the Decree No. 1/2018 (VI. 25.) NVTNM on designation of the institutions that are responsible for exercising state ownership rights in SOEs, more than 100 companies have been moved from MNV Zrt. to other ownership exercising entities. The ownership exercisers are mostly ministries and ministers without portfolio.

The Government Decree 94/2018. (V. 22.), which came into force under the new administration, further defines the new exercisers of the state ownership rights for all SOEs and has established the position of the Minister without portfolio responsible for managing national assets. It declares the responsibilities of the Minister without portfolio, who is responsible for supervision of national assets, regulation of the management of national assets, national utilities, national financial services, post service, and supervision of gambling organisations. However, it is not clear whether the Minister without portfolio oversees SOEs at arms-length considering its close links to the political powers.

In Iceland, the current ownership policy was introduced in 2012. The new Icelandic law on Public Finance, Act No. 123/2015 was approved by the Parliament in December 2015. Article no. 44 of the Law provides for the government to publish ownership policies for its majority owned enterprises. A specific ownership policy for financial enterprises managed by the Icelandic State Financial Investments was first released in 2009 and updated in 2017 and the Ministry is currently in the process of updating its ownership policy for all other SOEs, as well as specific objectives for individual enterprises.

The new Act provides for the Minister of Finance and Economic Affairs to formulate an ownership policy for all SOEs. The general ownership policy shall set out a rationale or objectives of the central government with respect to such ownership, roles of different government offices, as well as the governance principles that SOEs should adhere to, including the division of responsibilities and accountability mechanisms between the owner, the boards and management. The Act also provides that the Minister may adopt a special ownership policy for certain individual enterprises if their unique circumstances require a more detailed policy or owner objectives than provided by the general policy.

The Minister of Finance and Economic Affairs or, in specific circumstances, the line minister concerned or the government entity representing the State’s ownership interest in the enterprise, shall monitor the compliance of SOEs with the ownership policy. Where the central government is not the only owner of the enterprise, the members of the enterprise’s board of directors elected to represent the central government shall take account of the main considerations set out in the ownership policy adopted for the field of activities or the enterprise concerned. The Minister of Finance and Economic Affairs makes nominations to the boards of directors of enterprises in which the central government holds an ownership interest, based on ability, education and experience. The Minister establishes rules on general and objective conditions for the selection of members to such boards and makes these public as part of the ownership policy.

Korea has an explicit ownership policy for SOEs which is determined by legislation and government decree in the form of the Act on the Management of Public Institutions enacted in 2007. The ownership entity—the Ministry of Economy and Finance and other responsible ministries are required to regularly review and revise its ownership policy. While the ownership policy has been to some extent subject to political orientation of each administration, main pillars of the Act on the Management of Public Institutions– such as performance evaluation and disclosure– have been steady. There have been a total of 18 amendments of the Act between 2007 and May 2019.

Latvia has a predominantly decentralised ownership structure, with line ministries in most cases exercising ownership, but has taken steps towards centralisation by establishing a coordinating agency and has continuously made efforts in improving the legal regulatory framework for the state ownership policy through implementation of the co-ordinating agency model and other requirements of the law in the review period.

State ownership policy in the country is determined by the State Administration Structure Law, Law on Governance of Capital Share of a Public Person and Capital Companies (hereafter– Law on Governance of Shares) and three subordinate regulations issued during the 2015-2016 period by the Cabinet of Ministers. The Law on Governance of Shares was approved by the Parliament (Saeima) in 2014, replacing a previous law. It was subject to amendments three times in 2015, 2016 and 2018.

The rationale of state ownership is defined in the State Administration Structure Law. Latest amendments of this law concerning the rationale of state ownership were approved by the Parliament in October 2015. Previously, the law included six criteria as preconditions for state ownership but after the amendments the number of criteria was reduced to three– market failure, strategic goods and services that are important for state development and security.

With the adoption of the Law on Governance of Shares and Capital Companies on 1 January 2015, the Cabinet of Ministers has reassessed the ownership of each SOE and approved the general strategic objective of each SOE. As such, most SOEs now have formally approved strategic objectives (including public policy objectives) as part of their business strategies. Reasons for the updates of strategies and financial and non-financial objectives of individual SOEs are mostly changes in a market situation and/or strategic political orientations of the Government. An EU-financed research project was also recently undertaken on possible categorisation of SOEs depending on characteristics of their activities and financial models. There is an ongoing policy discussion on this issue.

The Law on Governance of Shares and Capital Companies introduced role of Coordination Institution – for which the CSCC was appointed by the decision of Cabinet of Ministers on 12 May 2015. As such, from 1 June 2015, the CSCC is responsible for coordination of corporate governance of SOEs. This makes Latvian ownership model halfway between centralised and decentralised.

The State Social Insurance Agency (SSIA) also has transferred to SOE – “Privatization Agency” (PA) – the state shares in 29 companies by July 2015, which according to the decision of the Cabinet of Ministers were planned to be sold. The transfer of capital shares to the PA by 1 July 2015 was provided for by the Transitional Provisions in the Law on Governance of Shares. The remaining state shares supervised by SSIA in five companies was transferred to the PA separately by the decision (regulation) of Cabinet of Ministers on 21 October 2015 and were planned to be sold.

A number of new regulations of Cabinet of Ministers were adopted during 2015 and in the first half of 2016 which guide the operations and procedures of CSCC, shareholders, line ministries; the Ministry of Finance and the Cabinet of Ministers regarding such issues as annual evaluation of SOEs’ operational and financial results; prediction and determination of the dividend pay-out by SOEs; regulations regarding the nomination of candidates for the board and the council in SOEs; regulations on the number of the board and council; maximum remuneration levels in SOEs and regulations regarding alienation of state shares by the Privatization Agency. The shareholder reports the results of SOEs to the CSCC, which in turn prepares the annual aggregated report on SOEs. It is then presented to the Cabinet of Ministers and the Parliament (Saeima).

While Latvia may have legislated the separation of ownership and regulatory functions within individual line ministries, SOEs are still not operating under an ownership structure where an ownership agency is empowered to be responsible for setting and monitoring shareholder expectations in all SOEs and line ministries have no part in state ownership functions.

In Lithuania, the ownership policy is determined in the Ownership Guidelines (approved by the Government Resolution number 665 “On the Approval of the Procedure for the Implementation of the State’s Property and Non-Property Rights at State-Owned Enterprises”, 2012). The main purpose(s) of state ownership is specified in the ownership policy. The main principles related to ownership have remained the same during the relevant period. The Ownership Guidelines outline the rights and responsibilities of all state ownership entities regarding the implementation of SOE governance arrangements and define how SOEs should be managed or controlled. The latest material amendment on the Ownership Guidelines passed on 20 June 2018. After this amendment SOEs were no longer classified into groups according to their objectives for the state and the rate-of-return on equity is applied to all SOEs engaged in substantial commercial activity.

During the last 5 years the State has re-arranged mechanisms for setting financial and non-financial objectives to improve performance of SOEs. First of all, the State shifted from single ROE target for all commercial (or partly commercial) SOEs to individual ROE targets for commercial activities of each SOE. Since 2017 the State also rearranged dividend pay-out policy, which is now closely linked with ROE of SOEs. According to national legislation, each SOE is obliged to pay percentage amount of distributable profit as dividends to the State each year. SOE with higher ROE is allowed to pay lesser percentage of distributable profits as dividends to the State. Rationale behind is to encourage SOEs to pursue higher return ratios and invest into more profitable projects.

Finally, since the year 2017 the State made amendments in the law and introduced a target setting tool called ‘Letter of Expectations’. Through this tool each ownership ministry is required to draft Letter of Expectations for each controlled SOE where it sets broad financial and non-financial expectations for SOE. Considering the large number of SOE managers, government plans to centralize the management of SOEs through reorganisation, restructuring, liquidation or privatisation by 2023, reducing the number of state ownership entities from 14 to 8. Implementing reform priorities is crucial as SOEs continue to play a key role in undertaking large energy and transportation infrastructure projects. Government also needs to develop a comprehensive plan for developing a pool of SOE specialists.

The Netherlands has changed the national lottery and Holland Casino from a foundation to a corporation. All SOEs in the country are now corporate entities. As for board nomination practices, the new policy takes diversity in board composition more into account although not binding. There have been changes in the maximum in variable pay and secondary benefits (i.e. severance pay) regarding remuneration policies for SOE boards.

New Zealand has an explicit ownership policy through State Owned Enterprises Act 1986 3 with additional ownership monitoring guidance issued by the Treasury, established in July 2012 and entitled the Owners Expectation Manual.4 In 2018 the Manual added slightly more stringent guidelines in two areas: (i) where SOEs make significant capital investment decisions, including lowering the threshold for SOEs requiring shareholder approval; and (ii) new guidance on board of directors performance evaluations, including the requirement for 3 yearly, independent board evaluations.

Norway updated its rationales for state ownership during the review period. The Norwegian government reviewed and revised its ownership policy in the 2014 White Paper (Report to the Storting No. 27 on Diverse and value-creating ownership). According to the 2014 white paper, all companies in which the state has direct ownership are categorised into four different categories based on the state’s rationale and objective with respect to its ownership5. At the same time, certain SOEs have changed category following the white paper. The main change, compared to the previous policy, relates to how the government views the purpose of the state’s ownership. The government states in the 2014 white paper that it wants to strengthen private ownership in the country and reduce direct state ownership over time. In the government’s view, private ownership should be the main rule in Norwegian business and industry, and direct state ownership should be accompanied by a special justification. While the government’s overall policy on how the state intends to exercise its ownership did not change substantially in the 2014 white paper, progress on more generally accepted corporate governance principles in recent years has led to a further development of the state’s ownership role.

Box 2.4. Norway’s state ownership policy

The Norwegian government’s ownership policy is explicitly expressed through white papers that are presented to (but not subject to approval by) the Norwegian Parliament (Stortinget). A new white paper on ownership policy is normally published following a parliamentary election approximately every four years. The purpose of a white paper on ownership policy is to express the government's overall objectives of state ownership and specifically for each individual company in which the state has a shareholding. Furthermore, the paper states how the government intends to exercise its ownership. Since 2006, the state's portfolio of companies has been categorised into four categories based on the state's rationale and objectives for state ownership. The current white paper on ownership policy (Report to the Storting (White Paper) no. 27 (2013-2014) Diverse and value-creating ownership) was published in 2014.

In practice, the state's direct ownership is exercised by the government through different ministries. Ownership of the majority of companies with commercial objectives (with some notable exceptions) is managed by the Ownership Department of the Ministry of Trade, Industry and Fisheries, and ownership interests in companies with sectoral-policy objectives are exercised by the ministries responsible for the respective sectors. While there have been no changes to this institutional arrangement as such, some SOEs have been transferred from one ministry to another (mainly due to a change in categorisation, i.e. the governments rationale for owning the company, and further consolidation of ownership of commercial companies under the national ownership entity).

Sources : Questionnaire responses from Norwegian authorities.

In Poland, the government led a fundamental change in the model of corporate governance for SOEs by liquidating the Ministry of Treasury in 2017 based on the conclusions that ownership transformation was no longer necessary and that privatisation or the disposal of individual parts of state property was not a primary purpose of supervision. This means a new approach towards the management of the State Treasury, including redefining of the role and meaning of companies with State Treasury shareholding. According to the government, while privatisation will not be a priority for management of state-owned entities, the entities with a small State Treasury shareholding or under liquidation will continue to be privatised. The government has also recognised that the existing regulations were no longer in line with market expectations and has required organisational changes. In particular, the government found that a significant number of companies with minority shareholdings, often of significant importance to the state’s economy were beyond the real impact of the regulations. Reflecting these changes in government intentions and objectives, the new Law on State Property Management was established in 2016. The management policy of each company defines its own development goals in accordance with the law and general guidelines of the Prime Minister.

Box 2.5. Act on the management of state-owned property in Poland

In accordance with the provisions of the new Act on the management of state-owned property and in order to co-ordinate the exercise of the powers vested in the State Treasury in companies, the Prime Minister may determine the rules of ownership supervision and good practices followed by the State Treasury as a shareholder, in particular in the field of corporate social responsibility, dividend policy, sponsorship, and remuneration formation.

In this context, the Prime Minister has approved the following documents:

• Principles of corporate governance over companies with the participation of the State Treasury;

• Directions of ownership policy in the field of disposal of shares owned by the State Treasury;

• Guidelines for selecting and cooperating with an audit firm examining the company's annual financial statements; and

• Guidance for companies with the State Treasury participation preparing financial statements for 2017 and for 2018.

Both relevant legal acts and other documents are to change according to the needs (there are no specific deadlines).

Sources: Questionnaire responses from national authority.

The 2017 liquidation of the Ministry of Treasury, which previously had exercised most ownership, could be seen as a move towards decentralisation of the state ownership function. However, the development of several ownership policy documents coordinated at the level of the Prime Minister also suggests a substantial effort to harmonise ownership practices in the context of a decentralised system, which would be considered in line with the SOE Guidelines. The previous tasks of the Ministry of Treasury were divided among several ministries with a co-ordinating role for the Prime Minister. The Prime Minister’s co-ordinating role is specified in several corporate governance policy documents applicable to SOEs. The main legal act regulating the principles of the ownership supervision over SOEs is the 2016 Act on the Management of State Property. The Act states that “the Prime Minister may determine the rules of ownership supervision and good practices followed by the State Treasury as a shareholder, in particular in the field of corporate social responsibility, dividend policy, sponsorship and remuneration formation”.

According to the Program Manifesto of the Government of Slovak Republic over 2012-2016, the country terminated the existence of the National Property Fund on 15 December 2015, a move that could be seen as further contributing to decentralisation of the state ownership function. The Fund was previously in charge of implementing privatisation projects and had exercised state ownership rights in 33 out of 92 SOEs at the central government level, being the biggest ownership entity in the country. Ownership rights of those 33 SOEs have been shifted to sectoral ministries, most of them to the Ministry of Economy. The Program Manifesto sets out a plan to prepare a new version of the Act on Strategic Enterprises and also includes a ban on privatisation of the state's strategic assets. According to the Constitution of the Slovak Republic (Article 113), a new government administration is required to submit its Program Manifesto to the National Council of the Slovak Republic within 30 days of its appointment by the President. Only when the National Parliament adopts the Program Manifesto and grants its confidence to the government will the new government be able to start exercising its powers. It remains to be seen whether the Ministry of Economy and the new Act on Strategic Enterprises will efficiently mobilise institutional efforts to harmonise and mobilise ownership practices.

In Sweden, state ownership is reviewed and revised whenever required. Since 2017, the ownership policy is adopted by the shareholders’ meeting of the majority-owned SOEs, which implies that the policy is legally binding. In accordance with its current ownership policy, the government has further undertaken centralisation in the past five years. A specialised ownership unit is responsible for managing 40 out of 46 SOEs. Seven SOEs were added in 2015. With an increasing number of SOEs, efficient management is even more essential.

In Switzerland, the basis for specific legislation for ownership governance is conceived in the “Corporate Governance Report” (2006) and condensed in 37 guidelines by the Federal Council (executive government authority). It is determined by the Decree of the Federal Council and has been acknowledged by the competent parliamentary committees (without enactment by the Parliament). The provisions for parliamentary oversight are enshrined in the Art. 28 of the Federal Act of the Federal Assembly. Since the ownership policy is conceived as a long-term instrument, reviews are not undertaken on a regular basis. Yet amendments are possible if needed. In Mid-2018 the Federal Council mandated the Finance Ministry (together with two line ministries) to have Corporate Governance practices (federal level) reviewed by external experts and published publicly. Despite the experts’ overall positive review of the ownership model operation, the experts have made 14 recommendations and the implementation process is still ongoing. There are further developments of the existing legislations and guidelines including the new 2016 edition of the “Model Law for statutory entities with services in state monopolies” and the “Model Law for statutory entities with tasks for economic and safety supervision”.

Box 2.6. Legal forms of incorporation of SOEs in Switzerland

Firstly, the Federal Council decided in January 2018 to sell Alcosuisse AG, a former profit centre of the Swiss Alcohol Board (SAB), to a private company.

Secondly, on 1 January 2018, a new law came into force to transform an extra-parliamentary Commission for Technology and Innovation into an independent statutory entity called “Innosuisse” so that it is compliant with the corporate governance guiding principles of the Confederation (e.g. the Federal Council sets strategic objectives). Previously, there was no clear distinction between strategic and executive/operative tasks and furthermore the setup had lacked independent supervision.

Thirdly, in order to ensure equal rights for all railway companies to use the Swiss railway network, the Swiss Train paths Ltd. is in the process of preparing timetables for the use of the network, co-ordinating the resolution of conflicts between applicants and optimising the application processes. The Swiss Train path Ltd is a not-for-profit company limited by shares. All four shareholders– among them railway companies such as SBB– have the same minority shareholding and the same voting rights. In order to further reduce potential discrimination, the Parliament decided to establish an independent statutory entity called the “train path allocation service (service d’attribution des sillons)”. In September 2018, the Parliament adopted the Federal Act on the Organization of Railway Infrastructure. The law is expected to enter into force in 2020.

Sources: Questionnaire responses from the government of Switzerland; the Federal Council, the portal of the Swiss government https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-69703.html, https://www.admin.ch/opc/fr/federal-gazette/2018/6097.pdf, https://www.bav.admin.ch/bav/fr/home/themes-a-z/reforme-des-chemins-de-fer/organisation-infrastructure-ferroviaire-obi.html.

The United Kingdom does not have an overarching or singular approach to determining the objectives of state ownership. The key consideration with regard to ongoing government ownership is the balance between public service/policy and achieving value for the taxpayer. Decisions on assets are taken on a case-by-case basis by the sponsoring department. HM Treasury, as part of its role overseeing public finances, keeps public ownership of assets under regular review. UK Government Investments (UKGI), a government company owned by HM Treasury, performs the shareholder function for a number of SOEs and government owned assets. As of April 2019, UKGI performs this function for a portfolio of approximately 17 entities. The legal forms of incorporation of SOEs in the UK are varied. These include non-departmental public bodies, executive agencies, trading funds, and statutory corporations (entities established by legislation which take the form of limited companies wholly owned by the government).

Table 2.2. Material changes in the way the state exercises its role as an active and informed enterprise owner

	Countries	Nature of Change
Board nomination practices	Belgium	A Royal Decree of 25 April 2014 provides for the Board of Directors of the National Railway Company SNCB to include 3 representatives of regional authorities appointed by the King on the proposal of the respective Regions. Since 2016, the law of 21 March 1991 provides for two members of the Board of Directors to meet the criteria listed in Article 526ter of the Companies Code, with the exception of 5 °, c) (independent director).
	Estonia	Main change has been implemented in the supervisory board nomination process. The so called Nomination Committee was established in 2017 by the Government to ensure transparent and competence-based selection of supervisory board members. The committee has six members of whom four are from private sector (including the chairman of the committee) and two are from public sector. The committee's task is to propose candidates for supervisory boards to shareholding ministries. The shareholding minister has to base the decision on the proposal of the Nomination Committee and if the proposal is not acceptable to the minister, then the committee has to propose a new candidate within 15 working days. Potential conflicts of interest of related persons of proposed supervisory board members are required to be taken into account.
	Germany	As of 1 March 2015 the Act on Equal Participation of Women and Men in Executive Positions in the Private and Public Sector (Gesetz für die gleichberechtigte Teilhabe von Frauen und Männern an Führungspositionen in der Privatwirtschaft und im öffentlichen Dienst) is in effect. Purpose of the law is to raise the percentage of women in leadership positions in the private sector, the federal administration and regarding board seats to be nominated by the federal government.
	Korea	A new clause for enhancing transparency in the process for recommending and nominating SOEs was added in 2016. Under the Clause, the Committee for recommending CEOs for SOEs is required to keep minutes of each meeting and make them available for inspection by the public unless the case is judged to be exceptional according to the Official Information Disclosure Act. Also, the Committee is mandated to provide for eligibility criteria for CEOs taking into account specialities and requirements of the corresponding corporation or institution.
	Lithuania	The Law on State and Municipal Enterprises was amended in 2014, notably allowing for state enterprises include independent members, requiring that they make up at least 1/3 of all board members for large statutory SOEs. Amendments also include requirements for ownership entities to define specific selection criteria and publish board positions according to a pre-determined timeline. More detailed procedure for nominating board members was adopted in the Government Resolution No. 631 “On the Approval of the Procedure for the Selection of Candidates to the Board of a State Enterprise or Municipal Enterprise“, 2015. The amendments to the Resolution No. 631 passed in 2017 established nomination procedures to the boards and supervisory boards of all SOEs and municipality-owned enterprises. The amendments to the Law on State and Municipal Enterprises (entered into force on January 1, 2019) changed previous provisions and established requirement for at least 1/2 of all board members in state enterprises to be independent. According to the amendment, independent board members must be selected using head hunting agencies.
	Netherlands	Takes diversity in board composition more into account although the policy is not binding.
	Turkey	In 2018, along with the Decree Law No:703, board nomination/appointment proceedings began to be made by President or a ministry to be appointed (formerly board members were appointed by relevant/sectoral ministry and Treasury and Finance Ministry).
The setting and monitoring of objectives and mandates for individual SOEs	Hungary	At the end of 2018 a unified controlling reporting system was developed, which includes specific indicators and presentations for each SOE under the control of the NVTNM. The controlling reports are prepared monthly, which makes possible to keep an eye on the owner's expectations and the fulfilment of the numbers of the business approved by the owner, throughout the year. These reports include a unified management information layout, which makes the exercise of state ownership rights easier.
	Latvia	With an adoption of the Law on Governance of Shares (2014), financial and non-financial objectives of SOEs are set by the highest-decision making body – the Cabinet of Ministers, involving the shareholder and also the approval by State Secretaries. Prior to the approval by State Secretaries, the objectives are sent to the co-ordination entity CSCC and/or respective sectoral ministries for opinions.
	Lithuania	The objectives of SOEs are set in enterprise’s strategy. According to the amended Ownership Guidelines dated June 2018, the strategy is prepared and approved with respect to the letter of expectations. The authority representing the state first has to reconcile the letter of expectation with Governance Coordination Centre before submitting it to the SOE. In such manner, Governance Coordination Centre actively participates in formation of SOEs objectives, including advisory and methodological assistance to SOEs on preparation of strategies.
	Netherlands	Determined a required return for each SOE.
	Sweden	Process for setting public policy targets was developed and was specified in the state ownership policy in 2014. Public policy targets have been set for 10 of the total of 22 SOEs that are endowed with public policy assignments and have been adopted by the shareholders’ meeting.
	Brazil	To strengthen its institutional co-ordination role for corporate governance, the SEST created Corporate Governance Indicator (IG SEST), through which it assesses compliance of SOEs with the Law 13303 (dated June 30, 2016) regulated by the Decree No. 8.945 ( dated 27 December 2016) and guidelines on best market practices and higher standards of corporate governance established in the Resolutions of the Inter-ministerial Commission on Corporate Governance and Administration of Corporate Shareholdings of the Federal Government (CGPAR). The CGPAR was created by the Decree No. 6.021 (January 22, 2007). In addition, an interactive tool called the State-wide Outlook was created. It is updated daily and presents information on federal state enterprises such as quantitative data on direct or indirect control of the Union, dependence on the National Treasury, economic analysis of financial data, personnel profile and others.
	Germany	In 2016 the German Federal Ministry of Finance implemented a “standardized monitoring system” (Standardisiertes Beteiligungsmonitoring, SBM) for state-owned SMEs upon request of the German Parliament (i.e. the Federal Finance Panel, “Bundesfinanzierungsgremium”). In 2017 the Ministry of Finance further implemented a monitoring system designed specifically for the company group DB AG and its subsidiaries. Both monitoring systems are designed to provide the government authorities responsible for federal holding management and Federal Finance Panel with an analysis and alert tool that shall inform about potential financial company risks and shall avoid unexpected burdens on the federal budget.
Reporting systems to monitoring, audit and assess SOE performance	Hungary	From 2019, Eximbank is required to apply IFRS standards for audit in compliance with the respective EU regulations. During 2013-2018, MNV Zrt. (Hungarian National Asset management Company) operated a KIR system (Controlling Information System) which was inclusive of the Early Warning system as a general management tool. At the end of 2018 a unified controlling reporting system was developed, which includes specific indicators and presentations for each SOE under the control of the NVTNM. The controlling reports are prepared monthly, which makes possible to keep an eye on the owner's expectations and the fulfilment of the numbers of the business approved by the owner, throughout the year. These reports include a unified management information layout, which makes the exercise of state ownership rights easier.
	Italy	In 2016, with the approval of Consolidated Act on SOEs, the government introduced requirement of an extraordinary auditing on public holdings for the first time, to be completed by state and local entities by the end of 2017, and then each subsequent year. The communication of such stock-takings must be sent to the special Section of the State Court of Auditors and to dedicated offices of the Ministry of Economy and Finance, which were established – under the provision of the same law – in the Department of the Treasury and are in charge of the following functions: Co-ordination and offering official advice in the fields of implementation of the Consolidated Act, as well as promoting best international practices in managing public companies; Monitoring activity related to the assets registered during the above mentioned stocktaking; and setting up of plans for enhancing efficiency of SOEs that the interested public administrations can adopt in the future. Pursuant to article 13 of Law 474/1994, the Ministry of Economy and Finance – Department of the Treasury is required to transmit to the Chambers of Parliament an updated report after the conclusion of every transaction regarding the divestment of SOEs. The last report was finalised in 2016 and illustrated the sales of tranches for companies directly owned by the Ministry of Economy and Finance, which in the 2015-2016 period involved ENEL, Poste Italiane and ENAV.
	Latvia	With an adoption of the Law on Governance of Shares (2014), in addition to any previously existed mechanism for monitoring and assessing SOE performance, state shareholder function is overseen by the CSCC and more comprehensive reporting standards have been introduced. The monitoring of non-financial goals is performed by line ministries on either monthly, quarterly or annual basis, The monitoring of financial goals is performed by the shareholder on either monthly, quarterly or annual basis and by the CSCC on an annual basis.
	Lithuania	Public enterprise Monitoring and Forecasting Agency (MFA), which is responsible for monitoring of SOE portfolio during last 5 years developed wide monitoring tool – SOE Good Corporate Governance Index. Index facilitates monitoring and evaluation of SOEs’ governance in three major SOEs’ governance fields: Transparency, Boards of Directors, Strategy setting and implementation. Index annually evaluates performance and compliance with provisions of local legislation and international good corporate governance practices typically based on OECD guidelines. Results and findings of Index are provided in aggregate report to the Government and to the public. Company-specific reports are produced and presented to each SOE or ownership ministry.
	Poland	The corporate governance system in Poland requires an analysis of information obtained directly from the companies, made by employees of the supervision departments in individual ministries and in the prime minister's office, as well as on direct supervision made by members of supervisory boards. Employees of supervisory departments receive from the concerned company information on important issues, including quarterly information on the economic and financial situation (so-called F01). These information are sent in paper form, as well as are entered into the Integrated Informatics System (so-called ZSI), which is a large database comprising information over all SOEs. The supervisory staff also prepare the general shareholders' meetings in which issues regarding the functioning of companies are considered. In the most important companies, the Prime Minister also approves voting instructions for the general meeting of shareholders. This is the change introduced by the Act on the Management of State Property dated 16 December, 2016.
Disclosure requirements for SOEs, including public disclosure	Estonia	The requirements of disclosing financial information has been changed for bigger SOEs (those who fulfil the obligatory audit committee criteria – ca 1/3 of SOEs) to follow as much as possible the practices of publicly listed companies. Previously, only the quarterly financial information was disclosed but now those have to be complemented with explanations/overviews of the activities and also important events have to be published on SOE’s website.
	Hungary	The Public Procurement Act has been amended from 1st April 2019, where the obligation to publish certain documents of public procurement procedures through EKR (Electronic Public Procurement System) is raised from a Government degree to Act.
	Lithuania	On 11 August 2016 the Government approved amendments to the Transparency Guidelines providing that all large SOEs are obliged to adhere to the provisions of the Transparency Guidelines on a mandatory basis (instead of “comply-or-explain” basis) including the application of the International Financial Reporting Standards
Dialogue with external auditors and state control organs	Estonia	The requirement that the supervisory board has to meet the external auditor before the approval of annual report has been added. The auditor has to give to the supervisory board an overview about the auditing process and findings.
	Lithuania	The Law on Audit of the Financial Statements (amendments from March 2017) provides that large SOEs are considered as public interest entities and therefore they are subject to additional and strict requirements in the field of audit of financial statements. The large SOEs must compose the audit committee with the functions provided by the Law on Audit of the Financial Statements and in the Regulation (EU) No 537/2014 of the European Parliament and of the Council. The responsibilities of the audit committee include: 1) the submission of its recommendation to the supervisory or management board of the SOE for the appointment of an external auditor or audit entity, 2) monitoring of the process of financial reporting, auditing, internal quality control. In the end of 2017 the amendment of the Law on Audit of the Financial Statements has established an additional function for the audit committees of listed state owned companies – submission opinion concerning related parties transactions.
Remuneration policies for SOE boards and executive management	Brazil	The Decree 8.945/2016 established that the members of the Executive Board should undertake commitments with specific goals and results to be achieved, which should be approved by the Board of Directors. Meeting these goals and results in the execution of long-term business strategy should generate financial reflection for the Executive Directors in the form of variable levels of remuneration. The goals and commitments linked to varied level of remuneration should be sent to the SEST for approval prior to the vote in the General Assemblies of Shareholders.
	Czech Republic	Remuneration limits have been set according to the Resolution of the Czech Government No. 835 of 12 December 2018 on “Principles of Remuneration of Senior Executives and Board Members of Companies with the State Ownership”, which replaced the Resolution of the Czech Government No.159 of 22 February 2010 on “Principles of Remuneration of Senior Executives and Board Members of Companies with the State Ownership over 33%.” In addition, the Government Anti-Corruption Strategy for the 2015-2017 period has been focusing on defining standards for nominating state representatives in SOEs and the principles for remuneration of SOEs’ board members, as well as the related Action Plan for Fighting Corruption.
	Estonia	Together with the establishment of the Nomination Committee, the right/obligation of the finance minister to set limits to supervisory board members remuneration was abolished. Now the Nomination Committee proposes the remuneration conditions to the shareholding minister who decides/approves those with/on shareholders decision/meeting. The committee makes the proposals based on market conditions in peer group.
	Hungary	Following the government’s issuance of its 1660/2016 Government Decree in 2016, government set up categories for SOE based on the size and the importance for the national economy. Every SOE has been classified into one of the categories and salary rate of CEOs has been determined according to the categories. It sets out when a premium can be written and under what conditions. Among other things, it also sets out the rules of factors that reduce and exclude the payment of the premium. For instance, a leader of a loss-making company cannot get any premium tasks.
	Italy	Art 11. Para 6 of Legislative Decree 175/2016 provides that the maximum yearly compensation for any manager/worker of SOEs cannot exceed 240,000 euros apart from listed companies and those with listed financial instruments issued. The above-mentioned law also states that the Minister of the Economy and Finance will formulate a ministerial decree, to define further lower compensation which will eventually be applied to the SOEs (establishing specific economic parameters from the classification of a “five group ranking”). In order to determine compensation of executive directors, the Ministerial Decree 166/2013 still applies until the above mentioned decree is issued: that is, a classification of SOEs into 3 groups, determined on the basis of relevant indicators, aimed at evaluating the organisational and managerial complexity and the economic importance of the companies involved. Such indicators to be derived from the official financial statements – are mainly quantitative, reflecting value of production; investments; and number of employees.
	Latvia	The Cabinet Regulation aimed at setting the maximum remuneration levels for SOE boards and executive management depending on the size of SOEs has been abolished since the new Cabinet Regulations on this subject were adopted on 22 December 2015. Previously, average monthly work remuneration level of persons employed in the State public sector in a previous year was used to as a reference to calculate maximum remuneration level for SOE boards and executive management but now average monthly work remuneration of the previous year of persons employed in Latvia is used instead as a reference. The information is obtained from the official statistical notification of the Central Statistical Bureau entitled “Guidelines for Determining the Remuneration of Members of the Board and the Council of Public and Public-Private Enterprises.”
	Lithuania	Remuneration of the board members are linked to CEO remuneration levels. The Ownership Guidelines recommend that the remuneration of board members for all fully corporatised SOEs be a fixed amount not exceeding 1/4 of the CEO’s total remuneration, or 1/3 for the chairman of the board. The Law on State and Municipal Enterprises states that board members remunerated from the enterprise’s funds in accordance with the procedure established by Government. It also limits the remuneration of board members to 1/5 of the average monthly salary of the CEO. The procedure of remuneration detailed in the Government Resolution No. 1092 “On Approval of the Remuneration Procedure of the Boards Members of State Enterprises and Municipal Enterprises and the Civil Liability Insurance for the Board Members”, 2015. CEO remuneration is regulated by Government Resolution No. 1341 “On the remuneration of SOEs managers”. The amendments passed in January 2016 established an ability to increase CEO salary by 75% if particular state enterprise has a status of strategic importance to national security interests, according to motivated decision of the institution implementing rights and duties of the owner. It also should be noted, that the new version of the Law on Civil Service allows for civil servants to engage in any activity which does not cause conflict of public and private interests in the civil service and the Law does not limit an ability for civil servants to receive remuneration for such activity.
	Netherlands	There have been changes in maximum in variable pay and secondary benefits i.e. severance pay
	Poland	Law of 9 June 2016 states the principles of shaping the remuneration of managers of companies including SOEs. The total remuneration of a member of the governing body consists of two parts: a fixed amount - basic monthly salary and a variable amount. The scope of variable remuneration of a member of the management body depends on the level of achievement of management objectives. Monitoring the management board's achievement of specific goals is being carried out by the supervisory board. Management objectives can include an increase in net profit; change in production or sales, reducing losses, reducing management or operating costs, implementation of a strategy or a restructuring plan, achieving or changing specific indicators, implementation of investments, changing the market position of the company implementation of personnel policy.
	Norway	The government published revised guidelines for remuneration of senior executives in companies with state ownership in 2015 . The purpose of the guidelines is to describe what the Norwegian state as an owner will emphasise when voting on the board of directors' declaration concerning the fixing of salary and other remuneration for senior executives at the annual general meeting of the shareholders or similar body. The guidelines also reflect the state's view on executive remuneration in companies where this is not a separate item on the agenda of the annual general meeting. Certain details were changed in the revision with respect to the government's view on specific remuneration arrangements such as variable pay, severance payments, and pension schemes. However no changes were made to the government's main principles.
	Switzerland	The Federal Council adopted measures in late 2016 in order to steer the remuneration of Board members and Senior Executives more closely. In June 2017, the Federal Council adopted model provisions for the Articles of association and explanatory notes (terms of incorporation, statutes) in order to adopt the above-mentioned measures. The provisions apply to unlisted private limited companies controlled by the Confederation in terms of capital and voting rights and domiciled in Switzerland. Annually in advance, the General Assembly (GA) has the possibility to fix an upper limit for the remuneration of the board, its president as well as for the executive committee. Additionally, the General Assembly can fix bonuses/ variable salary components and other forms of compensation. The variable salary components of members of the executive committee may not exceed 50% of the fixed remuneration and other forms of compensation may not exceed 10% of the fixed remuneration. Nevertheless, discussions in Parliament are still ongoing in order to further tighten the respective regulations. Furthermore, starting Spring 2019, vested interests of board members of SOEs (interest ties) are published in a public database by the Federal Chancellery ( See https://www.admin.ch/ch/d/cf/ko/index_kommart.html ).

Source: Questionnaire responses from national governments

Table 2.3. National approaches to exercising the ownership function: Changes in the 2013-2018 period

Countries	Nature of Change
Argentina	SOEs are still governed in a decentralised manner by their sectorial ministries without proper SOE performance management system in place. However, it is important to note that the government has introduced some degree of co-ordinating function. Chief of the Cabinet of Ministers (Jefatura de Gabinete de Ministros – JGM) assumes the role of coordinator and is currently developing a policy document to set up a centralised authority for overseeing SOEs.
Brazil	State-owned enterprises are distributed among the different ministries that exist according to their area of activity. In this way, each one of the supervisory ministries is responsible for fulfilling this role. The Secretariat for Coordination and Governance of State-owned Enterprises is responsible for coordinating and aligning the performance of state-owned enterprises in order to improve the performance of the government as a shareholder of federal state-owned enterprises, in order to maximize federal government investments for the benefit of society and to standardize corporate governance policies in Brazil.
Chile	To strengthen reporting systems to monitor and assess SOE performance and compliance with governance standards, the state ownership entity has specified additional indicators in the new Chapters of SEP Code.
Costa Rica	Created an ownership entity Presidential Advisory Unit (PAU) in 2018. The Council of Government’s Secretary has been appointed as the Head of the PAU. The PAU has developed and issued an ownership policy entitled Protocol of Understanding of the Relations between the State and the Enterprises under its Property on 13 October 2019. The Protocol also contains a discussion of the rationale for state ownership and expresses Costa Rica’s commitment to improving the direction of SOEs governed by the Executive Branch and seeks to implement the principles and guidelines of good corporate governance adopted by the international. The PAU has so far issued an aggregate report on SOEs with financial and non-financial information on SOE performance and governance practices; nominations policy; website to manage board nominations; and legal requirements for compliance with IFRS.
Czech Republic	The new Czech Act on Business Corporations has introduced new requirements for the 'founding deeds' (a new term coined by the Corporations Act for the founding documents of a company); all founding deeds of corporations are required to comply with the provisions set out by the Corporations Act (Act No. 304/2013 Coll. Of Laws of the Czech Republic) no later than as of July 1, 2014.
Estonia	The ministries who fulfil the shareholders tasks and the requirements for those tasks are in general the same. There are some changes of the shareholding ministries of some specific SOEs caused by changes in market regulations – the ownership role has been separated in case of electricity producer and main transmission grid enterprises – previously shareholding ministry was for both the Ministry of Economic affairs but now the electricity producer is governed by Ministry of Finance. Also in the TV and radio signal broadcaster has been moved from Ministry of Economic affairs under Ministry of Financial affairs to avoid conflict of interest between ownership and market regulation/supervision tasks. Both of these changes took place in 2013. Since 2018, the listed SOEs have an exemption from requirements of State Assets Act that are not in line with stock market regulations and would give to the state an unfair advantage compared to other shareholders. For instance, listed SOEs are not required to share minutes of supervisory board meetings with ministries anymore.
France	The main development in recent years affecting the State shareholder is the ordinance No. 2014-948 relating to the governance and capital transactions of companies with public participation. The ordinance enhances a legal framework applicable to the State shareholder since it has taken into account the evolution of good governance practices by bringing those companies with public participation closer to the common law of companies. The Ordinance No. 2014-948 dated 20 August 2014 has strengthened role of the State both as a shareholder and as a director, with as much weight and of authority as a reference shareholder under ordinary law.
Hungary	Until May 2018, state holding company MNV Zrt. was entitled to exercise the ownership rights over all state assets based on the 2007 Act CVI. which defines major rules on how SOEs should be managed or controlled. With the Decree No. 1/2018 (VI. 25.) NVTNM on designation of the institutions that are responsible for exercising state ownership rights in SOEs, more than 100 companies have been moved from MNV Zrt. to other ownership exercising entities. The ownership exercisers are mostly ministries and ministers without portfolio.
Latvia	It has a predominantly decentralised ownership structure, with line ministries in most cases exercising ownership, but has taken steps towards centralisation by establishing a co-ordinating agency in the past 5 years. While Latvia may have legislated the separation of ownership and regulatory functions within individual line ministries, SOEs are still not operating under an ownership structure where the institutional arrangements provide for a complete separation of these functions
Norway	The state's direct ownership is exercised by the government through different ministries. Ownership of the majority of companies with commercial objectives (with some notable exceptions) is managed by the Ownership Department of the Ministry of Trade, Industry and Fisheries, and ownership interests in companies with sectoral-policy objectives are exercised by the ministries responsible for the respective sectors. While there have been no changes to this institutional arrangement as such, some SOEs have been transferred from one ministry to another (mainly due to a change in categorisation, i.e. the governments rationale for owning the company, and further consolidating of ownership of commercial companies under the national ownership entity).
Poland	Government liquidated the Ministry of Treasury, which previously had exercised most ownership. As a result, the previous tasks of the Ministry of Treasury were divided among several ministries with a co-ordinating role of the Prime Minister. The coordinating role of the Prime Minister is specified in several corporate governance policy documents applicable to SOEs. The main legal act regulating the principles of the ownership supervision over SOEs is the 2016 Act on the Management of State Property.
Slovak Republic	According to the Program Manifesto of the Government of Slovak Republic 2012-2016, the country terminated the existence of the National Property Fund on 15 December 2015. The Fund was previously in charge of implementing privatisation projects and had exercised state ownership rights in 33 out of 92 SOEs at central government level, being the biggest ownership entity in the country. Ownership rights of those 33 SOEs have been shifted to sectoral ministries, most of them to the Ministry of Economy.
Sweden	Government has further undertaken centralisation in the past five years. A specialised ownership unit is responsible for managing 40 out of 46 SOEs. Seven SOEs were added in 2015.

Source: Questionnaire responses from national authorities

References

OECD (2020a), Corporate Governance in Costa Rica, OECD Publishing, Paris, forthcoming.

OECD (2020b), Transparency and Disclosure Practices of State-Owned Enterprises and their Owners, Paris, forthcoming.

OECD (2018a), Ownership and Governance of State-Owned Enterprises: A Compendium of National Practices, http://www.oecd.org/corporate/ca/Ownership-and-Governance-of-State-Owned-Enterprises-A-Compendium-of-National-Practices.pdf

OECD (2018b), OECD Review of the Corporate Governance of State-Owned Enterprises: Argentina

OECD (2015), OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264244160-en.

OECD (2011), Corporate Governance of State-Owned Enterprises: Change and Reform in OECD Countries since 2005, OECD Publishing, Paris, https://doi.org/10.1787/9789264119529-en.

Rubens Fontes Filho and Francisco Alves (2018), Control mechanisms in the corporate governance of state-owned enterprises (SOEs): A comparison between Brazil and Portugal, http://www.scielo.br/pdf/cebape/v16n1/en_1679-3951-cebape-16-01-1.pdf.

Notes

← 1.  http://servicios.infoleg.gob.ar/infolegInternet/anexos/305000-309999/306769/norma.htm

← 2.  An English translation of the DCGK is also available online : www.dcgk.de//files/dcgk/usercontent/en/download/code/170214_Code.pdf

← 3.  www.legislation.govt.nz/act/public/1986/0124/latest/whole.html#DLM98050

← 4.  https://treasury.govt.nz/sites/default/files/2015-09/comu-oem12.pdf

← 5.  The companies have been categorized into four categories since 2006.