According to the OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOE Guidelines), where state-owned enterprises (SOEs) are listed or otherwise include non-state investors among their owners, the state and the enterprises should recognise the rights of all shareholders and ensure shareholders’ equitable treatment and equal access to corporate information. The state should strive for full implementation of the G20/OECD Principles of Corporate Governance when it is not the sole owner of an SOE, and of all relevant sections when it is the sole owner of an SOE. This chapter presents material changes in national practices concerning equitable treatment of SOE shareholders particularly by subjecting SOEs wholly or partially to national corporate governance codes (or SOE-specific codes where applicable).
Implementing the OECD Guidelines on Corporate Governance of State-Owned Enterprises: Review of Recent Developments
4. Equitable treatment of shareholders and other investors
Abstract
Main trends
In the past 5 years, around half of the countries surveyed in this report have made material changes in practices concerning equitable treatment of SOE shareholders. They have done so particularly by subjecting SOEs wholly or partially to national corporate governance codes (or SOE-specific codes where applicable). While these changes are not specific to SOEs, they do apply to any SOEs with non-state minority shareholders that are listed on a stock exchange. Notably, the Czech Republic, Germany, Italy and Latvia have made progress regarding the implementation of the G20/OECD Principles of Corporate Governance, an internationally-agreed instrument that aims at enhancing rights of shareholders and enhancing efficiency of corporate governance at the same time.
Changes in the implementation of the G20 OECD Principles of Corporate Governance that directly affect SOEs
In the Czech Republic, the Czech Institute of Directors published the “Code of Corporate Governance of the Czech Republic” in 2018 which is addressed to all companies and provides practical instructions in corporate governance. Also, the G20/OECD Principles of Corporate Governance that directly affect SOEs are being continuously implemented by legislative means. This Czech Institute of Directors published the Czech translations of the “OECD Guidelines on Corporate Governance of State-Owned Enterprises” in 2017 and the “G20/OECD Principles of Corporate Governance” in 2016.
In Estonia, in 2018, an exception was made to the State Assets Law, limiting the information flow from listed companies to the state in order to put the state in an equal position with minority holders. Since 2018, the listed SOEs have an exemption from requirements of the State Assets Act that are not in line with stock market regulations and would give 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.
In Germany, the 2016 amendment of the German stock corporations Act (Aktiengesetz– AktG) resulted in several changes regarding transparency requirements for share ownership, the number of members of the supervisory board, details and requirements for the convening of a general shareholders’ meeting and procedural changes to the non-disclosure obligations of members of the supervisory board. These were appointed by the regional administration bodies (Gebietskörperschaften).
In 2017, certain amendments were made to the German Limited Liabilites Companies Act (GmbHG) for the transposition of the EU anti-money laundering directive. These changes include the introduction of a transparency register which facilities access to information regarding the ownership of shares in limited liabilities companies. Further changes will be made to the AktG following the transposition of the second EU shareholders’ rights directive (SRD II). This will include new rules regarding shareholder information and identification; directors’ remuneration; related party transactions; and transparency requirements for institutional investors, proxy advisors and asset managers. These changes are currently (June 2019) in the process of being transposed into German law. Since there is no special corporate law for SOEs in Germany, these new corporate law rules apply to both privately held enterprises and SOEs.
As for the German Corporate Governance Code (Deutscher Corporate Governance Kodex– DCGK) there have been several amendments in 2013, 2014 and 2015. An additional revision is planned for 2019 following the transposition of the second EU shareholders’ rights directive (SRD II) into German law. The DCGK is applicable to entities (including SOEs) that are formed as publicly listed stock corporations (börsennotierte Aktiengesellschaften). Thus, SOEs that are formed as publicly listed corporations are subject to the DCGK and not PCGK. All other SOEs are subject to the Public Corporate Governance Code (Public Corporate Governance Kodex– PCGK).
In Italy, with regard to the treatment of shareholders, the Directive (UE) 2017/828 of the European Parliament and of the Council of 17 May 2017 intended to encourage long term shareholder participation and to increase transparency between a company and its investors. The efforts concern: shareholder identification, simplification of the exercise of shareholder rights, transparency of remuneration policy for top managers and a clearer disclosure about transactions with related entities. The Ministry of Economy and Finance has undertaken a consultation, open to public comments, on the draft of the Legislative Decree for the adoption of the Directive (UE) 2017/828 (Shareholder Rights Directive) into the Italian corporate law. The deadline for the approval of such Decree was set for 10 June 2019.
In Latvia, SOE operations are subject to the Law on Governance of Shares and Commercial Law. There are no differences in both laws regarding minority shareholders rights. Furthermore, SOEs in their actions have to follow Commercial Law where the Law on Governance of Shares has no regulations to solve particular issue. For example according to the Commercial Law ( section No 174.4, the annual accounts, the auditor’s opinion and the report of the council, together with a notice of the convening of a meeting of shareholders, shall be sent to all shareholders or promulgated in accordance with Sections 214 and 273 of this Law. Other minority rights are mainly stated in Commercial law sections 172.5 (Bringing an Action by the Company), 173.3 (Release from Liability), 179.4 (Approval of the Annual Accounts of the Company), 183 ( Internal Audit of the Company) 2611 (Increase of Equity Capital with a Condition) and 365 (Protection for Minority Shareholders). In addition, SOEs are required to follow the same regulations as any other private company.
The state as a shareholder and SOEs must publish all basic relevant information regarding their actions according to the Law on Governance of Shares (see articles 29. and article 58 of Law on Governance of Shares). There are no specific rules for SOEs’ involvement in co-operative projects such as joint ventures and public-private partnerships. Such an involvement should be based solely on legal acts, in particular, Commercial Law.
Table 4.1. Changes in national corporate governance codes or SOE-specific codes
|
Countries |
Nature of Changes |
|---|---|
|
Chile |
The SEP has continued to enhance its ‘Corporate Governance Guidelines’ (hereinafter the ‘SEP Code’) by adding three new chapters: Procurements, Relations with audit entities, crisis management, and has updated the chapter of Responsible business conduct by adding the Shared Value perspective. |
|
Czech Republic |
“Code of Corporate Governance of the Czech Republic” was published by the Czech Institute of Directors in 2018, which is addressed to all companies and provides practical instructions in corporate governance. It replaced previous Corporate Governance Code based on the 2004 OECD Principles, which was published by Czech Securities Commission. |
|
Finland |
The Corporate Governance Code has been in force as of 2015. It is applicable to all companies that are listed on Nasdaq Helsinki Ltd (Helsinki Stock Exchange), including all listed SOEs. The Code is under evaluation whether it should be amended or not. There are no SOE-specific codes in Finland, but the aforesaid general code is also applied to some extent to all SOEs. |
|
France |
The AFEP-MEDEF Code - corporate governance code, which most listed companies refer to - has been amended several times and, for the last time, in June 2018. Most listed public companies have adhered to this code. Changes in rules guiding SOEs’ involvement in co-operative projects such as joint ventures and public-private partnership in France are elaborated in the box below. |
|
Italy |
The Italian Committee for the Corporate Governance was established in June 2011, consisting of several Associations (such as ABI, ANIA, Assonime, Confindustria, Assogestioni) on behalf of different economic sectors enterprises, along with the Italian Stock Exchange SpA. In July 2018, the Committee approved some changes regarding difference in gender composition across the company bodies of management/control, promoting equal opportunities in professional careers. Thus, in accordance with the criteria established by Law No 120/2011, the current Code regulates the parity of access to the above corporate bodies in the listed enterprises, aiming for a result in gender composition equal to 1/5 of the group less represented for the first mandate, up to 1/3 for the second and third mandates. |
|
Japan |
In order to ensure the greater effectiveness of corporate governance reforms, Corporate Governance Code entered into force in June 2015, laying down the code of conduct of listed companies. The Code is applied to all listed SOEs. It was revised in June 2018, further promoting the making of decisive business decisions by management, the fulfilment of the responsibilities of the board, etc. |
|
Latvia |
Cross Sectoral Centre of Coordination (coordination institution) has elaborated 6 Guidelines to enhance implementation of OECD guidelines on Corporate Governance of State-Owned Enterprises. All SOEs are subject to these codes, in particular those SOEs where State holds majority shares. The Guidelines cover following areas: state ownership re-evaluation and ownership rationales (2016); elaboration of medium - term operational strategies (amended 2018); annual result assessment for SOEs where state holds majority shares (2016); information disclosure (2016); board member nomination process (2017); and remuneration (2017). Implementation of the Guidelines is not legally binding due to their legal status as recommendation. |
|
Lithuania |
A new wording of the Corporate Governance Code for the Companies Listed on Nasdaq Vilnius was approved in January 2019. 1 The Code first of all is applicable to the companies whose securities are admitted to the trading list on the regulated market Lithuania (including listed SOEs). The Code has been drafted drawing on the analogous codes, standards and principles of other states and international organisations and the G20/OECD Corporate Governance Principles. Provisions of the Code regarding transparency continue to apply also for non-listed SOEs. |
|
Netherlands |
The national corporate governance code for listed entities was updated in 2016. SOEs are asked to comply or explain in their annual report. |
|
Norway |
Norwegian Code of Practice for Corporate Governance has been amended twice during the past five years (the changes were not very substantial). The code of practice is not directly applicable for SOEs (and there are no SOE specific codes), however the government expects that all wholly owned SOEs follow the code where applicable. Furthermore, the states has ownership interests in several companies listed on Oslo Børs (the Oslo Stock Exchange) whom pursuant to the stock exchange rules are required to report on compliance with the code. |
|
Poland |
Individual companies are required to prepare their own codes of good practices. An example of this is the Warsaw Stock Exchange (GPW S.A.) that prepared the code of good practice in 2016. The Guidelines are also prepared by the Polish Financial Supervision Authority (KNF). |
|
Slovak Republic |
In 2016, Central European Corporate Governance Association (CECGA) issued Corporate Governance Code which was primarily targeted at companies whose financial instruments are traded on a regulated market. This Code was based on G20/OECD Principles of Corporate Governance. No Slovak SOE has its stocks traded on stock exchange but some of them has issued bonds. CECGA also launched an initiative to prepare Corporate Governance Code of State-Owned Enterprises in Slovakia based on the 2015 OECD Guidelines on Corporate Governance of State-Owned Enterprises. Working committee has been set up with participation of the Ministry of Economy, the Ministry of Justice, the Ministry of Finance and other stakeholders. The Code was finalised in 2018 but hasn’t been published yet. |
|
Sweden |
According to the state ownership policy, the Swedish Corporate Governance Code should be applied by the majority owned SOEs in accordance with the principle of comply or explain. National corporate governance code has changed during the review period. Revisions to both the Code and the Ownership policy are planned for the year 2020. |
|
Switzerland |
The Swiss Code of Best Practice for Corporate Governance was updated in 2014 and 2016. There have been no changes to the SOE-specific Corporate Governance Report of 2006. However, mid 2018, the Federal Council decided to review Corporate Governance practice by external experts. The report is publicly available now and can be found at the following link https://www.admin.ch/gov/fr/accueil/documentation/communiques.msg-id-75607.html. The implementation process is ongoing. |
|
United Kingdom |
The most recent version of the UK Corporate Governance Code (Code) was published by the Financial Reporting Council (FRC) in 2018. The Code applies to premium-listed companies (and other companies that voluntarily choose to comply with it) for their financial years beginning on or after 1 January 2019. UK SOEs, are not legally required to observe the Code (unless premium-listed) but often volunteer to comply in order to foster best practice corporate governance principles. The SOEs within UKGI’s portfolio are encouraged to comply with the provisions of the Code. The new Code places greater emphasis on relationships between companies, shareholders and stakeholders. It also promotes the importance of establishing a corporate culture that is aligned with the company purpose and, business strategy, promotes integrity and values diversity. The new Code emphasises the importance of the following issues: (i) maintaining positive relationships between companies, shareholders and stakeholders; (ii) high quality board composition and a focus on diversity; and (iii) remuneration which is proportionate and supports the long-term success of the company. In addition, the Company (Miscellaneous Reporting Regulations) 2018 (Regulations) introduced additional requirements in relation to pay disclosure, including requirements for: (i) all listed companies with more than 250 UK employees to disclose and explain each year their company pay ratios; (ii) such companies to disclose the ratio of their CEO’s total annual pay to the median, lower quartile and upper quartile pay of their UK employees; (iii) listed companies to be more transparent about how share price growth can inflate executive pay; and (iv) remuneration committees to engage with the wider workforce on how executive pay aligns with employee pay. As with the FRC Code, UK SOEs are not legally required to observe the Regulations (unless premium-listed). In addition, the Regulations introduced a change to UK legislation affecting all large companies (public and private), requiring a company’s annual Strategic Report to include a statement describing how the company’s directors had regard to their fiduciary statutory duties when performing their duty to promote the success of the company. This change affects any UK SOEs meeting the relevant criteria regarding turnover, balance sheet total and number of employees. |
Source: Questionnaire responses from national authorities
Box 4.1. Changes in rules guiding SOE’s involvement in co-operative projects such as joint ventures and public-private partnerships in France
In France, the provisions of the order 2014-948 relating to the governance and capital transactions of companies with public participation may apply if the formation of the joint venture involves a transfer or acquisition transaction from another company. In some cases, especially if the operation involves exit from the public sector, such operations must be allowed. The rules on public-private partnerships have been partly revised in the past 5 years. The Public Procurement Ordinance of 23 July 2015, Decree No. 2016-360 of 25 March 2016 on public procurement and Decree No. 2016-361 of 25 March 2016 on defence or security procurement have unified and consolidated the different public-private partnership formulas into a single form: the partnership market. The purpose and scope of the partnership contracts have been redefined. The supervision of the use of these types of markets has also been strengthened in order to secure its use.
Source: Questionnaire responses from French 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 (2018), 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 (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.
Note
← 1. Nasdaq, Corporate governance code for the companies listed on NASDAQ Vilnius,