Boards play a central function in corporate governance and performance of state-owned enterprises (SOEs). The board has the ultimate responsibility, including through its fiduciary duty, for developing corporate strategies and overseeing SOE performance. In this capacity, the board acts fundamentally as an intermediary between the state as a shareholder the company and its executive management. This role is no less important in SOEs than in private companies. According to the OECD Guidelines on Corporate Governance of State-Owned Enterprises, the board should be charged with the duty to act in the interests of both of the state and the company. With the widespread commercialisation of SOEs in recent decades, governments have made efforts to professionalise boards of directors and to give boards greater power and autonomy. This chapter highlights national practices regarding the nomination, responsibilities, composition, training programmes, and evaluation of SOE boards of directors.
Implementing the OECD Guidelines on Corporate Governance of State-Owned Enterprises: Review of Recent Developments
7. The responsibilities of the boards of state-owned enterprises
Abstract
Main trends
According to the OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOE Guidelines), an SOE board should constitute a “sufficient number of competent non-executive board members who are capable of independent judgment”. They should act with integrity and be held accountable for their actions. Two-thirds of the countries reviewed for this report have made notable efforts and progress in this regard over the past five years. However, while good practice calls for an SOE’s board to oversee and incentivise management, corporate boards in the reviewed countries are still often closely linked to state ministries, or are bypassed by the government on main board responsibilities such as appointment of CEOs. Frameworks for nominating and appointing board members and senior executives should arguably be made more transparent and consistent, since countries reported some cases of close ties between the senior executives and the political decision makers affecting decision process for appointment.
Among the surveyed countries, Israel and Sweden have a comprehensive board nomination framework to empower SOE boards to appoint the chief executive officer, while other reviewed countries like Chile and Italy have aimed to do so to a certain extent. In Norway, the general manager is, according to the limited liability companies acts, appointed by the board unless it is stated in the Articles of Association that the authority to appoint the general manger belongs to the general meeting. Sweden specifies the board independence requirements for listed companies and the Norwegian government makes a clear commitment to empower the authority delegated to SOE boards and executive management.
Estonia, Israel and Spain have introduced an SOE board evaluation system. In Israel, board members are evaluated by the chairman of the board, other members of the board, and by the board members themselves. In Estonia, under the Nomination Committee’s initiative, self-assessment of supervisory boards is required to take place in conjunction with the evaluation by the Nomination Committee. Continued or stronger emphasis on gender equality on SOE boards is noted in Finland, Germany, Israel, Italy, Korea, New Zealand, Spain, Sweden and the United Kingdom.
Corporate governance arrangements of SOEs should further evolve so that respective roles of the ownership entity and SOE boards of directors in the relationship with executive management can be clarified and clearly delineated. Overcoming these challenges requires even-handed regulation, professional state ownership practices, independent boards of directors and monitoring SOE performance against clearly defined objectives, supported by high standards of disclosure and accountability. A key way to achieve these objectives is by implementing the OECD Guidelines.
National developments
a) Changes in the roles of SOE boards of directors, as established in legislation or by relevant regulations or owner’s expectations
In Argentina, since the issuance of the Presidential Decree 72 of 2018, audit institution, Sindico General de la Nacion (SIGEN) is empowered to appoint and remove the heads of the Internal Audit Units (Unidades de Auditoria Interna)– which together with SIGEN form the SOE internal control system in Argentina. In addition, the SIGEN reviews and approves the UAI’s functions and structure.
In Belgium, the Act of December 2015 stipulates that the CEO is appointed by the Board and no longer by the government. All directors are appointed by shareholders at a shareholders’ meeting and the State has a right to propose candidates to the nomination committee pro rata its shareholdership.
In Brazil, a majority of the responsibilities of the board of directors is established by Corporate Law No. 6,404/1976, with the exception of the need for evaluation and self-assessment of the members of the board of directors. Under the SOE Governance Reform Law 13,303/2016 and the Decree 8,945/2016, the bodies responsible for appointing administrators and members of the boards of directors are required to ensure an independence of SOE boards and prepare a preliminary analysis of the requirements established by the new legislation before forwarding the process to the Eligibility Committees within an each SOE. These committees are responsible for giving their opinion on the nomination made for the positions under discussion in order to assist the board of directors and the general assembly in the decision-making.
In Chile, in mid-2018, the ownership entity SEP approved a regulation for the appointment of board members in SEP SOEs.
In Costa Rica, some past controversy as well as the 2018 fiscal reforms have generated greater awareness around the importance of strengthening SOE boards. Tracking board performance has also become one of the government’s priorities for SOE reform and has been formalised as one of the board’s responsibilities under Presidential Directive 099-MP, which requires the implementation of “an objective and structured annual performance evaluation programme”. Most SOEs have language in their statutes that permits the board to exercise its duties with full independence within the rules established by law, applicable regulations and the principles of procedure. However, the forthcoming OECD Review of Corporate Governance in Costa Rica suggests that as the government continues to promote the implementation of the above measures, it remains an important goal to underscore the need for objective and independent thinking amongst board members and the duty to act in the company’s interests (OECD, 2020a).
In the Czech Republic, according to the 2014 Act on Business Corporations, a possible single body (Management Board) for corporate governance in the “monistic” model of joint-stock companies has powers over the board of directors and the supervisory board. The statutory director and chairman are elected by the management board. A state enterprise creates only a “dualistic” model—the multi-person supervisory board and one director. The supervisory board controls managing SOEs´ property and the director is responsible for managing SOEs.
In Estonia, the self-assessment of supervisory boards has been implemented together with external evaluations by the Nomination Committee. So far it has been carried out twice, in2018 and 2019. The results and outcomes are discussed both by the nomination committee and also by supervisory boards to improve their performance and if necessary also make changes in the supervisory boards.
In Israel, there was a positive change with regard to regular evaluation and self-evaluation by the boards and their individual members in the past five years. The government has introduced an SOE board evaluation system through which board members are evaluated by the chairman of the board, other members of the board and by the board member himself/herself. In order to evaluate a member of the board the evaluation is accompanied by the meetings, in which candidates’ strategic insight and board understanding are discussed. In 2018, the Government Companies Authority (GCA) also started to undertake efficiency assessment of SOE boards by external advisors. Each director is evaluated twice during the three year tenure– after the first year and towards the end of his/her tenure. One of the goals of the evaluation is that GCA will have data on the directors which will help it evaluate board efficiency in the SOE sector, horizontally and vertically. Another goal is to assess directors’ performance as a parameter in nomination decisions. This new evaluation policy complements the GCA’s provision for regular training sessions for newly appointed SOE board directors, which contribute to the government’s efforts to professionalise boards of directors of SOEs as a whole. Israel’s recent efforts to enhance transparency of its SOE board nomination processes are also elaborated in the box below.
Box 7.1. Establishing a competitive public procedure for identifying professional candidates for SOE board members in Israel
The Government Companies Agency (GCA), which is the Israeli state ownership co-ordinating agency launched "The Directors Team" initiative aimed to transform the SOE Supervisory Board members' nomination process by creating a competitive public procedure for identifying high quality SOE Board members. The program was launched in 2013 and has since been held in three rounds.
Supervisory Board members from "The Directors Team" have been included on the boards of directors of multiple SOEs in the country. The directors are required to have an extensive experience in the business arena, be independent, and oversee a significant part of the SOE portfolio in the country to implement major reforms to better support the public policy objectives that they are pursuing.
The previous round, launched in 2015, attracted a great deal of public attention and some 7 100 candidates applied to be included in "The Directors Team". After a close review consisting of scoring and rating, the list was reduced to about 1 000 candidates, who were interviewed and categorised by 6 different types of profiles: a senior management expert, a financial expert, a legal expert and a content expert (in the fields of security, infrastructures or social areas). The 500 candidates with the highest scores on the various profiles were included in the pool of 500 recommended Supervisory Board members by the GCA, out of which each minister can choose to nominate Board members for the SOEs he or she is responsible for. Once a candidate is nominated by a minister, the nomination has to be approved by a public committee, chaired by a retired judge.
To date, over 200 have been appointed by the ministers to act as SOEs Board members. In cases when ministers choose to nominate a candidate outside of the GCA recommended pool, the candidate's compatibility is examined against the same standards of "The Directors Team" and his\her nomination has to be formally approved by a public committee. In addition, "The Directors Team" aims at maintaining high standards of candidates' diversity, with an equal gender representation and quotas for Arabs, new immigrants, ultraorthodox and disabled candidates.
Source: National submission from Israeli authorities.
In Italy, Art. 12 of the Legislative Decree 175/2016 specifies that the board of directors/auditors is generally responsible for companies with public participations. The members of such bodies are subject to the jurisdictional action of responsibility on the basis of general corporate law, even if the power of investigation by the State Court of Auditors—for any pecuniary damages caused by its administrators in the so called “in house” SOEs—is also intact. In such cases, the board of directors has the power to dismiss a director in the event of a concluding sentence establishing that fraudulent behaviour caused damages to the company or in case of other misconduct related to the so-called ethical clauses.
In order to simplify and reduce the functioning costs of corporate governance, Article 11 of the Legislative Decree 175/2016 states that the governing bodies of SOEs are, as a general rule, constituted of a sole administrator. This provision for a sole administrator in companies under public control represents one of the principal innovative features, in this field, of the Consolidated Act on public participated companies. However, under defined circumstances, the shareholders meeting of the SOE could choose not to adopt this rule but the formal act must be assumed by a clear resolution, with regard to precise reasons for organisational adequacy and paying particular attention to the operating costs. In substitution of the sole director, with justified reasoning, the shareholders meeting can appoint a board of directors, composed of three or five members, or adopt forms of alternative governance.
In addition, Article 11 has established that, in appointing directors to the boards of SOEs, public ownership entities must respect gender equality legislation, taking into account the total number of appointments already made. Usually, if the SOE is managed by a board of directors, the company bylaw states that the appointments have to be made in accordance with the principles established by Law 120/2011.
In Latvia, with the adoption of the Law on Governance of Shares and the regulation of Cabinet of Ministers regarding the procedures for nomination of the members of the board and the council, the board nomination practices are publicly announced and the nomination committee includes participation from several stakeholders– the direct shareholder, CSCC, independent experts and, if necessary, observers with advisory rights to ensure the transparency of the assessment process. The independent experts in practice are representatives from the organisations representing employers, employees, corporate governance and the sector associations, chambers of commerce, institutions representing, non-governmental industry sectors, education and science sectors and institutions developing good corporate governance. Observers with advisory rights in practice are representatives from the recruitment companies, ministry representatives, members of the board and the council of the SOE.
Above mentioned functions are set in the Law on Governance of Capital Shares of a Public Person and Capital Companies (see article No.107). According to latest amendments (2018) of the Law On Governance of Capital Shares of a Public Person and Capital Companies, the supervisory board or executive board member in SOE’s where State or Local Administration holds 100% solely or together is no liable for loses if he or she proves that he or she conducted as an honest and prudent person in good faith according to lawful decisions of higher decision making bodies of the particular SOE.
In Poland, according to the Art. 18 of the Law of 16 December 2016 about the rules of state property management, an entity authorised to exercise rights from shares belonging to the State Treasury or a state legal person are obliged to undertake activities aimed at determining, by way of resolution of the general meeting of shareholders or in the company's statute, that members of the body are appointed and dismissed by the supervisory body after conducting the recruitment procedure, the purpose of which is to check and assess the qualifications of the candidates and select the best candidate for a member of the management body. An entity authorised to exercise rights over shares belonging to the State Treasury or a state legal person are obliged to take actions aimed at introducing the above mentioned requirement into the statutes of companies for which a company with the State Treasury or a state legal entity is a dominant entrepreneur. Art. 22 consists of requirements for a candidate for a member of the management body.
In the Slovak Republic, in 2017 the Government adopted Decree No. 190/2017 which allowed separation the functions of chair of board of directors and CEO . The new Statutory Audit Act No. 423/2015 effective from 17 June 2016 has substantially strengthened the role of audit committees in public interest entities. Audit committees are required to monitor the effectiveness of internal control, internal audit and risk management systems if they have an impact on preparation of financial statements; monitor the process and results of the statutory audit of the individual and consolidated financial statements; and verify and monitor the independence of statutory auditor.
In Spain, the board of directors are required to undertake an annual evaluation and adopt, when necessary, an action plan to correct weakness detected in: the quality and efficiency of the board´s operation; the performance and membership of its committees; and the diversity of board membership and competences. As for director remuneration, the principle is that it should be sufficient to attract individuals with the desired profile and compensate the commitment, abilities and responsibility that the post demands, but not so high as to compromise the independent judgement of non-executive directors.
In Turkey, in 2013, along with the Cabinet Decree of General Investment and Financial Program of SOEs and Subsidiaries for 2014, all SOEs became subject to external audit besides state audit. In this regard, the board of directors of SOEs are included in all external audit proceedings.
b) Changes in the composition of boards of directors across the national SOE sector
In Argentina, there is a tendency towards greater professionalisation of the board of directors, and establishing an equal relationship related to the shareholding of the State in each SOE through Law 19.550 for commercial companies including SOEs.1
In Brazil, the administrators of SOEs are required to meet the following mandatory requirements:
Be a citizen of unimpaired reputation;
Have a well-known knowledge compatible with the position for which it was indicated;
Have academic training compatible with the position for which it was indicated; and
Have at least one of the professional experiences below:
Ten years in the public or private sector, in the area of activity of the state enterprise or in an area related to that for which they are appointed in function of superior management;
Four years in the position of Director, Board of Directors, member of audit committee or senior management in a company of size or social object similar to that of the state company, being understood as a position of superior management that situated in the two levels the company's highest non-statutory hierarchies;
Four years in a commission or equivalent function equivalent to level 4 or higher, of the Group-Senior Management and Advisory DAS, in a legal person under domestic public law;
Four years in the position of professor or researcher, of higher level in the area of performance of the state company; or
Four years as a liberal professional engaged in the area of activity of the state company.
The academic formation must contemplate undergraduate or postgraduate course recognised or accredited by the Ministry of Education.
Only natural persons may be elected to the position of administrator of SOEs. The Officers shall reside in the Brazil. It is forbidden to indicate to the Board of Directors and to the Board of Executive Officers:
The representative of the regulatory body to which the state enterprise is subject;
Minister of State, Secretary of State and Municipal Secretary;
Holder of position in commission in the federal public administration, direct or indirect, without permanent bond with the public service;
Of statutory officer of political party and of mandate holder in the Legislative Power of any federative entity, although licensed;
Of consanguineous or related relatives up to the third degree of the persons mentioned in subsections I to IV;
A person who has acted in the last thirty-six months as a participant in the decision-making structure of a political party;
Person who has worked, in the last thirty-six months, in work linked to the organisation, structuring and execution of an electoral campaign;
Person holding a position in trade union organisation;
A natural person who has signed a contract or partnership, as supplier or buyer, applicant or offerer, of goods or services of any nature, with the Union, with the state company or with its state-owned conglomerate in the preceding three years the date of his appointment;
A person who has or may have any form of conflict of interest with the political-administrative person controlling the state enterprise or with the state company itself; and
A person who falls under any of the ineligibility hypotheses provided for in the items in item I of the caput of art. 1 of Complementary Law No. 64, of May 18, 1990.
The waiver of clause III of the caput applies to the server or retired public employee who holds a position in a commission of the federal public administration directly or indirectly.
In Chile, there have been changes in the composition of boards in ENAP, a national oil company. On 27 July 27 2017, the Law 21.025 was enacted, which entered into force on 1 December 2017, modifying the corporate governance structure of ENAP by reducing the number of board members from 8 to 7 directors and removing the Minister of Energy from the board of directors of the company. Related to gender equality, since 2016 SEP has appoint at least 40% of women directors in SEP companies. Since the beginning of 2014 boards members of all SEP SOEs must declare any operations with related parties to the Shareholders meeting or to the SEP, without a threshold of minimum amount, which was the rule before.
In Costa Rica, as a response to the OECD Working Party’s recommendations made as part of the country’s OECD accession process, the government has undertaken a number of initiatives to strengthen SOE board composition and practices. A Presidential Decree was passed to better define board member profiles and the roles and responsibilities of board members. In addition, public tenders for board members have been initiated for board appointments in 2019, and are expected to improve the skills available on boards. The government also initiated a comprehensive training programme for existing and prospective SOE board members, key executives and certain government officials with the goal of developing a better shared understanding of their roles and their decision-making authorities. Such training is expected to be an important contributor to professionalising boards and cultivating a more professional governance culture in SOEs (OECD, 2020a).
In the Czech Republic, for companies with more than 500 employees, one third of the members of Supervisory boards are elected by all employees and two thirds are by the General meeting of joint-stock company.
In Estonia, the government established a Nomination Committee in the Finance Ministry in 2017 with an objective to make competence-based choices for supervisory boards. Since the foundation of the committee, presence of representatives with experience in private sector in supervisory boards has significantly increased (See Table 7.1).
Table 7.1. Changes in the composition of SOE boards of directors in Estonia (%)
|
2018 |
2015 |
2012 |
2009 |
|
|---|---|---|---|---|
|
Private sector |
62 |
37.4 |
33 |
31 |
|
Officials |
37.2 |
38.5 |
37 |
49 |
|
Experts with political background |
0.8 (1 person) |
17.2 |
13 |
12.5 |
|
Members of parliament |
0 |
6.9 |
17 |
7.5 |
Source: National submission from Estonian authorities
In Finland, as of now, there is only one SOE (i.e. the national gambling company Veikkaus Ltd) out of 67 where there are active politicians (members of parliament) on the board of directors. Veikkaus Ltd’s board of directors comprises of eight members, and four of them are politicians.
In France, Ordinance No. 2014-948 of 20 August 2014 on the governance and capital operations of public companies has reformed the rules concerning the composition and functioning of boards of directors and supervisory boards. The State appoints a representative on the boards of directors, the supervisory boards or the legislative bodies in lieu of the companies of which it holds directly, alone or jointly with its public institutions, more than half of the capital. It may also appoint a representative in the deliberative bodies of the other companies of which it alone directly holds more than 10% of the capital. The State may also, on its proposal or with its agreement, be appointed by the competent organisms as a member of the board of directors, the supervisory board or the deliberative body in lieu of the other companies in which the state or its public industrial or commercial establishments hold, directly or indirectly, a participation. The state then designates its representative. State representatives have the same powers and obligations as other board members, but the remuneration they receive for the exercise of their mandate is paid into the state budget. The order creates a category of "members designated by the competent organ of society".
Concerning public institutions, Law 83-675 of 26 July 1983 on the democratisation of the public sector, amended by Law No. 2014-873 of 4 August 2014 for the real equality between women and men. Article 6 (1) states that "[t] he difference between the number of women and the number of men who are members of the administrative or supervisory board appointed by decree pursuant to paragraphs 1 and 2 of the Article 5 cannot be greater than one.
In 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. The purpose of the law is to significantly 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. According to this Act, listed and fully codetermined companies shall have at least 30% female and 30% male members on their supervisory boards as of 1 January 2016 and shall also define target percentage ratios for women on their supervisory boards, executive boards and on the 2 top executive levels beneath the executive board.
In Korea, the Article 24-2 was newly added to the “Act on the Management of Public Institutions” in 2018 to enhance gender equality for appointment of executive officers and board members. According to the Article, SOEs shall establish and strive for the implementation of annual anti-discrimination goals for executive appointments. CEOs of SOEs are required to submit to the Minister of Economy and Finance an annual report on progress with respect to establishment and implementation of such premises. The Presidential Decree stipulates the matters necessary for the establishment and execution of annual anti-discrimination goals.
A new clause for enhancing transparency in the process for recommending and nominating CEOs and boards of directors of SOEs was added to the Act 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 public inspection 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.
In Latvia, supervisory boards where established in all SOEs which qualify as “large” starting from 2016. According to Regulations of Cabinet of Ministers of Republic of Latvia 1 December 2015 No. 686 which sets nomination order for board members in enterprises where state has rights to propose candidates for board member positions, in solely owned SOEs at least half of supervisory board members must be independent members or if supervisory council is composed of odd number of members then number of independent members may be less by one in comparison to other members of supervisory board. All SOEs fulfil the criteria, and in most cases supervisory councils are composed mostly of independent members. There is only one exception– the Development Finance Institution ALTUM. ALTUM’s supervisory council composition is regulated by “Law on Finance Development Institution”
According to the regulation, an independent board member should not be subjected to particular SOE’s state capital share holder representative’s orders; was not an executive board member in the last three years or a company controller in particular SOE or in SOE daughter company; earns income in particular SOE only for the performance of the duties of a supervisory board member; in the last three years was not an external auditor, capital shareholder or executive board member or employee in external audit company of particular SOE.
All SOE (where state ownership is more than 50%) board members are still subject of the Law On Prevention of Conflict of Interest in Activities of Public Officials. No specific regulations concerning gender equality or inclusiveness. Discrimination on any grounds is forbidden by Constitution. Professional requirements equally are applicable to all candidates without exceptions. Professional criteria are approved by nomination commission of particular nomination process taking into account SOE operating area, financial performance, medium term targets and other relevant factors.
In Lithuania, as of now, there are no politicians serving on SOE boards or supervisory boards and 56% of boards members are independent. The number of politicians decreased in period of 2015-2017 after in the Government Resolution No. 631 prohibition for politicians to be appointed or selected to SOE boards/supervisory board was established. Independent candidate to the board or supervisory board must meet general, specific (settled by the authority representing the state) and independence requirements.
The candidate must meet the general requirements such as higher university education; not deprived and not restricted right to hold the respective position for which the candidate applies and fulfil the functions attributed to such position; and not disqualified from office at a single-person or collegial body of the legal entity during the last five years. At the same time, the candidate should not hold the shares of the SOE or municipality-owned enterprise of an affiliated company thereof by the right of ownership or the person who is a representative of such shareholder. The candidate also must meet the following independence criteria:
When filing an application for participation in selection and before expiry of the selection procedures the candidate cannot be the manager of the SOE or municipality-owned enterprise to which he applied or an affiliated company thereof
Must not have held such position for the last three years and an employee of the SOE or municipality-owned enterprise to which he applies and an affiliated company thereof
Must not have held such office for the last three years and the candidate must not receive and during the last three years must not have received any remuneration from such SOE or municipality-owned enterprise to which he applies and an affiliated company thereof, except for remuneration for the duties of the member of a collegial body.
The candidate must not own the shares of the SOE or municipality-owned enterprise to which he applies or an affiliated enterprise thereof and cannot be a representative of such shareholder.
According to the Government Resolution No. 631 the “conflict of interest” shall mean the situation where a member of a board of SOE or municipality-owned enterprise fulfilling his duties or an assignment must take a decision (or participate in adoption thereof) or fulfil an assignment related to his private interests. The candidate must to submit a declaration, that his participation in the selection procedure of candidates does not result a conflict of interest.
In Poland, there were no fundamental changes in most cases with the exception of typical changes of a personal nature. The regulations regarding the qualifications of board members have changed - the Art. 22 of the Law of 16 December 2016 about the rules of state property management contains requirements for a candidate for a member of the management body. An entity authorised to exercise rights from shares belonging to the State Treasury or a state legal person in the scope of exercising rights from shares in the company are obliged to undertake activities aimed at determining, by way of a resolution of the general the assembly or the statutes of that company, requirements to be met by a candidate for a member of the management body, taking into account in particular that he is a member of the management body of the company may be a person who meets all the following conditions:
Has a university degree or university degree obtained abroad recognised in the Republic of Poland;
Has at least a 5-year employment period based on a contract of employment, appointment, selection, appointment, cooperative employment contract, or provision of services under a different contract or business activity on its own account,
Has at least 3 years of experience in managerial or independent positions or resulting from running a business on its own account,
Meets other requirements specified in separate regulations, in particular, do not violate restrictions or prohibitions on the position of a member of the management body in commercial companies;
A member of the management body cannot be a person who meets at least one of the following conditions:
Acts as a social associate or is employed in a deputy, senatorial, deputies and senatorial office or an office of a Member of the European Parliament under a contract of employment or provides work on the basis of a contract of mandate or other agreement of a similar nature;
Is part of the body of a political party representing an external political party and authorised to incur liabilities;
Is employed by a political party on the basis of a contract of employment or provides work on the basis of a contract of mandate or another contract of a similar nature;
Performs a function of choice in the company's trade union organisation or in the company's trade union organisation from the capital group;
Its social or commercial activity raises a conflict of interest regarding the company's operations
Spain has increased its commitment to enhance gender equality in SOE boards. In January 2020, Spanish National Securities Market Commission (CNMV) put in place a new legal obligation to give 40% (formerly 30 percent) of board seats of listed SOEs to women. The new requirement also applies to non-listed public companies.
In Switzerland, in 2013, the Federal Council decided on guidelines for the representation of the national languages and the sexes on boards (German 65.5%, French 22.8%, Italian 8.4%, Rhaeto-Romanic 0.6%. At least 30% males and females on the boards). The ownership entities have to state the measures taken and to be taken, if they fail to meet the requirements for gender and language regional representation. In 2015, a model requirement profile for board members was published2. It defines the requirement for the board as a body, for the individual board members and for the president of the board.
c) Changes in the extent to which SOEs have established specialised committees to support the board of directors
In Argentina, the Audit Committees propose to modify the regulations with an aim of achieving more consensus every time.
In Brazil, there was an obligation to create a statutory audit committee and an eligibility committee for all state-owned enterprises. It is incumbent upon the statutory audit committee, without prejudice to other powers provided for in the statute of the public company or mixed-capital company to:
Give an opinion on the hiring and dismissal of an independent auditor;
Supervise the activities of independent auditors, evaluating their independence, the quality of the services rendered and the adequacy of such services to the needs of the public company or of the joint stock company;
Supervise the activities carried out in the areas of internal control, internal audit and preparation of the financial statements of the public company or mixed-capital company;
Monitor the quality and integrity of the internal control mechanisms, the financial statements and the information and measurements disclosed by the public company or the joint stock company;
Evaluate and monitor risk exposures of the public company or mixed-capital company, and may require, among other things, detailed information on policies and procedures relating to:
Remuneration of the administration;
Use of assets of the public company or mixed-capital company;
Expenditure incurred on behalf of the public undertaking or mixed-capital company;
Evaluate and monitor, in conjunction with the management and the internal audit area, the adequacy of transactions with related parties;
Prepare an annual report with information on the activities, results, conclusions and recommendations of the Statutory Audit Committee, recording, if any, significant differences between management, independent auditors and Statutory Audit Committee in relation to the financial statements;
Evaluate the reasonableness of the parameters on which the actuarial calculations are based, as well as the actuarial result of the pension plans maintained by the pension fund, when the public company or the mixed-capital company is a sponsor of a closed private pension entity.
The eligibility committee, in relation to the board of directors, is responsible for providing methodological and procedural support to evaluate the directors of state-owned companies.
In Chile, the law that modified the governance structure of ENAP also includes the obligation to create a committee of directors with the powers and duties to examine external audit reports, balance sheets and other financial statements and to propose the names of external auditors to the board of directors, among others.
The government of the Czech Republic established a nomination committee in 2014 to undertake an advisory role. Proposal of new members of the board of directors and of the supervisory board in the “dualistic” model and the proposal of new members of the management board in “monistic” model of corporate governance must be published on SOEs’ websites according to the Act on Business Corporations.
In France, there has been no regulatory change specific to SOEs. Pursuant to Article L823-19 of the French Commercial Code, as amended by Order No. 2016-315 of 17 March 2016 on the Statutory Auditors, "in public-interest entities within the meaning of Article L. 820-1 and financing companies within the meaning of Article L. 511-1 II of the Monetary and Financial Code, a specialised committee acting under the responsibility, as the case may be, of the body responsible for the administration or supervisory body, monitors matters relating to the preparation and control of accounting and financial information." Therefore, this obligation is to set up an audit committee for certain public companies, particularly in the banking and insurance sector. For public companies that have adhered to the AFEP-MEDEF code, §14 of this code states that "the number and structure of committees depends on each board. However, in addition to the duties assigned by law to the audit committee, it is recommended that the remuneration, as well as the appointments of directors and executive corporate officers, be the subject of preparatory work carried out by a specialised committee of the board of administration."
In Hungary, in 2016, Audit Committees were established in some SOEs to monitor the effectiveness of the internal quality control and risk management systems and financial reporting process and submit recommendations or proposals to the board of directors and the supervisory board where deemed necessary.
In Lithuania, as the Law on Audit of the Financial Statements provides that large SOEs are obliged to have audit committees the government in 2017 adopted rules regarding composition of audit committees. The rules require that members should have collegial knowledge in finance, accounting and the relevant commercial sector. More than half of the audit committee’s members are required to be independent and meet the provided independence criteria. The rules also contain restrictions designated to avoid conflicts of interests.
In Spain, companies including SOEs are required to maintain a risk control and management function in charge of an internal unit or department, supervised directly by the audit committee or, where appropriate, another dedicated board committee.
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.
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