The state exercises the ownership of SOEs in the interest of the general public. It should carefully evaluate and disclose the rationales that justify state ownership and subject these to a recurrent review.
The members of the public whose government exercises the ownership rights should be the ultimate owners of SOEs. This implies that those who exercise ownership rights over SOEs owe duties toward the public that are not unlike the fiduciary duties of a board toward the shareholders, and should act as trustees of the public interest. High standards of transparency and accountability are needed to allow the public to assure itself that the state exercises its powers in accordance with the public’s best interest, and that SOEs’ resources are used in an efficient, sustainable manner and in line with rationales for ownership.
In OECD countries, the rationales for establishing or maintaining state enterprise ownership typically include one or more of the following: (1) the delivery of public goods or services where state ownership is deemed more efficient or reliable than being provided by government agencies or contracted out to private operators; (2) the operation of natural monopolies where market regulation is deemed infeasible or inefficient; and (3) support for limited economic and strategic goals in the national interest, such as maintaining specific industries or sectors under national ownership, or shoring up failing companies of systemic importance. Such rationales should be well-defined, subject to recurrent review and according to a reasonable timeline. The reviews should be subject to high standards of accountability to relevant representative bodies, and the results should be made transparent to the public. SOEs should not be burdened with public policy objectives unrelated to their line of business and rationales for ownership. The objectives should be assigned in a transparent way and subject to high levels of accountability.
I.A. The ultimate purpose of state ownership of enterprises should be to maximise long-term value for society, in an efficient and sustainable manner.
The roles that are assigned to SOEs, and the rationales underpinning state enterprise ownership, differ radically across jurisdictions. However, good practice calls for governments to consider and articulate how any given enterprise adds long-term value for its shareholders, and to the members of the public that are its ultimate owners, in an efficient and sustainable manner. To inform the decision to establish or maintain an enterprise in state ownership, governments should consider whether a more efficient allocation of resources to benefit the public could be achieved through an alternative ownership or through measures such as regulation, subsidies, taxes, public procurement, concessions, or the establishment of government agencies.
Where SOEs are expected to achieve public policy objectives, including by carrying out public service obligations, a number of efficiency considerations impose themselves. The public is best served if services are delivered in an efficient, transparent and sustainable manner, and when no alternative use of the same fiscal resources could have resulted in better services. Such considerations should guide policy makers’ choices in relying on SOEs as delivery-vehicles for public policy objectives, including public service obligations. Where SOEs are engaged in economic activities, they serve the public interest by best maximising long-term value, in a sustainable manner, and generating an adequate revenue stream for the national treasury.
I.B. The government should develop an ownership policy. The policy should, inter alia, define the overall rationales and goals for state ownership, the state’s and other shareholders’ role in the governance of SOEs, how the state will implement its ownership policy, and the respective roles and responsibilities of those government offices involved in its implementation.
In order for the state to clearly position itself as an owner, it should clarify and prioritise its rationales for state ownership by developing a coherent and explicit ownership policy. The ownership policy should ideally take the form of a concise, high level policy document that outlines the overall rationales and goals for state enterprise ownership and for individual (parent) SOEs, the state’s and other shareholders’ role in the governance of SOEs, how the state will implement its ownership policy, and the respective roles and responsibilities of those government offices involved in its implementation. In some jurisdictions, it may be necessary to anchor the rationales for ownership and ownership policy in a legal framework, which also covers other aspects related to the state’s role as an owner.
The ownership policy should be communicated to the public, and to all parts of the government that exercise ownership rights or are otherwise involved in the implementation of the state’s ownership policy. This will provide SOEs, the market and the general public with predictability and a clear understanding of the state’s overall objectives as an owner and role as a shareholder. The ownership policy should be available in an easily accessible digital format.
The ownership policy should, inter alia, define the SOEs portfolio, include the state’s goals as an owner such as the creation of long-term value, the achievement of public policy objectives, or strategic goals such as the maintenance of certain industries under national ownership, or economic, environmental and social goals. It is the role of the state to decide the rationales for state ownership, they should in any case be clearly defined for each SOE. Where the state’s goals for its SOE portfolio could intersect with the level playing field, the state should limit any distortion via mitigating measures and fully disclose the rationale, justification, and scope of possible distortions of the level playing field, especially if these could negatively affect foreign competitors. A high level of transparency is important to identify and prevent preferential treatment.
In addition, the ownership policy should include more detailed information on how ownership rights are exercised within the state administration, including the ownership entity’s mandate and main functions and the roles and responsibilities of all government entities that exercise state ownership. It should also reference and synthesise the main elements of any policies, laws and regulations applicable to SOEs, as well as any additional guidelines that inform the exercise of ownership rights by the state. Where relevant, the state should also include information on its reform priorities, and/or policy and plans regarding the privatisation of SOEs, and should ideally identify a list of SOEs to which the policy applies.
Multiple and contradictory or unclear rationales or objectives for state ownership can lead to either a very passive conduct of ownership functions, or conversely result in the state’s excessive intervention in matters or decisions which should be left to the SOE.
I.C. The ownership policy should be subject to appropriate procedures of accountability to relevant representative bodies and disclosed to the general public. The government should review at regular intervals its ownership policy and evaluate its implementation.
The ownership policy should ideally be developed on a whole-of-government basis by the relevant ownership entity. In developing and updating the state’s ownership policy, governments should make appropriate use of public consultation, which should involve notifying and soliciting input from the general public or their representatives. They should, inter alia, consult broadly with private sector representatives, including investors and market service providers, and with trade union representatives. Effective and early use of public consultation can be instrumental in facilitating acceptance of the ownership policy by market participants and key stakeholders and enhancing transparency. The development of the ownership policy can also involve consultations with all concerned government entities, for example relevant legislative or parliamentary committees, the state audit institution, as well as relevant ministries and regulators.
The ownership policy should be accessible to the general public and widely circulated amongst the relevant ministries, agencies, SOE boards, management, and the legislature. The state’s commitment can be further strengthened by relying on proper oversight and accountability mechanisms to relevant representative bodies such as regular legislative approval and ensuring periodic reviews.
The state should strive to be consistent in its ownership policy and avoid modifying the overall rationales for state ownership too often. However, rationales and objectives may evolve over time, in which case the ownership policy needs to be updated accordingly. Dependent on national context, the best way to do this may include reviews or a re-evaluation of SOE ownership as part of the state budgetary processes, medium-term fiscal plans or in accordance with the electoral cycle. Such reviews can be based on an evaluation of the implementation of the ownership policy, and may include undertaking comparisons and benchmarks of SOEs, making use of external evaluation, and ensuring the policy itself is built on transparent objectives. The evaluation should also consider whether state ownership is still the best instrument to safeguard the public interest.
Any change, including of an ad hoc nature, in the ownership policy should be disclosed fully and transparently at the time of the change, including the rationales behind the need for an update.
Any ad hoc interventions should generally be avoided, but can be necessary, such as in the case of emergency government support. In this case, attention needs to be paid to avoid emergency measures becoming longer-term structural support without long-term rationales in the ownership policies, and to ensure short-term crisis responses do not result in unintended and unjustified negative implications for competition and trade in the medium- and long-term. Governments should draw upon international best practices and act consistent with international agreements on state support. Crises measures should safeguard integrity and transparency and provide for a plan for an exit once the emergency abates by envisaging from the start of the measure a review of the intervention.
I.D. The state should define the rationales for owning individual SOEs and subject these to recurrent review. The rationales for ownership, and any public policy objectives that individual SOEs, or groups of SOEs, are required to achieve should be clearly linked to their main line of business, mandated by the relevant authorities and publicly disclosed.
The rationales for owning individual enterprises – or as the case may be, classes of enterprises – can vary. For example, sometimes certain groups of enterprises are state-owned because they carry out important public service obligations, while others remain state-owned for strategic reasons, or because they operate in sectors with natural monopoly characteristics. To clarify the respective rationales underpinning their maintenance in state ownership, it can sometimes be useful to classify those SOEs into separate categories and define their rationales accordingly. Such rationales should be subject to recurrent review, and publicly disclosed. Where such rationales may be found in the founding documents and governing legal instruments of an SOEs, the state as an owner should ensure adequate disclosure of these documents.
SOEs are sometimes expected to fulfil public policy objectives. These objectives should be clearly mandated and aligned with national laws and regulations, and clearly linked to their main line of business. Further, the public interests which the public policy objectives are intended to benefit need to be made clear and transparent. Public policy objectives could also be incorporated into corporate bylaws and subsequently transposed by SOEs in their corporate strategy. The market, non-state shareholders, and the general public should be clearly informed about the nature and extent of these obligations, as well as their overall impact on the SOEs’ resources and economic performance, and where feasible, their impact on the market.
Countries differ in respect of the authorities that are mandated to communicate specific public policy objectives to SOEs. In some cases, only the ownership entity has this power. In others, the legislature can establish such obligations through the legislative process. In the latter case, it is important that proper mechanisms for consultation and accountability be established between the legislature and the state bodies responsible for SOE ownership, to ensure adequate co-ordination and avoid undermining the autonomy of the ownership entity.