Where SOEs are listed, or otherwise include non-state investors among their owners, the state and the enterprises should recognise the rights of all shareholders, including minority and foreign shareholders, and ensure shareholders’ equitable treatment and equal access to corporate information.
The state has an interest in ensuring that all shareholders are treated equitably in all enterprises where it has a stake. The state’s reputation in this respect will influence SOEs’ capacity to attract outside funding and the valuation of the enterprise. It should therefore ensure that other shareholders do not perceive the state as an opaque, unpredictable and unfair owner. On the contrary, the state should establish itself as exemplary and follow best practices regarding the treatment of shareholders.
IV.A. The state should strive toward full implementation of the G20/OECD Principles of Corporate Governance when it is not the sole owner of SOEs, and of all relevant sections when it is the sole owner of SOEs.
Concerning shareholder protection this includes:
IV.A.1. The state and SOEs should ensure that all shareholders are treated equitably.
Whenever a part of an SOE’s capital is held by private shareholders - institutional or individual - the state should recognise their rights. Non-state shareholders should in particular be protected against abusive action by the state as an owner, and should have effective means of redress for violation of their rights at a reasonable cost and without excessive delay. In addition, private shareholders should not be expropriated by the state owner without just cause and market consistent compensation. Insider trading, market manipulation and abusive self-dealing should be prohibited. Pre-emptive rights and qualified majorities for certain shareholder decisions can also be a useful ex ante means of ensuring minority shareholder protection. Specific care should be taken to ensure the protection of shareholders in cases of partial privatisation of SOEs.
As a dominant shareholder, the state is in many cases able to make decisions in general shareholders meetings without the agreement of any other shareholders. It is usually in a position to decide on the composition of the board of directors. While such decision-making power is a legitimate right that follows with ownership, it is important that the state does not abuse its role as a dominant shareholder, for example by pursuing objectives that are not in the interest of the enterprise and are thereby to the detriment of other shareholders. Abuse can occur through inappropriate related party transactions, biased business decisions or changes in the capital structure favouring controlling shareholders.
The ownership entity should develop guidelines regarding equitable treatment of non-state shareholders. It should ensure that individual SOEs, and more particularly their boards, are fully aware of the importance of the relationship with shareholders and are active in enhancing it. When the state is able to exercise a degree of control that exceeds its shareholding, then there is a potential for abuse. The use of golden shares should be limited to cases where they are strictly necessary to protect certain essential public interests such as those relating to the protection of public security and proportionate to the pursuit of these objectives. Further, governments should disclose the existence of any shareholders’ agreements and capital structures that allow a shareholder to exercise a degree of control over the corporation disproportionate to the shareholders’ equity ownership in the enterprise.
IV.A.2. SOEs should observe a high degree of transparency, including equal and simultaneous disclosure of up-to-date information, towards all shareholders.
A crucial condition for protecting shareholders is to ensure a high degree of transparency. As a general rule, material information should be reported to all shareholders simultaneously to ensure their equitable treatment, including information on the financial situation, performance, sustainability, ownership and governance of the SOE. This also includes timely and simultaneous reporting of material developments that arise between regular reports. Moreover, any shareholder agreements, including information agreements covering board members, should be disclosed.
Minority and other shareholders should have access to all the necessary information to be able to make informed investment decisions. Meanwhile, significant shareholders, including the ownership entity, should not make any abusive use of the information they might obtain as controlling shareholders or board members. For non-listed SOEs, other shareholders are usually well identified and often have privileged access to information, through board seats for example. However, whatever the quality and completeness of the legal and regulatory framework concerning disclosure of information, the ownership entity should ensure that all SOEs where the state has shares, put mechanisms and procedures in place to guarantee easy and equitable access to information by all shareholders. Particular care should be taken to ensure that when SOEs are partially privatised, the state as shareholder should have no greater involvement in corporate decisions, or access to information, than what its shareholding provides as a right.
IV.A.3. SOEs should develop an active policy of communication and consultation with all shareholders.
SOEs, including any enterprise in which the state is a minority shareholder, should identify their shareholders and keep them duly informed in a timely and systematic fashion about material events and forthcoming shareholder meetings. They should also provide them with background information on issues that will be subject to decision that is reliable, comparable and sufficient to make informed decisions. SOE boards are responsible for ensuring that the enterprise fulfils its obligations in terms of information to all shareholders, including institutional investors. In doing so, SOEs should not only apply the existing legal and regulatory framework, but are encouraged to go beyond it when relevant in order to build credibility and confidence, with due regard to avoiding overly burdensome requirements. Where possible, active consultation with minority shareholders will help in improving the decision-making process and the acceptance of key decisions. Further guidance is provided under the relevant provisions of the G20/OECD Principles of Corporate Governance.
IV.A.4. The participation and exercise of voting or other rights of all, including minority shareholders, in shareholder meetings should be facilitated so they can take part in fundamental corporate decisions such as board election. General shareholder meetings allowing for remote shareholder participation should be permitted by jurisdictions as a means to facilitate and reduce the costs to shareholders of participation and engagement. Such meetings should be conducted in a manner that ensures equal access to information and opportunities for participation of all shareholders.
Minority shareholders may be concerned about actual decisions being made outside the SOE’s shareholder meetings or board meetings. This is a legitimate concern for listed companies with a significant or controlling shareholder, but it can also be an issue in companies where the state is the dominant shareholder. It might be appropriate for the state as an owner to reassure minority shareholders that their interests are taken into consideration. In situations where there may be a conflict between the interest of the state and those of minority shareholders, such as related party transactions, the involvement of minority shareholders in the approval process of such transactions should be considered.
The right to participate in general shareholder meetings is a fundamental shareholder right. To encourage minority shareholders to actively participate in SOEs’ general shareholder meetings and to facilitate the exercise of their rights (e.g. asking questions to the board, placing items on the agenda of general meetings, and proposing resolutions) specific mechanisms could be adopted by SOEs. These could include qualified majorities for certain shareholder decisions and, when deemed useful by the circumstances, the possibility to use special election rules, such as cumulative voting. Additional measures should include facilitating voting in absentia or developing the use of electronic means as a way to reduce participation costs. Moreover, employee-shareholder participation in general shareholders meetings could be facilitated by, for example, the collection of proxy votes from employee-shareholders.
It is important that any special mechanism for minority protection is carefully balanced. It should favour all minority shareholders and in no respect contradict the concept of equitable treatment. It should neither prevent the state as a majority shareholder from exercising its legitimate influence on the decisions nor should it allow minority shareholders to unduly hold up the decision-making process.
Virtual or hybrid (where certain shareholders attend the meeting physically and others virtually) general shareholder meetings can help improve shareholder engagement by reducing their time and costs of participating. There should be no impediments in the legal and regulatory framework to holding such meetings as long as they are conducted in a manner that ensures equal treatment, access to information and opportunities for the participation and exercise of voting and other rights by all shareholders. In addition, due care is required to ensure that remote meetings do not decrease the possibility for minority shareholders to engage with and ask questions to boards and management in comparison to physical meetings. Further guidance, including regarding the selection and use of virtual platform providers, is set out in the G20/OECD Principles of Corporate Governance.
IV.A.5. Transactions between the state and SOEs, and between SOEs, should take place on market consistent terms.
To ensure equitable treatment of all shareholders, transactions between the state and SOEs, including state-owned financial institutions, should take place according to commercial considerations. This is conceptually related to the issue of abusive related party transactions, but it differs insofar as “related parties” are more weakly defined in the case of state ownership. SOEs are, in general, autonomous legal entities that should be subject to and protected by the general rule of law in their countries of operation. The rule of law should extend to preventing abuse of SOEs as conduits for political finance, patronage or personal or related-party enrichment. The government is advised to ensure the market consistency of all transactions by SOEs with the state and state-controlled entities and, as appropriate, test them for probity. The issue is further linked to the board obligations treated elsewhere in these Guidelines, because the protection of all shareholders is a clearly articulated duty of loyalty by board members to the enterprise and its shareholders.
IV.B. National corporate governance codes should be adhered to by all listed SOEs, and to the extent possible unlisted SOEs.
Most countries have corporate governance codes for stock-market listed enterprises. However, their implementation mechanisms differ significantly, with some being merely advisory, others being implemented (by stock markets or securities regulators) on a “comply or explain” basis, and yet others being mandatory. It is a basic premise of the Guidelines that SOEs should be subject to best practice governance standards of listed enterprises. This implies that both listed and unlisted SOEs should always comply with the national corporate governance code, irrespectively of how legally “binding” they are, allowing for shareholders, the market and relevant stakeholders to evaluate an SOEs’ alignment with the relevant code.
IV.C. Where SOEs are required to pursue public policy objectives that may have a material effect on the enterprise’s performance, results and viability, adequate information about these should be available to the public and non-state shareholders at all times.
As part of its commitment to ensure a high degree of transparency with all shareholders, the state should ensure that material information on any public policy objectives an SOE is expected to fulfil, as well as on their rationales, is disclosed to non-state shareholders and the public, in compliance with competition laws, insofar as this may affect the valuation of the enterprise. The relevant information should be disclosed to all shareholders at the time of investment and be made continually available and updated throughout the duration of the investment.
IV.D. When SOEs engage in co-operative projects such as joint ventures and public-private partnerships, the contracting parties should ensure that contractual rights and obligations are upheld and that disputes are addressed in a timely and objective manner.
When SOEs engage in co-operative projects with private partners, care should be taken to uphold the contractual rights of all parties and to ensure effective redress and/or dispute resolution mechanisms. These arrangements should not be used as mechanisms to force or coerce the transfer of technology from private partners to SOEs. Other relevant OECD standards bearing on public governance of public-private partnerships and the governance of infrastructure may apply. One of the key recommendations from these standards is that care should be taken to monitor and manage any implicit or explicit fiscal risks for the government resulting from public-private partnerships or other arrangements that the SOE enters into. These co-operative projects and joint ventures entered into by SOEs should be consistent with the state ownership policy, without prejudice to the ordinary company law framework regarding the powers and the responsibility of the SOE’s board.
Moreover, formal agreements between the state and private partners, or between the SOE and private partners, should clearly specify the respective responsibilities of project partners in the case of unforeseen events, while at the same time there should be sufficient flexibility for contract renegotiation in case of need. Dispute resolution mechanisms need to ensure that any disputes occurring throughout the duration of the project are addressed in a fair and timely manner, without prejudice to other judicial remedies.