Most industrialised economies are characterised by open and competitive markets firmly rooted in the rule of law, with private enterprises as the predominant economic actors. However, in some countries, including many emerging economies, state-owned enterprises (SOEs) represent a substantial share of gross domestic product (GDP), employment and market capitalisation. Even in countries where SOEs play only a minor role in the economy, they are often prevalent in utilities and infrastructure industries, such as energy, transport, telecommunications and in some cases also hydrocarbons, other extractive industries, technology and finance. Thus, SOE performance is of great importance to broad segments of the population and to other parts of the business sector. Consequently, good governance of SOEs is critical to ensure their positive contribution to public policy objectives, sustainable development, including the low carbon transition, economic efficiency and competitiveness. Experience shows that market-led development is the most effective model for efficient allocation of resources. A number of countries are in the process of reforming the way in which they organise and exercise ownership of their SOEs and have in many cases taken international best practices such as the present Guidelines as points of departure or even benchmarks. The Guidelines aim to: (i) professionalise the state as an owner; (ii) make SOEs operate with similar efficiency, transparency, integrity and accountability as good practice private enterprises; (iii) ensure that competition between SOEs and private enterprises is conducted on a level playing field; and (iv) contribute to SOEs’ sustainability, resilience and long-term value-creation.
The Guidelines do not address whether certain activities are best placed in public or in private ownership, which depends on a number of factors related to the national economy as well as domestic policy choices. However, if a government decides to divest SOEs, then good corporate governance, backed by high levels of transparency and integrity are important prerequisites for economically effective privatisation, enhancing SOE valuation and hence bolstering the fiscal proceeds from the privatisation process.
The rationale for state ownership of enterprises varies among countries and industries. It can typically be said to comprise a mix of social, economic and strategic interests. Examples include public policy objectives, regional and sustainable development, the supply of public goods and services as well as the existence of so called “natural” monopolies where competition is not deemed feasible. Over the last few decades however, globalisation of markets, technological changes and deregulation of previously monopolistic markets have led to readjustment and restructuring of the state-owned sector in many countries. Moreover, SOE participation in international trade and investment has grown significantly. While SOEs were once principally engaged in providing basic infrastructure or other public services within their domestic markets, the relative importance of state-ownership has increased. SOEs are increasingly becoming important actors in the global marketplace, including operating in strategic sectors of the economy and relevant to the low carbon transition. In tandem with this development is the proliferation of state-owned investment vehicles and holding companies, which adds complexity to the relationship between governments and the enterprises they own. These developments are surveyed in a number of OECD reports that have served as input to these Guidelines.
SOEs face some distinct governance challenges. On the one hand, SOEs may suffer from undue hands-on and politically motivated ownership interference, leading to unclear lines of responsibility, a lack of accountability and integrity and efficiency losses in their corporate operations. On the other hand, a lack of any oversight due to overly passive or distant ownership by the state can weaken the incentives of SOEs and their staff to perform in the best interest of the enterprise and the general public who constitute its ultimate shareholders and raise the likelihood of self-serving behaviour by corporate insiders. SOEs’ management may also be protected from two disciplining factors that are considered essential for policing management in private sector corporations, i.e. the possibility of takeover and the possibility of bankruptcy. At the level of the state, the enforcement of commercial laws and regulations against SOEs can create unique challenges because of intra-governmental friction resulting from regulators bringing enforcement actions against entities controlled by the government. Additional governance issues arise when SOEs fulfill a public policy role together with other activities; or whose concentration in certain sectors makes SOEs more susceptible to certain risks and opportunities to operate according to responsible business conduct and high standards of integrity as addressed in relevant OECD standards.
More fundamentally, corporate governance difficulties derive from the fact that the accountability for the performance of SOEs involves a complex chain of agents (management, board, ownership entities, ministries, the government and the legislature), without clearly and easily identifiable, or with remote, principals; parties have intrinsic conflicts of interest that could motivate decisions based on criteria other than the best interests of the enterprise and the general public who constitute its shareholders. Addressing this complex web of accountabilities in order to ensure efficient decisions and good corporate governance of SOEs requires profound attention to the same three principles that are paramount for an attractive investment environment and for competitive neutrality: transparency, evaluation and policy coherence.
The Guidelines on Corporate Governance of State-Owned Enterprises (the Guidelines) were first developed to address these challenges in 2005, and revised in 2015. In 2022, the OECD Corporate Governance Committee asked its subsidiary Working Party on State Ownership and Privatisation Practices to review and revise this instrument in the light of the changing nature of the corporate governance landscape, almost two decades of experiences with its implementation, and to ensure it is fit for purpose and complementary to other OECD standards. A number of reports have previously taken stock of changes in corporate governance and state ownership arrangements in OECD and partner countries since 2005. Reforms have resulted in, inter alia, more professionalised and active ownership, exposing SOEs to the same standards of transparency and accountability as listed companies, and equipping boards of directors with appropriate levels of autonomy and independence to ensure they add value. Despite good practices, the level of implementation of the Guidelines still varies considerably between jurisdictions. Based on this, the Working Party concluded that the Guidelines should continue to set high levels of aspiration for governments and continue to serve as the leading international standard designed to assist policy makers in the area of SOE reform.
The Guidelines aim to provide a robust, aspirational and flexible reference for policy makers to develop their frameworks for SOE ownership, governance and SOEs' role in the marketplace. The Guidelines are non-binding and do not aim to provide detailed prescriptions for national legislation. The Guidelines are not a substitute for nor should they be considered to override domestic law and regulation. The Guidelines seek to identify best practices and suggest various means for achieving desired outcomes, typically involving elements of policy making, legislation, regulation, rules, self-regulatory arrangements, and voluntary commitments. A jurisdiction’s implementation of the Guidelines will depend on its policy, legal and regulatory context, the size, circumstances and commercial orientation of SOEs and other related factors which might be relevant to the Guidelines’ implementation.
In carrying out its ownership responsibilities, governments can also benefit from the following recommendations, notably the revised G20/OECD Principles of Corporate Governance (the Principles) [OECD/LEGAL/0413] and the OECD Guidelines on Anti-Corruption and Integrity in State-Owned Enterprises (the ACI Guidelines) [OECD/LEGAL/0451]. The Guidelines are intended as a complement to the Principles and ACI Guidelines, with which they are fully compatible. Other relevant OECD legal instruments include the OECD Declaration on International Investment and Multinational Enterprises [OECD/LEGAL/0144], of which the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct form an integral part; and the OECD Recommendation on Competitive Neutrality [OECD/LEGAL/0462]. Auxiliary guidance may also be sought from other sources, such as the OECD Policy Framework for Investment and the OECD Competition Assessment Toolkit. The Guidelines provide advice on how governments can ensure that SOEs are at least as accountable to the general public as a listed company should be to its shareholders.
The remainder of the document is divided into two main parts. The Guidelines presented in the first part cover the following chapters: I) Rationales for state ownership; II) The state’s role as an owner; III) State-owned enterprises in the marketplace; IV) Equitable treatment of shareholders and other investors; V) Disclosure, transparency and accountability; VI) The composition and responsibilities of the boards of state-owned enterprises; and VII) State-owned enterprises and sustainability. Each chapter is headed by a single Guideline that appears in bold italics and is followed by a number of supporting Guidelines and their sub-Guidelines in bold. In the second part, the Guidelines are supplemented by annotations that contain commentary on the Guidelines and sub-Guidelines and are intended to help readers understand their rationale. The annotations may also contain descriptions of dominant or emerging trends and offer a range of implementation methods and examples that may be useful in making the Guidelines operational. The Guidelines are further complemented by more detailed implementation guidance that may be found in OECD reports and publications.