Defining an SOE. Any undertaking recognised by national law as an enterprise, and in which the state exercises ownership or control, should be considered as an SOE. This includes joint stock companies, limited liability companies and partnerships limited by shares. Moreover, statutory corporations, with their legal personality established through specific legislation, should be considered as SOEs if their purpose and activities, or large parts of their activities, are of an economic nature.
Ownership or control. The Guidelines apply to SOEs that are owned and/or controlled by the state. Ownership comprises direct majority ownership and, provided that control exists, includes other types of direct and indirect ownership. Control can be exercised if an ownership entity (or several ownership entities acting in concert):
An equivalent degree of control may derive from various legal or factual arrangements that confer decisive influence. This would include legal stipulations, corporate articles of association or arrangements under private or public law which ensure continued state control over an enterprise, including veto rights on matters that confer decisive influence exercised by the state. This can be the case when the state has the power to appoint a majority of the members of the board of directors, or equivalent management body, or has the powers to appoint the CEO, or is able to control the material decision-making of the enterprise through other means. Control may also be exercised through preferential and long-term use of the ownership or right to use all or substantial parts of its assets, and in exceptional cases, through rights or contracts conferring decisive influence on commercial or other decisions of the undertaking.
Whether the state exercises such decisive influence may need to be addressed on a case-by-case basis, taking into account all circumstances of the specific case. For example, whether special rights, shares or legal provisions (in some jurisdictions referred to as a “golden share”) amounts to control depends on the extent of the powers it confers on the state. Also, minority ownership by the state can be considered as covered by the Guidelines if additional factors show the enterprise is controlled by the state, such as if corporate or shareholding structures confer effective controlling influence on the state (e.g. through shareholders’ agreements), or in cases where direct and indirect equity stakes combine to exercise control. Monopoly rights granted by the state to an enterprise may in some cases result in de facto control by the state. Conversely, state influence over corporate decisions exercised via bona fide regulation would normally not be considered as control.
Undertakings not covered by the above criteria, and in which the government assigns voting rights, held indirectly via asset managers or institutional investors such as pension funds, would also not be considered as SOEs. For the purpose of these Guidelines, undertakings which are owned or controlled by a government for a limited and well-defined duration arising out of bankruptcy, liquidation, conservatorship or receivership, would normally not be considered as SOEs. Different modes of exercising state control will also give rise to different governance issues. Throughout the Guidelines, the term “state-owned” is understood to imply state-owned or controlled and the term SOE is understood to imply state-owned or controlled enterprise, except if stated otherwise.
Corporate group structures. SOEs can also be owned or controlled by the state through corporate group structures such as parent SOEs or a similar legal entity or holding company that is state-owned. The determination of control in a corporate group structure should be identified at each layer and it may require a detailed assessment. In corporate group structures, the rights of the parent SOE are akin to those held by any parent (private or public) company toward its subsidiaries. In such cases, some provisions in the Guidelines concerning “ownership entities” would apply to parent SOEs and not directly to the state. This is in each case indicated in the annotations.
Economic activities. An economic activity is one that involves offering goods or services in a given market and which could, at least in principle, be carried out by a private operator in order to make profits. The market structure (i.e. whether or not it is characterised by competition, oligopoly or monopoly) is not decisive for determining whether an activity is economic. Mandatory user fees imposed by the government should normally not be considered as a sale of goods and services in the marketplace. Economic activities mostly take place in markets where competition with other enterprises already occurs or where competition given existent laws and regulations could occur.
Commercial considerations. Commercial considerations mean considerations of price, quality, availability, marketability, transportation and other terms and conditions of purchase or sale, or other factors that would normally be taken into account in the commercial decisions of a privately owned or other enterprise operating under market-oriented conditions in the relevant business or industry.
Public policy objectives. Public policy objectives are objectives benefitting the public interest within the jurisdiction concerned. These could include carrying out of public service obligations as well as other special obligations undertaken in the public interest which can be set in addition to financial performance objectives. In many cases, public policy objectives might otherwise be achieved via government agencies, but have been assigned to an SOE for efficiency or other reasons.
Public service obligations (PSO). PSOs are obligations placed upon providers of public services in order to ensure the intended users’ appropriate access to essential economic or social services, which would not be provided by the market, or in a manner sufficient to fulfil the PSO, under commercial considerations. While the design and mechanisms for the implementation of PSOs can vary greatly amongst jurisdictions, PSOs may for example consist of universal service and/or affordability requirements imposed on providers of public services.
The governing bodies of SOEs. Board structures and procedures vary both within and among jurisdictions. Some jurisdictions have two-tier boards that separate the supervisory (non-executive) and management function into different bodies. Such systems typically have a “supervisory board” composed of non-executive board members, often including employee representatives, and a “management board” composed entirely of executives. Other jurisdictions have “unitary” boards, which bring together executive directors and non-executive directors. The Guidelines do not advocate for any particular board structure, recognising that both systems can facilitate the achievement of the outcomes-oriented recommendations contained herein.
The Guidelines are intended to apply to whatever board structure is charged with the functions of governing the enterprise and monitoring management. In the typical two-tier system, found in some jurisdictions, “board” as used in the Guidelines refers to the “supervisory board” while “key executives” refers to the “management board”.
Many boards include “independent” members but the scope and definition of independence varies considerably according to national legal context and codes of corporate governance. Broadly speaking, independent board members are understood to mean individuals free of any material interests (including remuneration directly or indirectly, from the enterprise or its group other than directorship fees); or free of relationships with the enterprise (non-executive board members), the state (neither civil servants, public officials, nor elected officials), its management, and other major shareholders, as well as with institutions and interest groups with a direct interest in the operations of the SOE that create a conflict of interest that could jeopardise their exercise of objective judgement. Independent board members should be selected based on merit, be in possession of an independent mindset and sufficient competencies to carry out the board duties.
The term “chair” is used in the Guidelines to denote the chairperson of the board of directors in a unitary system and the chairperson of the supervisory board of a two-tier system. A chief executive officer (CEO), generally, is the enterprise’s highest ranking executive officer (e.g. head of the management board in a two-tier system), responsible for managing its operations and implementing corporate strategy. The CEO should be accountable to the board of directors in a unitary system and to the supervisory board in a two-tier system.
Listed SOEs. Some parts of the Guidelines are specifically oriented towards “listed SOEs”. “Listed SOEs” refers to SOEs whose shares are publicly traded. In some jurisdictions SOEs that have issued preference shares, exchange-traded debt securities and/or similar financial instruments may also be considered as listed. The Guidelines’ application to listed SOEs should also ensure compatibility with the G20/OECD Principles of Corporate Governance and the applicable corporate governance frameworks for listed companies.
Ownership entity. The ownership entity is the part of the state responsible for the ownership function, or the exercise of ownership rights in, or control over, the SOEs. Ownership entity can be understood to mean either a single state ownership agency, a co-ordinating agency, a government ministry or another public entity responsible for exercising state ownership. States can moreover exercise their ownership or control through corporate structures, such as state-owned holding companies (SOHCs).
Throughout the Guidelines and annotations, the term Ownership entity is used without prejudice to the choice of ownership model. Where adherents to the Guidelines have not assigned a government institution or SOHC to play a predominant ownership role this need not affect the implementation of the remainder of the recommendations, unless otherwise indicated.
Stakeholders. The term stakeholders generally refers to non-shareholder stakeholders and includes, among others, the workforce, creditors, customers, suppliers and affected communities.
