Safeguarding State-Owned Enterprises from Undue Influence

Executive summary

SOEs remain vulnerable to being used as conduits for political finance, patronage, and personal or related-party enrichment. Lingering weaknesses in corporate governance and ownership arrangements can expose SOEs to such exploitation and undermine SOE efforts to uphold integrity. The report highlights these weaknesses and provides state owners with a better understanding of which activities are effective in safeguarding SOEs from undue influence.

The report also takes stock of how OECD member and participating countries are implementing relevant provisions of the ACI Guidelines, serving as the first report on the implementation of the ACI Guidelines since their adoption in 2019. These provisions are grouped into four key themes and are unpacked by relevant ACI Guidelines provisions together with commentaries on the provisions’ implementation. The main findings of the report are summarised below.

Taking specific legal and regulatory measures

The ACI Guidelines recall that SOEs are autonomous legal entities that should be subject to and protected by the general rule of law, including as regards bribery and financing of political activities, in their countries of operation.

The report finds that all participating countries criminalise foreign bribery and have established liability of legal persons for foreign bribery as per the OECD Anti-Bribery Convention, with most countries applying the regime to SOEs. However, there may be exceptions where certain SOEs or SOE representatives are not subject to these measures. The report also finds that countries are less clear on prohibiting the use of SOEs as vehicles for engaging in bribery, and that only a few allow for individuals to be held liable for engaging in bribery on behalf of or through a third party.

With regard to financing of political activities, the report finds that most participating countries have banned donations by at least partially owned SOEs to political parties and candidates. However, it is unclear how states regulate the contributions made by fully owned SOEs, as well as in-kind contributions, which may suggest that there may be different rules for different corporate forms and state holdings within a given country.

Protecting state ownership entities’ integrity and decision making

The ACI Guidelines also promote active and informed ownership, whereby the state owner fulfils its core responsibilities. Promoting transparency around objectives and the objectives-setting process makes it harder for illicit interests to change SOE directions at will. In addition, ensuring that nominations to SOE boards are merit-based and professional can help limit the likelihood of patronage, nepotism, and cronyism in appointments.

The report finds that most participating countries subject representatives of the state ownership to conflict of interest rules, and all countries to rules on handling sensitive information. It appears moreover that countries offer representatives of the state ownership avenues to report concerns of irregular practices through public sector reporting channels. Underreporting remains, however, a challenge and with individuals still fearful in many countries of using reporting channels, state owners should continue to strive towards meeting international standards on whistle‑blower protection.

With regard to objective setting, states are commonly involved in the exercise and, in most case have clear records of individual SOE objectives, though the specificity varies. However, the report also finds that there is substantially less information available on the procedures for modifying SOE objectives. With more than half of the assessed countries having centralised functions within one entity, the report further explores how separating ownership from other government functions can minimise conflict of interest, and opportunities for political intervention and undue influence.

Protecting the integrity and autonomy of SOE decision makers

As established in the OECD Guidelines on Corporate Governance of State‑Owned Enterprises (SOE Guidelines) and elaborated upon in the ACI Guidelines, it is a prime responsibility of the state to ensure that boards have the necessary authority, diversity, competencies, and objectivity to autonomously carry out their function with integrity.

The report finds that most participating countries require independent board members to sit on SOE boards of at least large companies, and generally limit the presence of politicians or at minimum hold them to equal standards as other board members. Former politicians are generally permitted to sit on boards, and a number of countries have reported implementing “cooling off periods” to manage potential conflicts of interest or transfer of sensitive information.

The report also finds that in most countries the state is involved, at least to some degree either through shareholder meetings, in approving board nominations or by direct appointment of the CEO and other members of executive management. This may pose a significant risk because, as demonstrated by earlier OECD studies, some of the worst integrity breaches tend to occur when CEOs are appointed at the sole discretion of high-level politicians. Moreover, just over half of participated countries reported having established minimum qualification criteria for board members, with some countries having criteria that help to elucidate personal integrity.

Bringing transparency to ownership arrangements and communication

Finally, the ACI Guidelines seek to limit opportunities for instructions or dealings that fall outside of formal channels of communication by encouraging state owners to establish with whom, how and when communication should occur.

The report finds that there is little information available on countries’ ownership structure and the roles of non-ownership state functions in overseeing SOEs. While some of this information may be available in annual aggregate reports, or their online equivalents, information can be inconsistent and unavailable for a swathe of SOEs. There is also little information available about the communication between various representatives of the state and SOEs, which may mean that communication itself is informal and inconsistent, or simply that there is no framework that countries can easily point to that captures the occasions for interaction.

Countries are therefore encouraged to develop frameworks that clarify the acceptable opportunities and forms or means of communication between the state owner, the board, and the executive management in line with the ACI Guidelines recommendations.