Safeguarding State-Owned Enterprises from Undue Influence

Implementing the OECD Guidelines on Anti-Corruption and Integrity in State-Owned Enterprises

Report

26 January 2023

4. Protecting the integrity and autonomy of SOE decision makers

Abstract

As established in the 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. This chapter focuses on national practices in protecting the integrity and autonomy of SOE decision makers that can help to mitigate the risk of undue influence in SOEs.

The board plays a central role in the governance of SOEs. It should take overall responsibility for the performance of the firm and oversee executive management. The board should act as the main interlocutor with ownership entities, and other state representatives where such engagement is permitted, providing a buffer between the state and the CEO and other members of executive management. The board should be expected to promote a corporate culture of integrity, setting the tone from the top of the company.

Professionalising boards has been a focal point of many SOE‑related forms around the world over the last decade. Despite progress, the board remains susceptible to undue influence owing to its power as the ultimate decision-maker and overseer of operational matters of the company – including on the risky and lucrative opportunities of the company. Faults in the board can be representative or a predictor of broader issues in the ownership and governance of SOEs, including corruption. OECD’s data and evidence from real corruption cases has shown how board members can be pressured, initiate and, simultaneously or independently, turn a blind eye from perceived and real corruption. At the same time, most concluded cases of foreign bribery became known through self-reporting by the company and often thanks to the board (OECD, 2017[1]).

Similarly, executive management are key decision-makers of the company and execute the strategic plans and operations of the company. The CEO and their management team can wield a considerable degree of influence, evidently within the company, but potentially in the sector or economy more broadly when in charge of monopolies or in sectors of strategic interest to the state (e.g. oil and gas). OECD’s report showed that senior management were said to be involved in 25% of the irregularities or corrupt acts that SOE respondents had witnessed in their company in recent years (OECD, 2018[2]). The employees they are meant to oversee were perceived to be involved in 69% of irregularities or corrupt acts. Concluded cases of corruption have also shown how undue influence in the appointments or activities of executive management can facilitate or represent nefarious activities. All four executives referenced in the United States’ Department of Justice Non-Prosecution Agreement with Petróleo Brasileiro S.A. (Petrobras) were “appointed to his position under the influence of a political party”, and the one manager cited in the Agreement was subordinate to one of the politically appointed executives (United States Department of Justice, 2018[3]).

The ACI Guidelines work as a companion to the SOE Guidelines, making clear the expectations for board’s professionalism and integrity and, albeit to a lesser extent, that of executive management. The below sub-sections explore select national practices in protecting the autonomy and integrity of boards and executive management to limit the opportunities for undue influence in SOE operations.

4.1. Integrity and autonomy of SOE boards

4.1.1. Board composition and state representation on boards

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. Board composition is very important to its professionalism and autonomy. The OECD’s survey of 367 SOE leaders around the world showed that respondents in companies with a higher average proportion of independent board members (and a lower proportion of political or other state figures) foresaw a lower risk of undue influence in decision-making and of influence in appointments (OECD, 2018[2]). Contrarily, a high concentration of state representatives on an SOE board can tilt the balance and risk the board prioritising interests other than those in the best interest of the enterprise. In one country, there is a party membership fee or “party taxation” whereby political party members are appointed to higher position in SOEs and pay a part of their revenues to the party’s funds. Indeed, corruption risks owning to board ineffectiveness of a lack of integrity can and often are closely linked to both patronage and political party financing. State representation on boards can also be linked to electoral cycles, whereby incoming national or sub-national governments replace boards or members with ‘their own’. At minimum, this makes it challenging for board effectiveness and to benefit on institutional memory. At worst, it is representative of nefarious acts or intentions to use SOEs for illicit purposes.

The ACI Guidelines promote composing boards in a way that facilitates integrity. This means limiting, or in more advanced practices banning, state representation on SOE boards. It also means having an adequate presence of independent board members (that is, non-state and non-executive). Table 4.1 provides an overview of allowances for independent membership on SOE boards for 37 jurisdictions. In addition, Table 4.2 outlines which type of state representatives are legally permitted to sit on boards. While legally possible, it does not mean that it is a common practice.

Are SOEs required to appoint independent board members?	Countries
Yes, with specifications	Australia (full board), Brazil (at least 25%), Bulgaria (min 1/3), Colombia (min 25%), the Czech Republic (majority), Finland (majority), France (1/3), Greece (min 2), India (1/3), Japan,¹ Korea (at least half for public corporations and quasi- governmental institutions where assets > USD 1.8 billion), Latvia (at least half), Lithuania (at least half), Morocco (1/4), Norway (majority), the Slovak Republic, Spain (50% target), Sweden (90%), United Kingdom (majority).
Yes	Austria (almost all), Belgium, Canada, China, Croatia (no formal definition), Denmark (almost all), Germany (almost all), Hungary, the Netherlands, New Zealand (almost all), Peru, Poland, South Africa (economically important/listed), Switzerland.
No	Argentina (not common), Chile (not required, but common), Malaysia, Mexico, Türkiye.

Note: ¹ – In Japan, boards are majority independent in the case of Japan Tobacco Inc., Tokyo Metro, Hokkaido Railway Company, Shikoku Railway Company, Japan Freight Railway Company, Narita International Airport Company, New Kansai International Airport Com.

Source: column 1: (OECD, 2021[4]), Ownership and Governance of State‑Owned Enterprises: a compendium of national practices; column 2: Questionnaire responses.

Country	Independent board members	State representatives
Country	Independent board members	Sitting politicians in Legislative Branch permitted	Sitting politicians in Executive Branch permitted	Civil or public servants permitted
Argentina	Not common	No	Yes	Yes
Brazil	Yes (at least 25%)	No	Yes¹	Yes
Chile²	Not required, but common practice	No	No	No
Colombia	Yes (at least 25%)	No	No	Yes
Croatia	Yes (but no formal definition)	No	No	Yes
Czech Republic	Yes (majority)	Yes	Yes³	Yes
Finland	Yes (majority)	No	No	Yes
France	Yes (1/3)	No	No	Yes
Greece	Yes (min 2)	No	No	Yes
Hungary	Yes	No	No	Yes
Japan⁴	Yes (majority)	No	No	No
Korea	Yes (at least half)⁵	No	No	No
Latvia	Yes (at least half)	No	No	Yes
Lithuania	Yes (at least half)	No	No	Yes⁶
Mexico	No	No	Yes	Yes
Netherlands	Yes	No	No	Yes (not common)
Norway	Yes (majority)	No	No	No
Slovak Republic	Yes (majority)	No	Yes	Yes
South Africa	Yes (economically important and listed)	No	No	Yes
Spain	Yes (50% target)	Yes	No	Yes
Sweden⁷	Yes (90%)	No formal limitation, but not appointed	No formal limitation, but not appointed	Yes (only investment directors)
Switzerland	Yes	No	No	Yes⁸
Türkiye	No	No	Yes	Yes
Totals	19/23	3/23	6/23	19/23

Notes:

1 – The Law on SOEs (No. 13 303/2016) does not explicitly prohibit sitting politicians in the executive branch from sitting on boards, but it does prohibit appointment of Ministers or Secretaries of State, Municipal Secretaries, those with high advisory positions in government, and heads of political parties as well as sitting politicians of the legislature, as noted in Table 4.2.

2 – Information for Chile corresponds to SOEs under the ownership of SEP.

3 – In the Czech Republic, limitations on members of Government will not allow them to perform certain activities that contradict the performance of their function. As it is the duty of the candidate for public office not to cause legal disputes through unnecessary accumulation of duties, they must choose the preferred function and resign from the other.

4 – In Japan, boards are majority independent in the case of Japan Tobacco Inc., Tokyo Metro, Hokkaido Railway Company, Shikoku Railway Company, Japan Freight Railway Company, Narita International Airport Company and New Kansai International Airport Com. Regarding state participation, the responses in the table refer to only to three SOEs: Japan Tobacco Inc., Nippon Telegraph and Telephone Corporation and Japan Post.

5 – (Korea) refers to public corporations / quasi- governmental institutions assets > USD 1.8 billion.

6 – In Lithuania, civil servants may serve on SOE boards if their duties are not related to regulation of the industry in which the SOE operates.

7‑ In Sweden, sitting politicians in the executive or legislative branches are not formally prohibited from sitting on boards, but it does not happen in practice.

8 – The Swiss Confederation will only appoint such representatives, if the interests of the Swiss Confederation cannot be safeguarded to the necessary extent (e.g. in case of restructuring). Where such representatives are appointed, the same rules regarding remunerations apply. If such a representative is a civil servant or a direct state representative, who earns a salary of the Swiss Confederation, no remuneration is paid.

Source: column 1: OECD (2021[4]), Ownership and Governance of State‑Owned Enterprises: a compendium of national practices; other columns: 2021 Questionnaire responses, https://www.oecd.org/corporate/Ownership-and-Governance-of-State-Owned-Enterprises-A-Compendium-of-National-Practices-2021.pdf.

Most countries require the presence of independent board members, with some setting minimums (in terms of numbers or proportion) and thereby aligning closely with the ACI Guidelines’ request to require an adequate presence of independent board members. While some countries apply an outright ban to any state representative sitting on SOE boards (Australia, Chile, Denmark, Italy, Korea, New Zealand, the Netherlands), civil servants commonly serve on boards in most other countries. Former politicians are generally permitted on boards too, with some countries implementing “cooling off periods” to manage potential conflicts of interest or transfer of sensitive information. In the Netherlands, there is currently a proposal to introduce a cooling off period of two years, in which former members of parliament must ask the advice of an independent committee before they accept any new position. Finally, a small number of countries allow sitting politicians to serve on SOE boards – whether from the legislative branch (Czech Republic and Spain) or the executive branch (Argentina, Brazil, the Slovak Republic and Türkiye) – but they may be subject to specific criteria or circumstance. For instance, Brazil prohibits from boards: “representatives of a regulatory body to which the state‑owned or the state‑controlled enterprises are subject, Ministers of State, Secretaries of State, Municipal Secretaries, holders of a position without a permanent relationship with civil service or of a special nature, executive or high advisory position in the government, statutory head of a political party and a person holding a term in the Legislative Power of any entity of the federation, even if on a leave from office”. In Sweden there are no formal limitations on sitting politicians, but in practice they are not appointed.

While such information can be used to understand board compositions within a country in principle, each individual country context would warrant a specific assessment to better understand the degree of public sector or political influence on boards in a way that is beyond the scope of this report. As just one example, Viet Nam, that did not participate in this study, claim to have a ban on state representatives sitting on boards. While this seems to align with best practice on paper, it is not aligned in practice: they simply do not classify representatives of the ownership co‑ordination body as ‘civil servants’. A second example comes from Croatia’s recent past, where the term “independent board member” referred only to non-executive representatives but included members representing the state, though pending legislation will bring Croatia’s definition for “independence” more in line with that used by the OECD.

4.1.2. Board qualifications and criteria

Recommendations on appointment criteria for board positions are found in the SOE Guidelines. The ACI Guidelines add to this good practice by additionally suggesting that board members are “selected on the basis of personal integrity and professional qualifications, using a clear, consistent and predetermined set of criteria for the board as a whole, for individual board positions and for the chair, and subject to transparent procedures that should include diversity, background checks and, as appropriate, mechanisms aimed at preventing future potential conflicts of interest (e.g. use of asset declarations)” (IV.9.v).

This could be best facilitated by mandating that this criterion be taken into consideration when SOE board members are selected. To further promote its practical implementation, the state through its ownership entity or its anti-corruption institution or both can provide guidance on how personal integrity can be effectively evaluated, and what checks can be made by, for instance, consulting with national registers of officials held liable for corruption. It could also be considered a good criterion for appointment of top management and other members of the executive management of the SOE, and thus the state could encourage SOE boards to use similar rules and procedures within the company.

A recent OECD study showed that just over half of surveyed governments (55%) reported having established minimum qualification criteria for board members. The other 45% did not. Criteria most commonly relate to candidates’ education and professional backgrounds and are developed to promote more balanced board composition and streamline the assessment process (OECD, 2021[4]). However, some countries establish criteria that help to get personal integrity as well. Multiple examples are provided below:

Brazil: Brazilian SOEs are required through the “SOE Statute” (Law 13.303/2016) to establish Committees of Eligibility (nomination committees). This committee is mandated to issue a formal opinion on the compliance of appointments for management positions, members of the boards and fiscal counsel with regards to the requirements and prohibitions contained in the Law concerning these nominations (OECD, 2021[4]).
Canada: The process by which members are appointed to the boards of SOEs (Crown corporations) aims to ensure both independence of the board and to equip the board with sufficient capacity to assess and address corruption and integrity risks. Crown corporation board members are appointed by the Governor in Council (Governor General on the advice of the Queen’s Privy Council, as represented by Cabinet) following an open, transparent, and merit-based selection process. Board profiles are developed by the Crown corporations and validated by the Privy Council Office to ensure they accurately reflect the appointment process and/or the relevant appointment provisions. Board profiles ensure an appropriate range of skill sets and qualifications required in a particular organisation. Compliance with the Conflict of Interest Act is a condition of employment. The board is required to have an independent audit committee that reports to the board, with mandatory level of financial literacy. The Privy Council Office and other agencies provide ongoing support to appointees on questions that arise from board members of an ethical nature (OECD, 2021[4]).
Chile: The regulations for the appointment of directors of SEP’s related companies requires a professional or technical title of a career lasting at least four years, in addition to work experience in management positions or senior executives of at least three years. People convicted of the crimes of embezzlement of public funds, tax fraud, incompatible negotiation, bribery of public employees or illegal levy, have the penalty of permanent or temporary disqualification from holding positions in SOEs (OECD, 2021[4]).
Croatia: In accordance with Article 38, paragraph 1 of the Credit Institutions Act, the president or member of the management board of a credit institution may be a person who meets the conditions of “good reputation”, “appropriate professional knowledge, ability and experience necessary…”, “not in a conflict of interest in relation to the credit institution, shareholders, members of the supervisory board, holders of key functions and senior management of the credit institution” and who, upon reasonable conclusion from previous experience, “will perform the duties of a member of the management board of a credit institution fairly and conscientiously” among others.
Finland: Key criteria in proposing candidates for the boards include experience and expertise, assurance of the capacity for co‑operation, gender diversity and diversity of competence. It is, of course, the owner(s) who elect(s) these members of boards. In this respect, every member should be aware of state owner’s expectations on his/hers work on the board. All members of boards nominated by the state ownership entity are independent of the SOE in question; e.g. CEOs or any other officers of a SOE in question cannot be elected as members of the boards. Most of the board members should even be independent from the state as an owner. People appointed to boards are experienced board members with high proven ethical standards; should an unusual case occur with a doubt or concern of any corruption or any other illegality, the company could always recruit professional (legal) advisers to assist the board in assessing those issues in more detail (OECD, 2021[4]).
Israel: The Israeli state ownership co‑ordinating agency, the government Companies Agency (GCA) launched “The Directors Team” initiative aimed to transform the SOE Supervisory Board members’ nomination process by creating a competitive public procedure for identifying high quality SOE Board members. The programme was launched in 2013 and has since been held in three rounds. As a result, 500 candidates with the highest scores on the various profiles were included in the pool of 500 recommended Supervisory Board members by the GCA, out of which each minister can choose to nominate Board members for the SOEs that he or she is responsible for. Once a minister nominates a candidate, the nomination has to be approved by a public committee, chaired by a retired judge (OECD, 2021[4]).
Latvia: The Law on Governance of Capital Shares of a Public Person and Capital companies sets the reputation as one of criteria for appointment as board member. The main criterion for selection of candidates is the professionalism and appropriateness of their talents and qualities for taking particular position. An ‘unimpeachable reputation’ is one of criteria that is to be evaluated by the nomination committee – that is, there is no proof to the contrary and there is no cause for any justified doubt on unimpeachable reputation. There have been three nomination processes where some candidates were not progressed in the evaluation process because of doubt on unimpeachable reputation. In addition, there are minimum requirements for education and work experience both for Supervisory Board members and Management Board members.
Lithuania: According to the Law on the Management, Use and Disposal of State and Municipal Assets all board members must comply with a various appointment criterion, including impeccable reputation, no relations that would cause a conflict of interest, the right to hold the relevant office has not been revoked or restricted, must not have been removed from the office due to improper performance of duties and holding a university degree. The other criteria regarding competences and technical expertise are set by the appointing body (obligation to set special criteria in the public announcement).
Mexico: Mexico has a National Digital Platform that registers public servants and individuals that have been sanctioned. Through this system, it is possible to prevent the appointment or hiring of public servants who were sanctioned according to a final resolution. The General Law on Administrative Responsibilities (Ley General de Responsabilidades Administrativas) establishes that the sanctions for public servants must be registered and imposes the obligation on all public bodies to consult the system and verify the status of the person prior to the hiring (OECD, 2021[4]).
New Zealand: Section 5 of the State‑Owned Enterprises Act 1986 provides that the directors of a State enterprise shall be persons who, in the opinion of those appointing them, will assist the State enterprise to achieve its principal objective. Section 151(2) of the Companies Act sets out who is disqualified but there are no prescribed qualifications for appointment. In supporting Ministers to make appointments, the Treasury currently advises candidates (see “What we look for” at treasury.govt.nz as follows: “Board directors are selected and appointed based on their skills and the needs of a particular entity’s board. It is important that the board comprises a balance of skills and experience that matches the strategic direction and needs of the entity. The emphasis is on appointing the best qualified person for each position and achieving diversity on boards. A best-qualified Crown director is generally defined as the candidate whose skills and experience best meet the Ministers’ assessment of the skill profile for the director vacancy. There are, however, some basic competencies that all directors must have, that include “common sense, integrity and a strong sense of ethics”.
Switzerland: The model profile for a board includes the following criteria, among others: Impeccable reputation and personal integrity, ability to work in a team and resolve conflicts, discretion, and independence from vested interests that prevent the formation of unbiased opinions.
Türkiye: According to 3^rd article of 3 numbered Presidential Decree, the directors of boards are required to have administrative and occupational proficiency regarding the activity area of SOEs. Additionally, SOEs are expected to be managed autonomously and according to the principles and conditions of economy (DL.233). Although there is not a clear statement for being sufficiently independent to adequately assess and address risks, this provision takes the necessary steps to ensure the criteria is fulfilled satisfactorily. Another qualification criteria requires having no criminal record which causes imprisonment for one or more years even if sentenced or pardoned. These crimes include embezzlement, extortion, bribery, theft, fraud, and forgery, abuse of trust, fraudulent bankruptcy, bid rigging and acting against the security of the state or the Constitutional order.

4.1.3. Board responsibilities and obligations in the interest of the firm

Ensuring SOE boards have integrity and autonomy needed to fulfil their functions relies largely on setting clear responsibilities and assigning the legal obligation to do so in a way that is in the best interest of the firm, where “the best interest of the firm” inherently includes the concept of adherence to the rule of law (and not only in the financial interest of the SOE).

Vagueness in the roles and responsibilities of the board can provide discretion that could ultimately be seen as an opportunity for political financing or enrichment. However, as the OECD’s 2021 Compendium showed, “one‑fourth of the reporting governments do not have a clear distinction between the respective roles of the board and the ownership function, which potentially hampers independence and autonomy of boards. In particular, in jurisdictions with a rather decentralised state enterprise function, the ownership entities or line ministries play a more direct role in strategic management, as well as in the appointment of the CEO and succession planning and executive remuneration and incentive schemes. According to good practice, most of these responsibilities should be exercised by the board” (OECD, 2021[4]).

Interference in SOEs can manifest when boards are bypassed or stripped of their responsibilities or ability to oversee management and the operations of the company. A handful of countries said their boards have a few channels for recourse if the decisions explicitly assigned to the board are taken by others. Namely, boards can resign in protest, take a case to court to challenge the merit of the decision or bring it to the attention of the media, or dismiss or aim to change representatives of executive management when relevant. In the Netherlands, decisions or responsibilities assumed by others that run contrary to the divisions of powers as laid down in the articles of association, are either null or voidable. Depending on the circumstances of the case, these protections also have external effects towards third parties. Should there be more discussion on the limits of powers invested in the board or shareholder, boards (or other actors within the company) can file a claim at the Enterprise Chamber (Ondernemingskamer) at the Amsterdam court of appeal.

Table 4.3 sheds more light on how countries classify board member actions to be in the best interest of the firm. It provides details on the legal obligations imposed on board members in participating countries. Countries commonly require board members to enact a duty of diligence, care and/or loyalty. Obligations of duty and loyalty to the company is an important prerequisite for professionalism and performance, but there are considerations to be made around the concept of ‘loyalty’ in the context of patronage and undue influence. There may be more competition for the ‘loyalty’ of board members owing to their proximity to the public and political spheres than private firms’ face from shareholders. Known corruption cases have shown how board positions can both be used (i) as a reward for loyalty (political or otherwise), and (ii) as a means of incentivising illicit action when loyalty to others will continue to be financially profitable or otherwise beneficial for those currying favour. The concept of loyalty can and has been used to pressure individuals, as loyalty can also be invoked for an individuals’ political leanings (or party) or towards the state owner particularly when, but not only when, the board member is a state representative. Loyalty can also be abused, whereby those in power demand loyalty in the best interest of the state, political party or personal or related party. Conflicts of interest management, explored in more detail below, is a key tool for companies to help ensure that board members retain a duty of care and loyalty to the company by managing competition for priorities. However, conflict of interest management is not the only tool. Countries may find it useful to make it clear that board members should also act with honesty or integrity, comply with laws, behave with respect, and maintain confidentiality when needed – for which prospective board members can be, and often are, vetted in the nominations process.

Country	Provisions in law and supporting details
Argentina	Those who are public officials must comply with the regulations applicable to the public function, in relation to the presentation of Sworn Statements. Art. 256. Law No. 19.550 on the obligation of the Directors to establish a guarantee “The statute shall establish the guarantee that must be provided.”
Brazil	Duty of diligence, duties to use powers to achieve corporate purposes, duty of loyalty, conflicts of interest compliance, duty to inform (Law No. 6.404/1976, Article 153).
Chile	Duty of diligence and care, loyalty, and confidentiality. Art. 41 to 43 Law No. 18.046 applies equally to public sector public companies created by law and SOEs.
Colombia	Duties of members of boards (and managers of directors) include: i) respect, comply with and enforce the Constitution, laws and statutes of the entity (Decree 128 of 1976: Defines the legal obligations of board members.)
Croatia	Companies Act (Zakon o trgovačkim društvima) Code of corporate governance of companies in which the Republic of Croatia has shares or stakes (Kodeks korporativnog upravljanja trgovačkim društvima u kojima Republika Hrvatska ima dionice ili udjele) Corporate Governance Code (Kodeks korporativnog upravljanja) - the bases of due attention and responsibility of the members of the Supervisory Board and the Management Board are prescribed in the Companies Act, and further elaborated in other codes/ documents. In credit institutions and the Law on Credit Institutions
Czech Republic	The board members have a duty of care. “(1) A person who accepts the office of a member of an elected body undertakes to discharge the office with the necessary loyalty as well as with the necessary knowledge and care. A person who is unable to act with due managerial care although he must have become aware thereof upon accepting or in the discharge of the office and fails to draw conclusions for himself is presumed to act with negligence” Act No 89/2012 Coll., Civil Code, Sec. 159(1).
Estonia	Additionally to the universal obligations stemming from the commercial code the §§ 83 and 84 of State Assets Act are adding some obligations
Finland	Limited Liability Company Law lists the minimum task list for the Board and Management.
Greece	The general rules are set in Law 4548/2018 on SAs (art. 77‑95). Furthermore: For HCAP art. 192 of law 4389/2016 provides for the control the BoD exercises upon its subsidiaries. For SOEs under Law 3429/2005, this law, the SOE’s founding Law in conjunction with the Statutes and Law 4735/2020 provide for the qualifications of Board members, the number of the members and other details of the nomination and election processes.
Hungary	Relevant legal obligations include, but are not limited to keep the business secrets, with the exception of transactions covering common everyday needs, members of the Board of Directors and their relatives may not conclude, in their own name and on their own behalf, contracts falling within the scope of activities of the company, unless with the consent of the Sole Shareholder, etc. The legal obligations of the Board of Directors are set forth especially in the Hungarian Civil Code, the Articles of Association of the SOE’s and the inner rules of the company, such as the Rules of Procedure of the Board of Directors.
Japan	NTT follows the provisions of laws and regulations such as the Companies Act, as well as private companies. In addition, penalties are defined when violating the provisions of the Companies Act, in the Act on Nippon Telegraph and Telephone Corporation. As with private enterprises, Japan Post Holdings Co., Ltd. will follow the provisions of laws and regulations, such as the Companies Act. In addition, the Postal Service Privatization Act and the Act on Japan Post Holdings Co., Ltd. stipulate penalties for violating the provisions of these acts.
Korea	Article 22 (Request for Removal, etc.) of the ‘Act on the Management of Public Institutions’ Article 35 (Liabilities of Directors and Auditors) of the ‘Act on the Management of Public Institutions’
Latvia	1) Serve as good and careful manager in good faith; 2) are subject to Commercial law provisions regarding restrictions on transactions with related parties; 3) shall comply with the non-competition regulations of Commercial law; 4) must comply with the restrictions specified in the Law “On Prevention of Conflict of Interest in the Activities of State Officials” (Law on Governance of Capital Shares of a Public Person and Capital companies Sections 51 and 52)
Lithuania	Law on Companies: act for the benefit of the company and its shareholders, to comply with laws and other legal acts and to follow the company’s articles of association. Civil Code of the Republic of Lithuania: to act honestly and prudently; to be loyal to the legal person and to observe confidentiality; to avoid the situation when his personal interests contradict or may contradict the interests of the legal person; not to confuse the property of the legal person with its personal property.
Mexico	As it was previously said, the legal obligations of the members of the boards are established, in general in the Federal Law of Entities and its regulation, and in particular in their statutes.
Netherlands	The key duties of a director are set out in the Dutch Civil Code (DCC): - The task of the board is to serve the corporate interest of the company, meaning the interests of the company and the enterprises affiliated with it, i.e. the interests of all stakeholders of the company. When the board acts contrary to the above, the relevant director(s) can be held liable. - The company and the persons who by virtue of law and the articles of associations are concerned with its organisation must conduct themselves in relation to each other in accordance with the requirements of reasonableness and fairness. The board should act reasonably and fairly in relation to other persons who are concerned with the company and its organisation. The company must furthermore treat its shareholders equally. A resolution of the board may be voidable if it is contrary to the principles of reasonableness and fairness. - The duty of each director towards the company is to properly perform the individual tasks allocated to them. When a director breaches their duty of proper performance, they may be held personally liable.
New Zealand	These are set out in sections 131 to 138B of the Companies Act 1993.
Norway	General fiduciary duty, consisting of a general loyalty duty and duty of care towards the company and its shareholders (hereunder minority shareholders): The duty is not codified in its general form, but follows from customary law. Further, the board members also have an uncodified general duty to equal treatment of shareholders and a duty not to let extraneous considerations influence company decisions. Although these general principles are uncodified, they are represented in specific clauses in company legislation, such as limited liability companies act § 6‑17 concerning remuneration by others than the company, § 6‑27 disqualification due to conflict of interests, § 8‑6 gifts etc.
Slovak Republic	If the SOE is in the form of a joint-stock company, the Commercial Code, Accounting Act and other relevant general legal acts apply to this legal form. We do not have any knowledge of special procedures for SOEs by the State that would go above the level set by law. The Ministry of Justice does not have any SOE in its scope of authority.
South Africa	Compulsory adherence to PFMA and Companies Act
Spain	Duty of loyalty and duty to avoid conflict of interest (Spanish Corporate Enterprises Act, Art. 228 and 229 respectively). The basic obligations related to duty of loyalty are: - Not exercise their power for any end purpose other than that for which they were granted. - Maintain the confidentiality of any information, data or records to which they may have access in the course of fulfilling their role - Refrain from participating in discussions and votes on agreements and decisions in which the director or a related person may have a direct or indirect conflict of interest - Adopt the necessary measures to avoid situations arising in which their interests, whether their own or of another party, may enter into conflict with the company’s interests and their duties to the company. - Fulfil their roles under the principal of personal responsibility with freedom of opinion and judgement and independence with respect to third-party institutions and links
Sweden	Company law plus Code.
Switzerland	According to the Swiss Code of Obligations, members of the board of directors and third parties engaged in managing the company’s business must perform their duties with all due diligence and safeguard the interests of the company in good faith. They must also afford the shareholders equal treatment in like circumstances (art. 717).
Türkiye	According to 9th article of DL.233, the duties and the authorities of the Board are stated hereunder: 1. To make the decisions to ensure the improvement of the Enterprise within the provisions of the related legislation, development plan and policy papers. 2. To determine the policy of operation and the terms and conditions of operation for the Enterprise, establishments and their subsidiaries that will enable them to operate productively and profitably. 3. To approve annual programs for the enterprise, establishment and their subsidiaries, balance sheets and year-end financial statements and the annual reports which have been prepared on basis of the annual and long-term operation programs and to present them to the related authorities. 4. To take decisions that will provide the co‑ordination between the establishments and their subsidiaries. 5. To take decision Executive Committee decisions that might be applicable by the approval of the Board within 15 days from the date of receipt of the decision. 6. To appoint the personnel (head of departments, managers for establishments or similar positions) upon the proposal of the general director. 7. To follow up the operations of the general directorate. 8. To determine the codes of practices for the adaptation of the decisions made by the President on the purchasing and the using of the vehicles by the Enterprise. 9. To undertake the other duties assigned by legislation.

Source: 2021 Questionnaire responses.

4.1.4. Managing conflicts of interest

One of the most common concerns about integrity in SOEs regards real or perceived conflicts of interest that can exist at the board level, particularly but not only in the presence of politicians or public officials on boards whose other functions or relationships may present different or competing priorities. Unlike the board members of most private firms, board representatives of SOEs can wield a power and authority over the direction of a specific sector or even market or easily tap into the formal and informal networks of those who do.

Conflicts of interest at the board can be damaging because the accompanying power over operations, for instance to sign off on large contracts, can make it easier to direct or redirect operations in a way that serves political, personal, or related-party interests. There have been numerous cases of unresolved conflicts of interest that led to corruption in which SOE board members were involved. In other cases, board members were not directly involved but took no action to stop or report known or suspected violations of conflicts of interest provisions. On the flipside, other cases yet have been brought to the authorities by the board. The board has a critical role to play in ensuring there is no real or perceived competition to the individual acting in the best interest of the firm and in compliance with the law.

Conflict of interest rules are commonly applied to SOEs in two ways, which may not be mutually exclusive. First, public sector conflict of interest rules cover board members and executive managers of SOEs as falling into the category of positions exposed to heightened risks of corruption. Second, conflict of interest provisions can be incorporated into legislation regulating SOEs, whether statutory regulation or sector-wide SOE legislation. Table 4.4 provides an overview of national approaches to regulating conflict of interest in SOEs – whether done through legislation for the public sector or company/SOE‑specific law, and whether supported by good practice or other documentation.

	Legislation predominantly for public sector (which may have application to SOEs)	Company law, SOE law or company-specific legislation	Good practice guidance or supporting documentation
Argentina	Law of Ethics in the Exercise of Public Function		Decree No. 201/2017 – Integrity in lawsuits against the State; Decree No. 202/2017 – Integrity in public procurement
Brazil	Law No.12.813/13	Same rules as listed
Chile		Same rules as listed (Art. 44, Law No. 18.046)	SEP Code Chapters 3 “Conflict of interest” and Chapter 11 Code of conduct
Colombia	For public servants (Title IV Law 1953)	For certain SOEs required, others encouraged (Decree 1 510 of 2021)
Croatia	Conflict of Interest Act	Companies Act	Code of Corporate Governance for SOEs; Corporate Governance Code
Czech Republic	Act No. 159/2006 Coll. on Conflicts of Interest.
Estonia	State Assets Act § 80
Finland		Limited Liability Company Law	Finnish Corporate Governance Code
France	For majority owned (law. n° 2013‑907, 2013)	Commercial Code establishes controls to manage COI (Articles L. 225‑38)
Greece		Law 4548/2018 (SAs law), law 4389/2016 (on HCAP), Law 3429/2005 on SOEs provide for the general rules.	Individual SOE’s law and Statutes provide for specific and/or additional requirements.
Hungary		Government Decree on the internal control system of publicly owned companies (339/2019. XII. 23.); and incorporated into articles of association
Japan		Both Company Law where applicable and SOE‑specific legislation
Korea	The Act on the Prevention of Conflict of Interest for Public Officials
Latvia	Law on Prevention of Conflict of Interest in Activities of Public Officials (applicable to majority owned SOEs).	Law on Governance of Capital Shares of a Public Person and Capital companies Section 52
Lithuania	Law on the Adjustment of Public and Private Interest	Majority of SOEs have internal policies for COI management of board members and employees
Mexico		Federal Law of Parastatal Entities; Mexican Petroleum law; Federal Electricity Commission law
Netherlands		Dutch Corporate Governance Code
New Zealand		Companies Act 1993, Art. 193.	“Managing conflicts of interest: A guide for the public sector” also applies to SOEs, prepared by the Office of the Auditor-General
Norway		Private Limited Liability Companies Act (applicable to all SOEs that are private LLCs)	Norwegian Corporate Governance Code
Slovak Republic		For JSCs: Commercial Code, Accounting Act
South Africa	The Public Funds Management Act (PFMA) prohibits boards from taking any actions that conflict with its duties, taking advantage of its position of authority for personal gain, or unjustly benefiting another person (Sections 38, 50 and 51).	The Commercial Act requires board members act in the company’s interest with care, skill and diligence and disclose conflicts of interest (Section 76).
Spain		Corporate Enterprises Act; Royal Decree 1/2010 on Companies; Securities Market Act (Spanish Royal Decree 1/2010, 2 July).
Sweden		For all JSCs: Swedish Companies Act (Sw: Aktiebolagslag (2005:551), the Annual Accounts Act (Sw: Årsredovisningslagen (1995:1554)).	Swedish Corporate Governance Code
Switzerland		All SOEs have it in their company articles of incorporation and bylaws (ex. Post: Organisational bylaw; SBB’s Code of Conduct, Code of Conduct for the BoD; Swisscom’s: articles of incorporation, Art. 8; Organisational bylaw no. 2.6 and 6.3; Code of Conduct; Code of Conduct for BoD; etc.) The Swiss Code of Obligations addresses legal obligations of board members (Art. 717) and will address COI explicitly with a new Article 717a (entering into force 01 February 2023)
Türkiye	Law on the Foundation of the Council of Ethics for the Public Service (N. 5176, 2004); and by-law concerning the Principles of Ethical Behaviour of the Public Servants (2005)

Source: 2021 Questionnaire responses.

SOEs should be expected to set up mechanisms to comply with requirements surrounding conflicts of interest. The most common mechanism is a declaration of conflict of interest. The ACI Guidelines encourage that members of SOE boards and executive management to “make declarations to the relevant bodies regarding their investments, activities, employment, and benefits from which a potential conflict of interest could arise. Potentially conflicting interests should be declared at the time of appointment and the declarations should be kept up to date during board tenure” (IV.9.iv).

Asset declarations are an important tool for managing conflicts of interest at the board level, and the next version of this report will look into this in more detail. However, it should be seen as one of multiple tools to manage conflict of interest. Despite the great emphasis that companies (and states) place on declarations, it is not enough on its own. OECD’s comparative and in-country work has shown that conflict of interest declarations have their drawbacks. They can be falsified, not kept up to date and not monitored by the receiving entity (which may be outside of the company).

In addition to declarations of conflicts of interest (relatedly, asset or income declarations), SOEs should have corporate controls that companies establish to manage potential or real conflicts of interest and that make it harder to unduly influence due procedure. In France, if the managing director, one of the deputy managing directors or one of the directors of the company is the owner, partner with unlimited liability, manager, director, member of the supervisory board or otherwise be in general a manager of a company, a decision must be subject to the prior authorisation of the Board of Directors wherein the directors directly or indirectly interested may not take part in the deliberations or in the vote relating to the said agreements (in accordance with Articles L.225‑38 and following of the Commercial Code). This comes in addition to the requirement for SOEs subject to the Corporate Governance Code, that directors are required to declare to the company any situation of real or potential conflict of interest, which must be reflected in their internal regulations adopted by the Board. Lithuania’s Law on the Adjustment of Public and Private Interest requires board members and executives of SOEs (as well as other employees who are subject to the Law) to follow the provisions of withdrawal (e.g. withdrawal when official duties are connected with private interests) or principles of gifts or services (e.g. a person cannot accept gifts or services if it is related to the official position or official duties).

4.1.5. Reporting and protection of reporting persons

The ACI Guidelines ask the state owner to encourage “appropriate channels for oversight and reporting at the enterprise level…”, including the establishment of clear rules and procedures for employees or other reporting persons to raise concerns to the board level (or designated individual or unit) about real or encouraged illegal or irregular practices in or concerning SOEs (including subsidiaries or business partners). Reporting “channels” can also be used to seek advice on integrity-related matters. These channels should be employed, for example, “when representatives of government, including those of the ownership entity, give instructions that appear to be irregular” (III.3). Similarly, if decisions belonging to the board are taken by another individual or body, board members should have such a channel to report it. The ACI Guidelines’ Implementation Guide elaborates on the various models on how to make integrity and anti-corruption advice, or provide reporting opportunities, within an SOE.

“State‑Owned Enterprises and Corruption: what are the risks and what can be done” showed that almost half of surveyed SOEs (213) reported to have online internal and external reporting mechanisms in place. On average, reports or claims are sent individuals within the company usually within compliance, risk or audit functions, and 60% of SOEs classify claims as confidential (30%, anonymous). As regards internal channels, most complaints flow to those in charge of risk, audit, or compliance, but almost 38% of SOEs have information channelled to the CEO or President, and 33% to the board. Despite these mechanisms being in place, more than one‑third of SOEs felt that ineffective reporting channels were a challenge to their company’s integrity. This highlights among other things the importance of allowing SOEs to access existing or specifically established external reporting channels, so board members have an alternative to reporting to peers or state representatives directly involved in ownership.

If corporate mechanisms for reporting cannot provide needed advice or sufficient protection for those willing to report irregularities, either an anti-corruption body (or similar) should in principle be the next place to seek such advice. Regardless of the approach that the state takes, the channels and relevant procedures of seeking advice and reporting should be made well known to the representatives of SOEs.

A challenge when it comes to whistleblower protection for SOEs is the fact that dedicated public sector whistleblower protection plans, where they exist, may not provide protection for employees or groups of individuals within an SOE corporate hierarchy. Indeed, employees of SOEs can often be excluded from laws regulating whistleblowing in the public service (OECD, 2016[5]). Thus, countries should enact strong and effective legal and institutional frameworks to protect reporting persons working in the private or public sector with no exceptions.

Countries should also encourage SOEs, including through company law or corporate governance codes to establish reporting channels. Table 4.5 provides a preliminary assessment of which countries require SOEs to establish reporting (whistleblowing) channels and shares details on related requirements, based on state owners’ responses to the questionnaire underpinning this report and supplementary research. However, it does not reflect recent changes from the transposition of the EU Directive on the protection of persons who report breaches of Union law in EU countries, which requires that legal entities in the private and public sector establish channels and procedures for internal reporting and for follow-up. This may suggest that in these countries the state owner may not be aware of the requirement, or that there is not yet full transposition of the EU Directive.

Country	Is the SOE required to establish a reporting / whistleblowing channel?	Self-reported details on reporting requirements/regulations in the country as applicable to SOE
Argentina	Not required	Those who have the character of public officials have the obligation to denounce by application of Decree No. 1162/2000. There is a Whistleblower Channel of the Anti-Corruption Office.
Brazil	Required	Decree No. 8945/2016 – Art.18 establishes that SOEs must have a whistleblowing channel to receive internal and external reports relating to Code of Conduct and Integrity and other internal ethical and mandatory standards non-compliance reports.
Chile	Not required	Complaints are made or transferred to the Office of the Comptroller General and/or to the State Defence Council and/or to the General Prosecutor Office, if it is estimated that the conduct claimed may constitute a crime
Colombia	Required	General Directorate of SOE´s created a programme of ethic communication channels that includes: adopting a Code of Ethics, having an Ethics Committee, establishing at least the 3 standard channels for receiving complaints that are mandatory, establishing the process for receiving reports, and establishing parameters of confidentiality, anonymity, and non-retaliation, among others.
Croatia	Required	The Law on the Protection of Reporters of Irregularities (Zakon o zaštiti prijavitelja nepravilnosti) covers the procedure for reporting irregularities, the rights of persons reporting irregularities, the obligations of public authorities and legal and natural persons regarding the reporting of irregularities, as well as other issues important for the reporting of irregularities and the protection of whistleblowers
Czech Republic	Not required	Each state‑owned company sets its own method voluntarily, which is composed into an internal directive. Reports of corrupt practices are managed under the responsibility of the Ministry of Justice and is handled by the Government Council for the Co‑ordination of the Fight against Corruption.
Estonia	Not required	SOEs are not required to establish a reporting channel, but there exists a universal whistleblowing channel available to all: https://www.korruptsioon.ee/en
Finland	Required	A whistleblowing channel is required by law.
France	Required	Law No. 2016‑1691 (“Sapin II Law”), and Decree No. 2017‑564 of April 2017 requires legal entities governed by public or private law or State administrations to put in place a procedure for collecting reports. In addition, companies and public establishments of an industrial and commercial nature (EPIC) employing at least five hundred employees, or belonging to a group of companies whose parent company has its head office in France and whose workforce includes at least 500 employees, and whose turnover or consolidated turnover is greater than 100 million euros, to set up “an internal alert system intended to allow the collection of reports from employees relating to the existence of conduct or situations contrary to the company’s code of conduct” as part of their mechanism for the prevention and detection of acts of corruption (Art. 17 II 2°, Sapin II law). As part of the anti-corruption alerts of Article 17, the French Anti-corruption Agency (AFA) has published recommendations interpreting the provisions of the law (see § 251 to 284).
Greece	Not required	The procedures are set in the SAs Law 4548/2018, the Civil Service Code (Law 3528/2007) and the Criminal Procedure Code (Article 45B), or in specific anticorruption provisions (e.g. Law 4813/2021). The company’s internal regulation may provide for such mechanisms.
Hungary	Required	According to the Governmental Regulation 339/2018 on Internal Control System of SOEs, SOEs shall ensure that there is a proper system that allows reporting and investigating integrity related actions.
Japan	Not required	Whistleblower Protection Act (2004). One SOE (JT) establishes a consultation and reporting contact which is independent of executive line and is handled by Audit & Supervisory Board members, besides a contact handled by the division in charge of legal affairs and compliance. An Audit & Supervisory Board member who receives a consultation or a report investigates its content, and JT carries out necessary measures and tries to prevent the recurrence.
Latvia	Required	Defined in Whistleblowing Law. There are also requirements set out in the Cabinet Regulations Regarding the Basic Requirements for an Internal Control System for the Prevention of Corruption and Conflict of Interest in an Institution of a Public Person, as well as the Guidelines on the essential requirements of the internal control system to prevent the risk of corruption and conflict of interest in an institution of a Public person.
Lithuania	Required	Board members and executives (including other employees) can report corruption related claims through various channels. Law on the Protection of Whistleblowers sets three main channels: • Internal channels. According to the Law, it is mandatory for all SOEs to establish internal channel or such channel must be established in shareholding entity. • Directly to the Prosecutor General’s Office. • Publicly. According to the Law person may be recognised as a whistleblower by the competent authority (the Prosecutor General’s Office) and become a subject of protection principles set in the Law
Mexico	Not required	In the event of becoming aware of any act of corruption occurring in the entity, the internal control body must be informed. If the committed act or absence of it is a crime it must be inform to the prosecutor, and it will be investigated in accordance with the criminal laws.
New Zealand	Not required	Currently, whistleblower protection in public organisations is granted by the Protected Disclosures Act 2000 No 7 (as of 07 August 2020), Public Act Contents, which is being replaced by the Protected Disclosures (Protection of Whistleblowers) Bill 294‑2 (2020), Government Bill Commentary.
Netherlands	Required	The Whistleblowers Act (Wet Huis voor klokkenluiders) is in force, and there is a pending legislative proposal, the Whistleblowers Protection Act (Wet bescherming klokkenluiders), to change the current Dutch Whistleblowers Act in accordance with the EU Directive (2019/1937).
Norway	Not required (but widely implemented)	The Norwegian working environment code § 1‑6 provides any employee the right and obligation to notify of criticisable conditions, including corruption-related claims/complaints. An employee may for instance notify any leader, members of the working environment committee, to a public supervisory authority or any other public authority. The Norwegian State does not explicitly require that all SOEs have mechanisms and channels to report corruption-related concerns but rather indirectly expects that the SOEs lead the field regarding responsible business conduct.
Portugal	Required	Public officials in Portugal are provided protection through the General Labour law in Public Function through the Act of Law 35/2014, and through Article 20 of Law no.25/2008 of 5 June, and Article 4 of Law no. 19/2008. Under Article 4 of Law 19/2008, workers of the public administration and state‑owned companies who report offences cannot be “harmed”, including through “non-voluntary transfer”
Slovak Republic	Required	There exists the Act no. 54/2019 Coll. on the protection of whistleblowers and amendment of certain laws (“Act on protection of whistleblowers”), as well as the Act No. 307/2014 Coll on Certain aspects of whistleblowing. If the SOE is in the form of a joint-stock company, the Commercial Code and the Accounting Act also apply.
Slovenia	Required	Chapter III of Slovenia’s Integrity and Prevention of Corruption Act is dedicated to the protection of public and private sector employees who, reasonably and in good faith, report suspicions of any form of illegal or unethical behaviour. Slovenia’s Corruption Prevention Commission (CPC) is responsible for the implementation of the law, which contains provisions on confidentiality, internal and external disclosure channels, a range of remedies for retaliation, fines for those who retaliate or disclose the identity of the whistleblower, and independent assistance from the CPC. The Slovene Sovereign Holdings Act also requires state‑owned enterprises (SOEs) to establish whistleblowing mechanisms and protection measures. The OECD’s Working Group on Bribery commended Slovenia on its whistleblower protection provisions and recommended that it raise awareness in the private sector and among SOEs of the protections provided.
South Africa	Required	The Protected Disclosures Act 2000 is a single dedicated whistleblower protection law that applies to both public and private sector employees, protecting whistleblowers from being subjected to “occupational detriment”. Moreover, the Companies Act Article 159(7) provides that SOEs must directly or indirectly establish and maintain a system to receive disclosures.
Spain	Not required	In Spain, there are specific provisions for whistleblowers in 2018 in the Spanish Data Protection Act (Organic Law 3/2018). The law states that companies and public administrators may have reporting systems in place for whistleblowers’ complaints. Many SOEs have whistleblower channels for handling internal company complaints, but it is not required.
Sweden	Required	The Whistleblowing Act (2021:89) requires, among other things, that private and public employers with 50 or more employees have internal whistleblowing functions. The mandatory introduction of whistleblowing functions will apply gradually depending on the size of the legal entity
Switzerland	Not required	Art. 22a LPers: if the LPers are not applicable because the employment relationships are governed by private law and not by public law, these SOEs are required to provide for appropriate regulations. The Swiss Federal Audit Office (SFAO) collects information from individuals and federal employees about suspicions of irregularities, corruption or other illegal acts within the Federal Administration or concerning a subsidy beneficiary.
Türkiye	Not required	12th article of By-Law concerning the Principles of Ethical Behaviour of the Public Servants enables public officials to report any issue to the competent authorities anonymously. As another mechanism, the Presidency’s Communication Centre (CIMER) was established upon President’s instruction in order to provide the quickest and most effective response to requests, complaints and applications.
Totals	14/26

Source: The information for Portugal, Slovenia and South Africa come from OECD (2016[5]), Committing to Effective Whistleblower Protection, http://dx.doi.org/10.1787/9789264252639-en; all other fields come from the 2021 Questionnaire responses.

Based on the information available, it appears that 54% of participating governments require SOEs to establish internal channels for whistleblowing or reporting. In the majority of those that do not, SOE employees may access whistleblowing channels established by the state. In other countries, there are some procedures established whereby individuals can report suspected or real wrongdoing, but this may not amount to a formalised structure. In all cases, the existence of a whistleblower mechanism does not guarantee that good practice of protecting whistleblowers is adhered to.

Some countries have introduced incentives for individuals to come forward given the daunting undertaking and potential for loss and stigmatisation that can accompany reporting on colleagues and contacts. Incentives can take the form of tokens of recognition to financial rewards. While these are often considered as incentives, financial payments to whistleblowers can also provide financial support, for example living and legal expenses, following retaliation (OECD, 2016[5]).

4.2. Integrity and autonomy of SOE executive management

As promoted in the SOE Guidelines, “SOE boards should effectively carry out their functions of setting strategy and supervising management, based on broad mandates and objectives set by the government. They should have the power to appoint and remove the CEO” (VII.B). The ACI Guidelines add that “the state should express an expectation that the board apply high standards for hiring and conduct of top management and other members of the executive management, who should be appointed based on professional criteria. Special attention should be given to managing conflict of interest and, relatedly, movement of actors between public and private sectors (also known as “revolving door” practices)” (IV.10).

This sub-section offers a preliminary assessment of country practices in appointing and removing the CEO, and in boards’ oversight of executive management, that will allow for future assessment of how certain practices can protect the integrity and autonomy of SOE executive management.

4.2.1. Appointing and removing the CEO

It bears repeating that it should be a board responsibility to appoint and remove the CEO because, in practice, this is often not the case. States continue to play a role of varying degrees. Table 4.6 explores the distribution of responsibilities between the board and the state in nominating, appointing or removing the CEO. In a handful of countries (Argentina, Chile, Estonia, Finland, New Zealand, Norway, Sweden, and Switzerland), the state has no role in the nomination, appointment or removal of the CEO. In others, the state may participate indirectly via General Shareholders’ Meetings, or via representation on SOE boards making the decision. In a more involved manner, states may nominate individuals or offer candidates from a pool of pre‑approved individuals, leaving approval to the board (or General Shareholders’ Meeting). In other countries the state will be yet more involved, where the board may nominate but the state retains the ultimate decision on who will be appointed. A final approach finds the state may appointing the CEO after consultation with the board, or, where heads of state are involved in the appointment, making the decision without any consultation of the board. There are often exceptions to the general rule. Exceptions or rights of the state to directly appoint are often reserved for large state‑owned groups or SOEs that are of special interest to the state.

Exceptions and direct appointments run contrary to the spirit of the SOE and ACI Guidelines, and countries should offer clear and valid justification for such approaches. When SOE boards and states share responsibility for the appointment of the CEO, care must be taken to ensure that the appropriate balance is struck and respected within the arrangement. Anecdotal evidence from OECD’s country work has shown how requirements to at least consult or leave appointment decisions to the board are often flouted, or how boards never veto or refuse a nomination made by the state.

Country	CEO appointment	Roles and responsibilities of the board in nominating, appointing, or removing the CEO?	Roles and responsibilities of the state in nominating, appointing, or removing the CEO?
Argentina	•	The board appoints and removes the CEO.	No role.
Brazil	□	For certain CEO appointments, the board must approve.	Certain national SOEs’ CEO appointments are done directly by the President of Brazil.
Chile	•	The board selects, appoints, and removes the CEO.	No role.
Colombia	○		The State appoints the public officials that represent it in SOEs through the Committee of Nomination, Election and Evaluation of Performance of Managers of SOEs comprising officials of the Ministry of Finance (MHCP).
Croatia	□	In accordance with Article 244 para. 1. of the Companies Act, and based on an act of the Government of the Republic of Croatia, the Supervisory Board makes a decision on the election of the President and members of the Management Board. In accordance with Article 244 para. 2. of the Companies Act, the Supervisory Board may revoke its decision to appoint a member of the Management Board or its President when there is an important reason for it (e.g. gross breach of duty, inability to perform the company’s duties properly or a vote of no confidence at the General Assembly of the company, unless it was done for obviously unfounded reasons). The revocation is valid until its invalidity is determined by a court decision. The recall of a member or the President of the Management Board does not affect the provisions of the contract they have concluded with the company.	For legal entities of special interest, in accordance with Articles 13 to 18 of the Decree on Conditions for Election and Appointment of Members of Supervisory Boards and Management Boards of Legal Entities of Special Interest to the Republic of Croatia and the Manner of Their Election (“the Decree”), the CEO is appointed by the Government of the Republic following a public competition administered by the competent ministry.
Czech Republic	□	Depends on model. In one case, the Board is charged with nominating, appointing or removing the CEO. The board members are bound by duty of care, therefore are responsible for the nomination, appointment, and management of the SOE by the CEO.	In other cases, the State can appoint or nominate the CEO. For the members of the Board of Directors, a regular selection procedure precedes and, in every case, follows the assessment before the Personnel Nomination Committee by the Governmental Office, which was established by law and governed by its statute. The CEO is appointed by the same control body, but the State can influence choice of candidates for the members of the control board. However, it should be stressed that the board members are in any case bound by duty of care, therefore are required by law to manage the company in its interest.
Estonia	●	According to Commercial Code only the supervisory board has the right to nominate management board members (§ 309 of Commercial Code).	No role.
Finland	•	The Board nominates and removes the CEO	No role.
France	♦	Depends on model. In companies in which the State holds a stake, the managing director is appointed by the board of directors as in any other company. The State participates in the vote through its representative on the council. The individual is revoked by decision of the Board of Directors.	In accordance with the provisions of the Order of 20 August 2014 relating to the governance and capital transactions of companies with public shareholdings, in companies with a majority state ownership, the CEO is appointed by decree of the President of the Republic, on the proposal of the Board of Directors. The CEO’s dismissal is also by decree.
Greece	□	HCAP portfolio: No role for the State for its subsidiaries. The CEO as part of the BoD members is selected by the BoD of HCAP (this selection is approved by HCAP’s supervisory board for “direct subsidiaries” except HFSF). This decision should be validated by the General Assembly of each SOE. (art. 192 par. 2 e and art. 197 Law 4389/2016).	For SOEs under Law 3429/2005, according to Law 4735/2020, Chair, Vice – Chair and Executive Director are appointed for a three‑year term with the possibility of renewal of a further period of three years. In particular, after a public call of expression of interest, a special Committee interviews the candidates and proposes to the minister the three (3) most suitable candidates for the position (articles 20‑23 L.4735/20). The CEO is appointed in most cases by a joint decision of Finance Minister and the supervisory/line Minister for term according to each SOEs statutory or founding law (listed SOEs are exempted from this provision). For SOEs which are exempted from the above laws, the Board Members and the CEO are elected by the GSM and are appointed on fixed-term contracts according to each SOE’s statute or founding law. Moreover, for a number of SOEs, the SOEs Committee of the Hellenic Parliament gives opinion to the Minister on the suitability of nominations for the chairmen and managing directors.
Japan	□	In certain SOEs, Presidents are elected by the board (Nippon Telegraph and Telephone Corporation, Japan Post and Japan Tobacco Inc.).	Other executive appointments must be approved by the Minister of Land, Infrastructure, Transport and Tourism (for “JR Hokkaido, Shikoku, Freight”, Tokyo Metro, Kansai International Airport and Osaka International Airport, and Narita International Airport Corporation).
Korea	○	The Committee for Recommendation of Executive Officers is responsible for recommending candidates for executive officers of public enterprises (Act on the Management of Public Institutions Articles 25 and 26). The Committee is comprised of non-standing directors of the public enterprise and members appointed by the board of directors.	The President appoints the CEO of a public enterprise from among candidates recommended by the Committee for Recommendation of Executive Officers (Act on the Management of Public Institutions Article 29).
Lithuania	□	Depends on company form. SOEs which are limited liability companies follow common governance principles set in the Law on Companies, where appointment or dismissal of the CEO lies within responsibilities of the management board or the supervisory board if the management board has not been formed or the general meeting of shareholders if neither the management board nor the supervisory board has been formed.	In the case of statutory enterprises (state enterprise), appointment and dismissal of CEO is a sole responsibility of institution implementing the rights and obligations of the owner of the enterprise. In practice, the board may assist or provide opinion regarding appointment or dismissal of CEO, but the final decision is made by institution implementing the rights and obligations of the owner of the enterprise. In general, it is a decision of the minister of line ministry.
Netherlands	♦	While in most cases the shareholder appoints management board members, the supervisory board decides to allocate a specific function (CEO, CFO etc.) to the new member. In practice, it should be clear which position is vacant and for which position the supervisory board nominates someone.	Formally, in most cases a person is appointed to become a management board member by the shareholder.
New Zealand	•	Full responsibility.	No role.
Norway	•	According to Norwegian company law it is solely the board’s responsibility to nominate, appoint and remove the CEO.	No role.
South Africa	○	The Board is responsible for recruitment, performance management and succession planning of the CEO.	The Memorandum of Incorporation provides for the Boards to undertake the full recruitment process and provide the Shareholder with three appointable candidates. The shareholder consults with Cabinet before approving the appointment
Spain	○		The State proposes the CEO and the chair in companies in which it has a majority shareholding, as well as the directors, corresponding to its shareholding, respecting the following: Principle 10: The board of directors should have the optimal size to facilitate its efficient functioning, the participation of all members and agile decision-making. Director selection policy should seek a balance of knowledge, experience, age and gender in the board’s membership.
Sweden	•	Same as in any joint stock company. Full responsibility according to Company law.	No role (apart from nominating board members).
Switzerland	•	According to Art. 716 Code of Obligations the CEO and the members of Executive Management are elected by the Board of Directors.	No role (apart from nominating board members).
Türkiye	○		CEO is a chairman of the Board of Directors (BoD) and appointed by the President.

Legend:

• = full board responsibility.

○ = full state responsibility.

♦ = mixed responsibilities in each SOE.

□ = different practices according to category of SOE.

Source: 2021 Questionnaire responses.

4.2.2. Board mechanisms for oversight of executive management

Most state owners participating in this study reported that SOE executive management are held to account namely through their (i) liabilities – at minimum, liability for losses to the company related to non-compliance or fraud – as well as for criminal liability; (ii) their management duties, including the duty of loyalty or to report, comply or disclose; and (iii) clear grounds for dismissal to assess potential or real irregularities.

Internal and external audits are also said to play a role in oversight insofar as they form part of the system of checks and balances notably through compliance audits, or assessment of the effectiveness of individual controls involving executive management.

As it is a board responsibility to supervise executive management, the board might consider more proactive means than relying on managements’ adherence to the law and the existing checks and balances. At minimum, the board should ensure that information from internal checks and balances provides the board the information it needs to adequately oversee management. Boards might also use evaluations of management (as in Hungary) that includes metrics and assessments of not only performance but also conduct (Viet Nam), or relatedly to offer financial incentives (South Africa). Countries provided very few examples of additional practices, which could be explored in a later version of this report.

4.3. Final commentary on the implementation of select provisions of the ACI Guidelines

Box 4.1. ACI Guidelines provisions: Protection of boards’ integrity and decision making

IV.5. iv. Encouraging the establishment of clear rules and procedures for employees or other reporting persons to report concerns to the board about real or encouraged illegal or irregular practices in or concerning SOEs (including subsidiaries or business partners). In the absence of timely remedial action or in the face of a reasonable risk of negative employment action, employees are encouraged to report to the competent authorities. They should be protected in law and practice against all types of unjustified treatments as a result of reporting concerns.

IV.9. 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 corporate governance framework should ensure the board is accountable to the company and to the shareholders and, where legislated, subject to parliamentary control, recognising citizens as the ultimate shareholder. This includes, inter alia, that:

i. Politicians who are in a position to influence materially the operating conditions of SOEs should not serve on their boards. Civil servants and other public officials can serve on boards under the condition that qualification and conflict of interest requirements apply to them. A predetermined “cooling-off” period should as a general rule be applied to former politicians.

ii. An appropriate number of independent members – non-state and nonexecutive – should be on each board and sit on specialised board committees.

iii. Any collective and individual liabilities of board members should be clearly defined. All board members should have a legal obligation to act in the best interest of the enterprise, cognisant of the objectives of the shareholder. All board members should have to disclose any personal ownership they have in the SOE and follow the relevant insider trading regulation.

iv. Members of SOE boards and executive management should make declarations to the relevant bodies regarding their investments, activities, employment, and benefits from which a potential conflict of interest could arise.

v. Board members should be selected on the basis of personal integrity and professional qualifications, using a clear, consistent and predetermined set of criteria for the board as a whole, for individual board positions and for the chair, and subject to transparent procedures that should include diversity, background checks and, as appropriate, mechanisms aimed at preventing future potential conflicts of interest (e.g. use of asset declarations).

vi. Mechanisms should exist to manage conflicts of interest that may prevent board members from carrying out their duties in the company’s interest, and to limit political interference in board processes. Potentially conflicting interests should be declared at the time of appointment and the declarations should be kept up to date during board tenure.

vii. Mechanisms to evaluate and maintain the effectiveness of board performance and independence should be in place. These may include, amongst others, limits on the term of any continuous appointment or the permitted number of reappointments to the board, as well as resources to enable the board to access independent information or expertise.

IV.10. The state should express an expectation that the board apply high standards for hiring and conduct of top management and other members of the executive management, who should be appointed based on professional criteria. Special attention should be given to managing conflict of interest and, relatedly, movement of actors between public and private sectors (also known as “revolving door” practices).

4.3.1. Commentary on recommendation IV.2. iv

The OECD’s “State‑Owned Enterprises and Corruption: what are the risks and what can be done” showed that almost half of 213 surveyed SOEs reported to have online internal and external reporting mechanisms in place. Despite these mechanisms being in place, more than one‑third of SOEs felt that ineffective reporting channels were a challenge to their company’s integrity. Based on the information provided by state ownership entities, this report estimates that in 54% of countries, SOEs are required to establish a reporting or whistleblowing channel. Thus, it appears that in about half of participating countries’ SOEs have some form of mechanism to enable concerned SOE employees to come forward and it is expected that the number will increase with the transposition of the EU Directive underway.

At the same time, it appears that many countries rely on SOE access to universal whistleblowing channels, run for instance by the state, for sufficiency where internal reporting channels do not exist. However, theoretical access to a separate universal reporting channel should not replace, but complement, appropriate and trustworthy procedures within the company itself. Future monitoring activities of the ACI Guidelines could seek to track any evolutions in this area, as well as look into the protection for reporting persons within SOEs, which was not covered in this report.

4.3.2. Commentary on recommendation IV.9:

Taken together, participating countries have a range of mechanisms that can help to promote authority, diversity, competencies, and objectivity of boards. One of the strongest tools at the state’s disposal and in use is the requirement for SOEs to have independent board members. Eighty-three percent of countries participating in this study require independent board members to sit on SOE boards of at least large companies. Similarly, a bigger OECD study found that 33 of 38 countries allowed for independent board members to sit on boards (87%) (OECD, 2021[4]). Future assessment could delve into individual country uses of the term “independence” to uncover whether independence is assured in practice, considering various definitions and varied applications depending on the form of the SOE.

Generally, it appears that countries are largely following the spirit of the recommendation insofar as it aims to limit presence of politicians or at minimum hold them to equal standards. Participating countries in this study reported to allow or require the following representatives to sit on SOE boards of at least certain SOEs:

All allow former politicians; a predetermined “cooling-off” period should as a general rule be applied to former politicians, and some countries reported having this in place, but information was not available to determine the percentage adhering to that standard
96% allow civil or public servants
26% allow for sitting members of the executive branch
13% allow for sitting members of the legislative branch.

It could not be determined whether those individuals still permitted on boards are in a position to materially influence operations or not. This would be on a more subjective basis. Moreover, respondents unanimously reported that all the state representatives are subject to the same requirements as other board members, but verification was outside of the scope of this report.

In terms of criteria for hiring, just over half of surveyed governments (55%) reported having established minimum qualification criteria for board members. The other 45% did not. Criteria most commonly relate to candidates’ education and professional backgrounds, and some countries have established criteria that help to elucidate personal integrity as well that brings them more in line with the ACI Guidelines. Countries are encouraged to consider establishing minimum qualification criteria where it doesn’t yet exist and adding those that allow board members to be appointed based on personal integrity and professional criteria in a consistent manner.

What is less clear is the effectiveness of this range of measures. All components of recommendation IV.9. need to work together – that is, independent board members should be sufficient counterweight to the presence of representatives of the state. All board members should have the opportunity to report wrongdoing that arises in the carry out of their duties – including knowing where a conflict is present or where an individual is neglecting their duty to act in the best interest of the company. Countries are invited to consider whether they are meeting the spirit of recommendation IV.9. by having a variety of mechanisms that provide assurance on the overall authority, diversity, competencies, and objectivity of boards.

4.3.3. Commentary on recommendation IV.10:

Together, the SOE and ACI Guidelines make boards responsible for appointing the CEO and adhering to high standards when hiring for that post and other members of executive management. The OECD has previously tracked implementation of the SOE guidelines’ provision on CEO appointments, showing that in the source study less than half (43%) allow for the board to appoint the CEO, at least for certain SOEs. Most countries see the state involved, at least to some degree either through shareholder meetings, approving board nominations or by direct appointment. It cannot be determined at this time whether executive management is held to a high standard and appointed based on clearly determined criteria. However, the variance in responsibility between the state owner and the board, even within some countries according to the form of SOE, makes it less likely that clear and consistent criteria are applied. The state owner wish to pay attention to ensuring that at least CEOs of SOEs under its ownership are being appointed based on consistent criteria.

Special attention should be given to managing conflict of interest and, relatedly, movement of actors between public and private sectors (also known as “revolving door” practices), more attention should be paid to inconsistencies that might arise in determining whether an individual is suitable for the post. The report is unable to conclude on raises concern about a lack of criteria that would deem an individual “incompatible” for the job.

References

[4] OECD (2021), Ownership and Governance of State-Owned Enterprises: A Compendium of National Practices, https://www.oecd.org/corporate/Ownership-and-Governance-of-State-Owned-Enterprises-A-Compendium-of-National-Practices-2021.pdf.

[2] OECD (2018), State-Owned Enterprises and Corruption: What Are the Risks and What Can Be Done?, https://www.oecd.org/corporate/SOEs-and-corruption-what-are-the-risks-and-what-can-be-done-highlights.pdf.

[1] OECD (2017), The Detection of Foreign Bribery, https://www.oecd.org/corruption/anti-bribery/The-Detection-of-Foreign-Bribery-ENG.pdf.

[5] OECD (2016), Committing to Effective Whistleblower Protection, https://doi.org/10.1787/9789264252639-en.

[3] United States Department of Justice (2018), Petróleo Brasileiro S.A. – Petrobras Agrees to Pay More Than $850 Million for FCPA Violations, https://www.justice.gov/opa/pr/petr-leo-brasileiro-sa-petrobras-agrees-pay-more-850-million-fcpa-violations.

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