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Enhancing the Role of the Boards of Directors of State-Owned Enterprises

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  • W. Richard Frederick
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    Abstract

    This Working Paper summarises the main findings of an interview exercise that was conducted with the Chairs and other key board members in state-owned enterprises (SOEs) owned by OECD member governments. The work was part of an ongoing exercise in developing OECD best practices for organising SOE boards. The interviews confirmed that reforming the functioning of SOE boards is seen as a top priority in many countries due to continued pressure to increase SOE performance. Even where SOE performance is good or equivalent to the private sector, governments seek to better performance by further adjusting governance practices. A key strategy has been to provide boards with greater powers and the autonomy to exercise their powers; enhance board composition to ensure they have the necessary skills to achieve their goals; and ensuring the independence of board members including by shielding them from political intervention. It appears that in SOE governance, the private sector usually defines the best practice standard. It is almost uniform practice for governments to seek to improve performance by emulating private sector practices. Important national differences in SOE board practices were, however, detected. One example concerns decision making rights such as, for example, the right of the board to appoint the CEO. Increasingly, what appears to distinguish best practice from less good practice, is not legal rights, but rather the manner in which the government influences the course of SOEs. The Working Paper concludes that the key success factors for the public ownership function in enhancing SOE boards include a shared vision for the governance reforms that are to be achieved; clearly communicated policies and objectives to SOEs; abstaining from ad-hoc interventions in SOEs once their objectives have been defined; well-designed training programmes for board members as well as the government ownership representatives; enhanced channels of communications between CEOs, boards and the ownership function; and increased transparency around the conduct of SOE boards, management and the government ownership function.

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    File URL: http://dx.doi.org/10.1787/5kg9xfg6n4wj-en
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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Corporate Governance Working Papers with number 2.

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    Date of creation: May 2011
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    Handle: RePEc:oec:dafaae:2-en

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    Keywords: state-owned enterprises; board of directors; governance reform; corporate governance;

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