Corporate Governance in State-owned Enterprises (SOEs)

17/03/2013 21:04

In spite of privatization over the last three decades, state-owned enterprises (SOEs) are still a mainstay in Bangladesh economy. Like Bangladesh, China, India, Russia and South Africa are just a few countries where wholly or partly government-owned SOEs remain productive and influential. Good CG is crucial for SOEs in Bangladesh, because they face even more governance challenges than private companies do. Unlike a widely-held private company, an SOE usually cannot have its board or management changed via a takeover or proxy contest, and they usually cannot go bankrupt. In addition, they may have “free” equity and a very low cost of subsidized loans.45 Thus, the incentives for board members and managers to maximize the value of the company and keep costs in check are reduced. Accountability and performance may also be hindered by political interference, poorly defined non-commercial objectives, and an absence of transparency. Strong internal controls, good disclosure, independent boards of directors, and other CG tools can help state -owned enterprises perform well and act in the best interests of citizens and other shareholders. To help make state –owned enterprises more competitive, efficient and transparent, OECD has introduced following guidelines:

Ensure a level-playing field for state -owned enterprises competing with the private sector by

  • Clearly separating the state’s ownership role from its regulatory role
  • Allowing more flexibility in capital structures while making sure that state –owned enterprises face competitive access to finance

Become more informed and active shareholders by

  • Simplifying the chain of accountability through centralizing or more effectively coordinating shareholding responsibilities within the state administration
  • Reducing political interference in day-to-day management
  • Introducing a transparent nomination process for boards, based on competence and skills
  • Empower boards by
  • Clarifying their mandates and respecting their independence
  • Separating the role of Chairman and CEO and giving boards the power to appoint
  • CEOs systematically monitoring the board’s performance Improve transparency by
  • Strengthening internal controls
  • Carrying out independent, external audits based on international standards
  • Disclosing any financial assistance from the state
  • Producing aggregate performance reports