The OECD Guidelines on Corporate Governance of State-Owned Enterprises

1. The OECD Guidelines on Corporate Governance of State-Owned Enterprises Mathilde Mesnard Economist Corporate Affairs Division Directorate for Financial and Enterprise Affairs OECD INTOSAI Working Group on Audit and Privatisation 13th meeting, 27/28 September 2006 INTOSAI September 2006

2. Protecting the state’s interest after privatisation • One method discussed in the draft “INTOSAI technical case study” is the retent of shareholding • The OECD Guidelines relate to this case, i.e. how the state should behave as an owner when it has retained a shareholding in a partially privatised company • Good corporate governance of SOEs helps mitigate identified risks associated with methods to protect state interests, i.e. lower price, political interference, deterring foreign investment, moral hazard, threat to competition INTOSAI September 2006

3. Rationale for developing the Guidelines • Scale and scope of the state sector • Impact of SOEs on economic performance • Pressure for reform deriving from globalization and liberalization • Specific governance challenges • Expected benefits from improvements of SOE governance • Strong demand from non-OECD economies INTOSAI September 2006

4. Process and main characteristics of the Guidelines • Extensive and inclusive consultations with relevant players from OECD members and non-member countries. • The Guidelines: • are non-binding, • are complementary to the OECD Principles of Corporate Governance, • do not preclude/alter privatization policies • are based on a comparative Survey. INTOSAI September 2006

5. Priorities in the Guidelines • Ensure a level-playing field with the private sector • Reinforce the ownership function within the state administration • Improve transparency of SOEs’ objectives and performance • Strengthen and empower SOE boards • Provide equitable treatment of minority shareholders INTOSAI September 2006

6. Ensure a level-playing field with the private sector • Separate regulation and the shareholding function. • Transparency of special obligations. • Harmonization in legal forms. • More flexibility in capital structures. • Competitive conditions in access to finance. INTOSAI September 2006

7. Reinforce the ownership functionwithin the state administration • Centralization/coordination of the ownership function. • Clear and disclosed ownership policy. • No direct interference in day-to-day activities. • Let boards carry out their responsibilities. • Accountability secured. • Effective exercise of ownership rights. INTOSAI September 2006

8. Improve transparency • Consistent and aggregate disclosure. • Reinforced internal audit. • Independent external audit. • High quality standards for accounting and audit. • Disclosure as listed companies. • Disclosure of material information, including financial assistance from the state, transactions with related entities and risk factors. INTOSAI September 2006

9. Empower SOE boards • Structured and skill-based nomination process. • Clear mandate and full responsibility. • Able to appoint CEO. • Able to exercise independent judgment • limit number of state representatives on the board • Separation between Chair and CEO • Systematic evaluation of board. INTOSAI September 2006

10. Next steps… a new pillar of our CG work • Dissemination and discussion in non-OECD countries • Network on corporate governance of SOEs in Asia • Network on corporate governance of SOEs in Latin America • Task Force on corporate governance Russia • Specific project in Africa • Dedicated regional or country meetings and policy dialogue in China, South East Europe, Eurasia, MENA, Ukraine, Egypt and Vietnam • Follow-up on OECD country work • Work on challenges to set up SOE objectives and performance evaluation, based on country case studies in 2006 • Thematic issues such as value creation, board nomination and evaluation, aggregate reporting in 2007-2008 INTOSAI September 2006

11. Thanks! The Guidelines and the background Survey can be downloaded on our website at: www.oecd.org/daf/corporate-affairs/soe INTOSAI September 2006