Asian Roundtable on SOE Corporate Governance: Challenges and Reforms

1. The 2006 Asian Roundtable on Corporate GovernanceThe Asia Network on Corporate Governance of SOEsJohn LimPresident, Singapore Institute of DirectorsSession 5Related Activities and Next StepsBangkok, Thailand14-15 September 2006The views expressed in this paper are those of the author and do not necessarily represent the opinions of the OECD or its Member countries or the World Bank

2. Why? • significance of SOEs and importance of their corporate governance for Asian economies • recent progresses made but a long journey still ahead • complexity of the related policy challenges • increasing demand for exchange of experience and policy dialogue • need a specific forum to carry out a focused policy dialogue and investigate in-depth the appropriate policy options to improve the governance of SOEs in Asia

3. Purpose • raise awareness of all concerned constituencies • evaluate and benchmark current policy frameworks and practices • influence policy making • support viable and effective reforms

4. How? Methodology • share knowledge and experience among policy makers, practitioners and experts from Asia and their OECD peers • discuss and analyse policy options • develop relevant recommendations • agree on priorities for reforms adapted to the conditions in Asian economies • Using the OECD Guidelines as a reference

5. Who? • Participants from 12 ARCG economies • ownership entities / ministries in charge; • SOE officers, both CEO and board members; • members of relevant committees in Parliament; • state audit bodies in charge of supervising SOEs; • stock exchanges and securities commissions; • institutes of directors, corporate governance institutes, private sector representatives; • stakeholders, including public sector trade unions and relevant civil society organisations. • OECD peers form the Working Group

6. Challenges ahead to level the playing field between SOEs and the private sector • complete corporatization and harmonize legal status • ensure an effective separation between the ownership function and other state functions, including regulation • fair access to finance • disclosure and transparency (esp. covering and cost of specific obligations )

7. Challenges ahead regarding the role of the state as a shareholder • distinguish between being an active owner and interfering in day-to-day management • have the right persons on boards and empower these boards, i.e. delegate them sufficient authority and ensure their independence • professionalize SOE management and link remuneration to performance

8. Challenges ahead regarding the organisation of the ownership function • centralisation allows a better focus on the ownership function per se and favours a transfer of responsibilities to SOE boards • but there are costs and challenges: • continuing interference from and loyalty to technical ministries • resistance as loss of significant power and rent seeking opportunities • the new centralised ownership agency might become extremely powerful, and not necessarily more competent than technical ministries

9. Challenges ahead regarding accountability • balancing the need for accountability and level playing field with the private sector • question the adequacy and relevance of multiple controls, sometimes unnecessary and/or excessive • positive effect to underpin investors’ confidence and thus to facilitate access to external finance • demobilisation and focus by management and boards on avoiding making mistakes instead of looking for better performance • Need to focus on critical control mechanisms, without sacrificing the need for speed and delivering value, nor the public demand for accountability

10. Some critical steps • make corporate governance a public debate (as vested interests in the political elite) • decrease size of state ownership • reduce the size of the problem • focus on policy reforms • develop a clear ownership policy • have the right persons on boards

11. Some usefuls steps • In order to have the right persons on boards • avoid political appointees • focus on competencies • build up data base of qualified candidates • involve the boards themselves, in particular the chairmen, in their nomination • separate the chairman of the board from the CEO • Chairman more independent if elected by the AGM • move away from the culture of complacent boards

12. One crucial step • develop a clear ownership policy in order to: • strengthen the government thinking • raise awareness on related issues • make the relevant policies consistent • debate the issue in public • the ownership policy should focus on how the state should behave as a good owner • it is critical to ring fence the ownership policy and to implement it effectively

13. Next steps • The Network plans to meet at least three times to cover the six chapters of the OECD Guidelines • Preliminary meeting in Beijing May 2005, hosted by the DRC • First plenary meeting in Singapore in May 2006, hosted by the Singapore Institute of Directors • Next meeting in the Spring 2007 in the Philippines, hosted by the Institute of Corporate Directors • Each meeting will be dedicated to comparing regional practices with one or two chapters of the Guidelines • To keep the dialogue focused and to produce tangible outcomes, the Network will develop a Policy Brief with specific recommendations