The 2006 Asian Roundtable on Corporate Governance

The Asia Network on Corporate Governance of SOEs

John Lim

President, Singapore Institute of Directors Session 5

Related Activities and Next Steps

Bangkok, Thailand14-15 September 2006

The 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

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

Purpose

• raise awareness of all concerned constituencies

• evaluate and benchmark current policy frameworks and practices

• influence policy making

• support viable and effective reforms

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

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

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 )

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

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

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

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

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

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

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