Corporate Governance of State-Owned Enterprises THE ROLE OF STATE-OWNED ENTERPRISES State-owned enterprises—SOEs—account for 20 percent of investment, 5 percent of employment, and up to 40 percent of domestic output in countries around the world. SOEs deliver critical services in key economic sectors, including utilities, finance, BACKGROUND and natural resources. In many countries, large manufacturing and services Corporate governance is defined as the enterprises remain in state hands. Today, SOEs around the world face strong structures and processes by which pressure on multiple fronts to improve their performance. They are being pushed to: companies are directed and controlled. • Enhance their competitiveness as a way to boost the economy as a whole, Good corporate governance helps particularly in nations where they play a dominant role companies operate more efficiently, • Increase their operational efficiency and cost effectiveness in the delivery improve access to capital, mitigate risk, of essential infrastructure, financial, and other services to businesses and and safeguard against consumers mismanagement. It makes companies • Reduce their fiscal risks and burdens more accountable and transparent to • Demonstrate better transparency and accountability in the use of scarce investors and gives them the tools to respond to stakeholder concerns. public funds Corporate governance also contributes to development. Increased access to capital encourages new investments, IFC’S RESPONSE boosts economic growth, and provides employment opportunities. IFC’s efforts are integrated into the World Bank Group’s broader SOE reform work, which includes corporate governance and financial management. This involves IFC CORPORATE GOVERNANCE assessing the state of SOE corporate governance in various countries, providing GROUP policy recommendations and actions plans, and supporting reform implementation The Group brings together staff from through advisory and lending operations. investment and advisory operations into IFC’s corporate governance professionals intervene in collaboration or coordination a single, global team. This unified team with World Bank-led teams to: advises on all aspects of corporate governance and offers targeted client • Develop corporate governance frameworks aimed at strengthening the services in areas such as increasing state’s monitoring of SOE governance and performance board effectiveness, improving the control environment, and family • Train SOE board directors, including state nominee and independent business governance. The Group also directors to empower SOE boards and develop board practices in line with supports corporate governance international standards improvements and reforms in emerging • Train government officials of state ownership entities and line ministries markets and developing countries, as well as SOE managers responsible for preparing and implementing while leveraging and integrating governance reforms on issues such as exercising the rights of the state as knowledge tools, expertise, and shareholder networks regionally and globally. • Design and implement SOE director training and certification, in partnership with key market intermediaries, including institutes of directors, business schools, and SOE-specific academies IFC SOE GOVERNANCE TRAINING CURRICULUM TRAINING METHODOLOGY The SOE governance training curriculum, developed by IFC, meets the needs of Training for transformation is a key corporate governance training institutes, state ownership entities and corporate component of IFC’s corporate governance professionals. It features materials to help director training organizations governance advisory projects. The as they develop training programs for SOE directors, train SOE directors, and SOE Governance Training Curriculum support state ownership entities as they seek to professionalize the state's nominee is aligned with the methodology of its directorships. flagship Board Leadership Training Resources. It places a unique emphasis on training that maximizes REGIONAL EXAMPLES the learning experience. Each module is designed to provoke discussion and IFC’s corporate governance teams work at the firm, market, and regulatory levels, debate and uses interactive strategies deploying a multi-pronged approach to target the range of stakeholders involved in to enrich training for adult learners. By improving the governance of SOEs. encouraging participants to draw on personal experiences, their In Colombia, IFC and the World Bank are jointly supporting the government in its development is reinforced by sharing efforts to implement corporate governance practices as required by an OECD knowledge and board room practices corporate governance committee. This support includes advising the Ministry of in a way that addresses the Finance on the creation of a new ownership agency, developing policies for challenges that many SOE board appointing SOE board members, and training SOE board members. The IFC and directors face. World Bank team also assessed the governance practices of Colombia’s foreign trade development bank. The assessment helped raise awareness about the SELECTED RESOURCES importance of depoliticizing boards of SOEs. Private Sector Opinion: The State of In Egypt, IFC and the World Bank have a joint mandate to improve the corporate Governance at State-Owned governance practices in the oil and gas industry. The World Bank’s Modernization Enterprises, 2018 Project for the Energy Sector includes an IFC work program to reform the governance practices of energy SOEs, with the goal of preparing these firms to go Corporate Governance of State- Owned Enterprises: A Toolkit, 2014 public with initial public offerings. Efforts include crafting a corporate governance code and equipping SOE boards with knowledge and tools to drive company-wide IFC Corporate Governance governance improvements, from the holding level through to subsidiaries. Progression Matrix for State-Owned Enterprises, 2006 In Serbia, IFC helped the Ministry of Economy conduct an analysis of corporate governance practices in state-owned enterprises, with a view to introducing a certification program for supervisory board members. This engagement is at the core CONTACTS of the World Bank Group’s country strategy for Serbia, which aims to reform the Sarah Cuttaree governance of state-owned enterprises and complements other activities being Washington, DC | +1(202) 473-3916 undertaken by the World Bank. It also aligns with the government’s economic reform kcuttaree@ifc.org program, which prioritizes the professionalization of state-owned enterprises. Loty Salazar In Sri Lanka, IFC and the World Bank are building a director training certification Washington, DC | +1(202) 458-2559 program for SOE board directors. The program will be offered by the Sri Lanka lsalazar@worldbank.org Institute of Directors, an IFC partner in general director training programs. Through the SOE director certification program, the country’s SOE board directors will gain both corporate governance and leadership skills. www.ifc.org/corporategovernance July 2018