SOE governance: A picture is worth a thousand words

1. Richard FrederickIndependent Consultant SOE governance: A picture is worth a thousand words

2. A trip to Spain • Principe Pio • ADIF • Aramon • Valdesqui

4. Spain

5. Madrid

6. My neighborhood

7. The juncture…

8. The juncture…

9. …between good and bad state ownership

10. ADIF

11. Principe Pio (mixed ownership)

12. Principe Pio

13. Aramon (mixed-ownership)

14. Aramon (happy consumers)

15. Valdesqui (100% private)

16. Valdesqui (hungry consumers)

17. The private sector is no silver bullet carlos opina sobre Valdesquí: publicado el: 30-11-2010 Cada vez mas gente se dá cuenta del Impuesto Revolucionario que te piden en Valdesqui cada vez que subes. Por supuesto que no tiene nada que ver con irte unos dias a una estación como Dios manda, que siempres es mas barato y por supuesto placentero. Es dificil conseguir tan mala reputación como tienen los dueños de Valdesqui, pero no les importa, por ahora..... ramon opina sobre Valdesquí: publicado el: 17-06-2010 yo cada vez subo menos aunqe , que quede claro que si lo hago es porque es la mas grande que tengo por aqui.Los remontes no tienen energia y van a 2kmh , los empleados bordes... y además es cara , , yo no sé donde se meten toda la pasta que se sacan cada fin de semana , RENOVACIÓN YA

18. Observations • Private and public ownership • Both can have good results • Both can be disastrous • Competition is determinant • Governance is key • It all depends on if you do it right, or if you do it wrong

19. How to do it wrong • Political interference * • Bureaucratization * • Multiple principals with conflicting objectives • Low levels of accountability • Weak incentive structures * • Vulnerability to corruption

20. How to do it right • Governance infrastructure (rules): • SOE policy • Clearly defined roles and authorities • Strict separation of state ownership and policy functions • Professional boards • Board member nominations • Independence of board members • Transparency of both the state and the SOE • For explicit guidance, see OECD, BICG and WB

21. But, sometimes, none of this works... • Best practice: How did we get there? • Bad practice: How do I get out?

22. Key success factors in best practice countries • Emulate the private sector * • Government leadership * • Clear, considered and formal policies * • Respecting extant policies * • Awareness and training • Communications • Public transparency (no backroom deals) • An element of private ownership *

23. Concluding thoughts • The big trends • Move to greater private ownership • Private sector shortcomings • Smart governance tools (technical solutions) • Macro: Competition • Micro: Governance infrastructure • Boards • SOE governance is a political problem (political solutions) • Ideological approaches to state ownership and SOE governance are not helpful • Look to your neighbours • Create a movement

24. Being politically astute • Move incrementally • Move realistically • Develop rational approaches • Formalize all policies • Be transparent to the public

25. Key success factors:Leadership • Best practice countries are proactive in setting the goal of better governance for their SOEs. They provide a clear vision of the outcome (such as emulating as closely as possible private sector practices). They take a leadership role, act as an advocate and demonstrate a commitment to professional governance through the board. Legal and other barriers to best practice at board level are removed.

26. Key success factors: Clear, considered and formal policies • Best practice countries articulate clear policies at all levels. An overall ownership policy lays out the objectives of state ownership, in which the issue of sustainable financial performance is discussed. Such objectives and policies are translated into letters of intent or specific agreements going down to board level. Obtainable objectives are clearly communicated by the owner. Clarity exists on the distinct responsibilities of the state, the board and SOE executives.

27. Key success factors: Respecting extant policies • In best practice countries all parties understand and respect the governance framework that has been put in place. There is a general commitment to play by the rules, and comply with their spirit and not just the letter. Such respect of the governance framework is created through broad awareness of goals and policies among the public administration, boards and SOEs, a clear explanation of their rationale, and how policies contribute to the aims of state ownership.

28. Key success factors:Awareness and training • Best practice countries have well-educated boards, but they also have a well-educated public administration. In best practice countries, executives, boards and the public administration all share the same technical understanding of governance and the function of best practice SOEs. As a result, they all seem to talk the same language, appreciate and abide by the rules of the game, understand each other’s motivations and pull in the same direction.

29. Key success factors: Communications • Best practice countries have excellent communications between the executive and the board. They also have excellent communications between the chairman and the owner. Good communications ensure that both the SOE’s and the government’s positions are known and understood. Best practice countries have talented chairmen to fill this difficult role.

30. Key success factors: Public transparency • Best practice countries are transparent in order to enhance the accountability of both the SOE and the public administration. Best practice countries do not have SOEs that are accountable solely to themselves or to government.

31. Key success factors: Privatization • Not all best practice countries privatise. But, all of them consider the potential impact of privatisation; they regularly re-consider the rationale for public ownership as well as the rationale for ownership of individual enterprises.