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The role of boards of directors

The overall directions of SOE Guidelines imply that boards play a central function in the governance of SOEs. The board carries ultimate responsibility, including through its fiduciary duty, for SOE performance. In this capacity it acts essentially as an intermediary between the state as a shareholder, and the company and its executive management. This three-layered approach, which is consistent with general company laws of most countries, has been implemented by a number of governments to good effect. SOE boards shifted from their historic role as oversight bodies, entrusted with ensuring compliance toward driving performance, to setting strategies and co-operating with management towards their implementation. However, in a minority of countries, SOE boards are not adequately empowered by their governments to assume such a strategic role, circumvented for instance by direct ministerial appointments of corporate executive management and/ or informal channels of communication and instructions. This may detract from the value-adding of boards.

The SOE Guidelines recommend clarifying the roles of the State, ownership entities, boards and management. The aim is to assign decision-making powers to those who are most capable, and to segregate decision-making from ownership responsibilities in order to avoid conflicts of interest and disincentives. Clarifying these roles further ensure that decision-making is made on a rational and informed basis, and in line with stated objectives.

This chapter focuses on defining roles and responsibilities for a well functioning board, to some extent, therefore, plotting some ideal outcomes that the good practices identified in Chapters 2 to 7 should help to achieve. It examines various ways in which the board itself can be structured. It also looks at the extent to which the board is involved in conformance versus performance, and how it adds overall value to the performance of the company.

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