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Home arrow Economics arrow Boards of directors of state-owned enterprises : an overview of national practices.

Public versus private

Overall, a large number of countries draw a broadly equal number of directors from both spheres. Nominees can include a combination of academics, private and public sector representatives (Korea). Only in a small minority of jurisdictions (Brazil, Mexico and Turkey) is there a clear preference that board members are sourced from the public sector.

The justification for public sector representatives on boards is probably stronger when the non-commercial objectives of the enterprise are prominent. For example, Sweden highlights that “Companies with specially adopted public service obligations generally have a higher degree of directors from the public sector due to the fact that a good understanding for government processes and decision making is vital in these companies.”2 However, where State representation boards is stipulated by law or made as formal selection criteria, special attention should be paid as to how candidates are selected (see chapter on Board nomination) and their duty towards the SOE.

That said, there is growing recognition that certain public sector representatives are not acceptable as SOE board members under any circumstance. OECD consensus holds that neither ministers, state secretaries nor other direct representatives of, nor parties closely related to the executive powers should be represented on SOE boards.3

This exemption could arguably be broadened to also cover high-level civil servants who work directly with representatives of the executive. Nordic countries have gone further than most jurisdictions to formally limit the weight of politicians and bureaucrats in SOE boards. For example, active politicians, including members of parliament, ministers, state secretaries, as well as civil servants who within their remit exert regulatory or controlling authority over the company or deal with matters of substantial importance for the company, cannot be elected to the board of directors in Norway. Similar rules are in place in Germany, except regarding State Secretaries who can be appointed in SOE boards if they are not members of the Parliament. New Zealand (which also has an express process for vetting conflict of interest) has gone farthest in instituting an absolute ban on any serving politicians or civil servants sitting on SOE boards

Good practice: Persons directly linked with the executive powers should not sit on SOE boards. Other State representatives should be nominated based on qualifications, subject to specific vetting mechanisms.

Moreover, many countries have restrictions concerning the nomination of civil servants as board members. In Finland, for instance, only one civil servant from the ownership function (and in some cases another from a relevant administration) can serve on an SOE board but potential conflict issues are avoided by generally not allowing the politically-appointed civil servants to serve on boards. A similar approach has been adopted by Australia where appointment of departmental officers to GBE Boards could only be considered in exceptional circumstances, having regard to their ability to represent the interests of the government, their possession of the business skills, and to any potential conflicts of interest that might arise.

In Israel, persons with personal, business or political connection to one of the Ministers are not barred from becoming directors in SOEs, but a significantly more demanding set of qualifications is applied in this case. A control mechanism has been established in the form of a public Appointments Examination Committee, which must approve the appropriateness of appointees (board members, chairmen of the board and CEOs), subject to a set of required qualifications established by law. The Committee needs to assure itself of the political independence of the proposed candidate (OECD, 2011).

 
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