Desktop version

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

Evaluation by the ownership function

Board evaluations can be done at the ownership level as a form of top down review, and in a minority of jurisdictions this is the principal means by which board performance is assessed. Where this approach is chosen the board evaluation is usually linked to the fulfilment of overall corporate objectives: boards are monitored against their ability to agreed objectives and corporate strategies. In fact, this is an oft-overlooked aspect of top-down board evaluation: it cannot be performed in a meaningful way unless the State communicates non-commercial (as well as commercial) objectives that an SOE is expected to pursue in a transparent manner (OECD, 2008 and as discussed in Chapter 1). A board of directors “is not better than its objectives” and absent this condition it is not clear against what benchmark the board is being evaluated.

National approaches differ, however, in respect to whether the ownership function limits itself to this performance review, or goes beyond it to try to assess the board functioning as an entity and/or including the efforts of individual directors. Whether this is done by outsourcing evaluations or supported by the involvement of external/internal audit bodies differs. Some national approaches are described below.

In Chile (Box 7.1), the ownership agency, SEP, co-ordinates performance reviews for all SOEs, but outsources a large amount of the work to external

Box 7.1. Chile’s board evaluation process

SEP conducts an annual evaluation of all SOEs board members. The evaluation focuses on the board as a whole, but the Chair's role and impact on the performance of the board is a specific aspect evaluated.

The evaluations are conducted by nationally known Corporate Governance Centres; specialised companies; or auditors. The external facilitators are responsible for the preparation of the evaluation, getting the information and answers and its analysis.

The questionnaire is prepared by the specialised external facilitators and reviewed by SEP, in order to assure its results are comparable to past results. The survey is sent to board members and the results are analysed by the external facilitators.

Apart from the external review, a series of other aspects are evaluated, this time only by SEP. This includes: performance of the board, attendance of board members; fulfilment of goals proposed by SEP, and performance of the SOE.

The establishment of the criteria used to measure the board’s performance contains both mechanical aspects as well as performance-based measures. For instance, the evaluation focuses on: the collaboration of the board (teamwork); the flow of information; performance of the board; mechanistic elements (attendance), fulfilment of goals proposed by SEP as shareholder (for SOEs not created by law) or representative of the State (for SOEs created by law), and, performance of the SOE.

At the end of the process, the results are provided to the board, through the chair, and also relayed to the relevant share ownership entity. A report is prepared for the SEP Council and also sent to relevant Authorities.

The results of the evaluation are used for determining the future composition of the board and the continuity or change of boards.

Source: Chilean authorities’ response to OECD questionnaire.

corporate governance centres, and reserving for itself an overview role. The reviews are based primarily on questionnaires sent to board members. At the end of the process, the board (through the Chair) are debriefed on the outcomes of the review.

In Mexico, a hybrid form of review is conducted. All SOEs are audited by an internal unit, called the Internal Monitoring Body. But the Monitoring Body itself is appointed by the Secretariat of Civil Service. In some cases, the internal reviews are supplemented by additional reviews by the Supreme Audit Office. The Monitoring Body has the responsibility of evaluating the overall performance of the SOE including the board’s performance. The board is evaluated according to the objectives stipulated in the Sector Program by the relevant Ministry.

In Poland, the Ministry of Treasury undertakes periodic evaluation of the operations of supervisory boards in companies with State Treasury shareholdings. These reviews are prepared on the basis of the documentation sent to the Ministry by the supervisory boards as well as through personal contacts with the companies. The review covers mechanistic elements (compliance with binding laws; timeliness of reporting and informational duties; frequency of meetings and attendance of individual supervisory board members; the completeness of documentation, etc.), but are also performance focused. For instance, the review examines the theme of the meetings and the scope of issues covered by the supervision and control, and initiatives of individual board members with regard to putting forward motions aimed at improving company efficiency.

SOE board performance in Switzerland is measured by its fulfilment of the strategic goals generally set for a period of four years. The assessment is exercised on the basis of annual reporting to the ownership units and the Federal Council, who in turn evaluate company achievements and give feedback to the Chair. The board is assessed as a whole. In case of under- fulfilment/mismanagement, the Federal Council is entitled to adopt predefined measures (including the dismissal of board members/the Chair).

 
Source
< Prev   CONTENTS   Source   Next >

Related topics