5. Stakeholder relations and responsible business

The OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOE Guidelines) state that the state ownership policy should fully recognise state-owned enterprises’ (SOEs’) responsibilities towards stakeholders and request that SOEs report on their reactions with stakeholders. It should make clear any expectations the state has in respect of responsible business conduct (RBC) by SOEs. Governments, the state ownership entities and SOEs themselves should recognise and respect stakeholders’ rights established by law or through mutual agreements. This chapter provides national developments relevant to RBC practices in the SOE sector especially with respect to internal controls, ethics and compliance programmes or measures. The chapter notes that increasing pressure for accountability and transparency in all forms of corporate behaviour is supporting innovations and improvements in practices by SOEs.

    

Main trends

One third of the countries surveyed in this report have made material changes in the last 5 years in national practices concerning stakeholder relations and responsible business conduct through the establishment of government policies, requirements and expectations regarding responsible business conduct (RBC) in companies including SOEs. While most of the countries surveyed do not have an overarching policy framework to promote or implement RBC in the SOE sector, one third of the surveyed countries have taken steps to enhance RBC practices by putting in place new requirements with regard to internal controls, ethics and compliance programmes.

These changes have generally resulted in a stronger alignment of national practices with the standards of the SOE Guidelines, which call for SOEs to implement high standards of responsible business conduct and for the state shareholder to explicitly disclose its expectations in this regard. This indicates that awareness of the importance of RBC as a core business issue has increased in recent years. Inter alia, increasing pressure for accountability and transparency in all forms of corporate behaviour is supporting innovations and improvements in practices by SOEs. At the same time, it is important to note that any costs related to obligations and responsibilities that an SOE is required to undertake in terms of public services and responsible business conduct should be covered in a transparent manner.

National developments

a) New requirements with regard to SOE board obligations to establishing internal controls, ethics and compliance programmes or measures

An amendment No. 299/2016 Coll. of Laws of the Czech Republic, to the Act on Auditors came into effect on 1 October 2016.

In Hungary, in 2016, Audit Committees were established in some SOEs to monitor the effectiveness of the internal quality control and risk management systems and financial reporting process and submit recommendations or proposals to the Board of Directors and the Supervisory Board where deemed necessary. As for companies classified as government sector entities, they are either required to or recommended to set up internal control.

In Israel, the Government Companies Agency (GCA) – a state ownership co-ordinating entity – has recently declared its efforts to eliminate SOE fraud, corruption and nepotism while encouraging transparency and professionalism of SOEs. Since 2014, the GCA co-operates with a dedicated police investigation unit, aimed to detect and treat fraud and corruption in SOEs. The unit operates, among other things, based on anonymous whistle blower reports and independent investigative initiatives. According to the GCA, the initiative has had a decisive deterrent effect.

In Korea, following several cases of employment fraud in the SOE sector in recent years, there was an amendment to the “Act on the Management of Public Institutions” in March 2018. The amendment introduced Articles on transparent personnel management. The Minister of Economy and Finance or the head of the competent agency shall take a measure to dismiss or punish the head of a SOE/public institution if an executive of the organisation is found guilty of employment irregularities, according to review and decision by the steering committee.

Box 5.1. Articles on public integrity and anti-corruption newly added to “Act on the Management of Public Institutions” in March of 2018 in Korea

Article 52-5 on employment fraud

1. The Minister of Economy and Finance or the head of the competent agency in shall take a measure to cancel or give personnel-related punishment to the head of a public institution after review and decision by the steering committee if an executive of a public institution is found guilty in connection with employment irregularities. In such a case, the Steering Committee shall notify the party of its contents and reasons before its deliberations and decisions to give the party an opportunity to make an explanation.

2. The Presidential Decree shall provide the necessary matters for the criteria, contents, and procedures for cancellation of acceptance pursuant to paragraph 1.

Article 52-6 on personnel audit

1. Government shall audit the appropriateness of personnel management of public institutions (hereinafter referred to as "personnel audits") as provided under the Presidential Decree to eradicate employment irregularities during misconduct, and may require the submission of relevant documents if necessary.

2. The Minister of Economy and Finance or the minister of the competent agency shall request the head of the relevant public institution to correct the violation or unfairness of the personnel audit without delay and take personnel actions against those involved.

3. The head of a public institution shall immediately implement a request under paragraph 2, if there is no justifiable reason, and inform the Minister of Economy and Finance or the minister of the competent agency of its implementation.

Sources: Responses from Korean government authorities.

In Latvia, Cabinet of Ministers on 17 October 2017 adopted regulations entitled “Basic Requirements for Establishing Internal Control Systems on Corruption and Conflict of Interests risk prevention”. According to the regulations, an SOE must establish or complement existing internal risk control systems until the end of 2018, in compliance with regulations.

In New Zealand, there have been updates to the Owners Expectations Manual in June 2018. Slightly more stringent guidelines were included in the Owners Expectations Manual in two areas: (i) where SOEs make significant capital investment decisions, including lowering the threshold for SOEs requiring shareholder approval; and (ii) new guidance on board of directors performance evaluations, including the requirement for 3 yearly independent Board evaluations.

In Switzerland, the Federal Council has decided to supplement the strategic objectives in the area of Compliance Management System (CMS). A new CMS which is oriented to the ISO standard 19600 is now required. The implementation process is still ongoing.

b) Changes in government policies, requirements and expectations regarding responsible business conduct (RBC) in SOEs.

In Chile, in 2017, the SEP set the State expectations regarding RBC by organising a workshop on the preparation of sustainability reports focused on the GRI G4 sustainability reporting guidelines, with the objective of implementing sustainability reports for all SEP companies. The reports were published for the first time by the end of 2017. The SEP also organised a workshop on human rights and business for directors, which addressed various aspects of RBC.

In the Czech Republic, the National Action Plan for Responsible Business Conduct has been revised and published as the Resolution of the Czech Government No. 49 of 25 January 2016.

In France, the state shareholder is currently preparing a roadmap for corporate social responsibility (CSR) in its portfolio.

In Germany, regarding stakeholders’ rights vis-à-vis individual SOEs, it enacted an Act in 2017 to promote Transparency in Wage Structures among Women and Men (“Transparency in Wage Structures Act”, Entgelttransparenzgesetz, EntgTranspG). This Act aims to enforce the right to equal pay for women and men for equal work or work of equal value. So as to verify compliance with the principle of equal pay within the meaning of the present Act, employees shall possess an entitlement to disclosure as described in the Act. Employees can demand information on the average monthly gross remuneration and on no more than two individual remuneration components. The individual entitlement to disclosure exists for persons employed in establishments with a workforce that usually counts more than 200 employees under the same employer, which may include SOEs. In the course of the 2018 implementation of the General Data Protection Regulation (GDPR), there are new SOE board obligations to establish internal controls and compliance measures to ensure data protection.

In Korea, in 2018, under the presidential agenda to maximise social values in the public sector, the government prioritised RBC practices in the SOE sector by establishing a group of new SOE performance monitoring indices to measure aspects of SOEs with respect to job creation; provision of equal opportunity, social integration; safety and environment conservation; and ethical management.

In Latvia, the Guidelines on elaboration of medium-term operational strategies state that among non-financial goals SOEs should also clearly state goals related to corporate social responsibility, for example, such as reducing impact on environment. It also includes a recommendation on the need to assess reputational risks, and it how SOEs may disclose information on received or made donations.

In Norway, the policy regarding sustainability and responsible business conduct has developed over the years, reflecting the development of trends, and international guidelines, standards and norms like the UNGP, the UN Global Compact, the OECD guidelines on multinational companies, GRI, etc. Each white paper reflects the development, and aims to clarify the government’s subsequent expectations towards SOEs. The government holds regular meetings with the companies and undertakes regular analysis of SOEs’ work and reporting, with respect to inter alia corruption and climate. The government organises regular dialogue with the civil society to share experience and knowledge on important issues. It also arranges for the SOEs to meet and discuss dilemmas and experience regarding compliance issues and other issues relevant to RBC practices.

In Poland, good practices prepared at the government level have been described in one of the points above. In addition, individual companies prepare their own codes of good practices. An example of this is the Warsaw Stock Exchange (GPW S.A.) that prepared the code of good practice in 2016. Guidelines were also issued by the Polish Financial Supervision Authority (KNF).

In Spain, companies including SOEs are required to deploy an appropriate corporate social responsibility policy, and report transparently and in sufficient detail on its development, application and results.

In Sweden, in 2016, the level of ambition for the work of the SOEs in the area of sustainable business was raised further by inclusion of the UN’s 2030 Agenda with 17 global Sustainable Development Goals in the state ownership policy. All SOEs should analyse the Global Goals and identify the goals that the SOE impacts on and contributes to through its operations.

In Switzerland, in 2015, the Federal Council published the “CSR Document de position du Conseil Fédéral”. It states that the Confederation should act as a role model in particular when the Confederation acts e.g. as the owner of state owned companies. This role model should raise awareness within the private sector.

c) Changes in the rules or national practices bearing on SOEs’ role vis-à-vis the political system, including campaign contributions, sponsorship and lobbying

In Argentina, the law established to reform financing for political parties is under review at the Congress. Some conditions for political financing by companies are published on the Argentinian government’s website.

In Estonia, SOEs had the possibility until 2017 to use annually funds up to 1.5.%of their three year average net profit for sponsorship with the condition that it had to support the fulfilment of SOE objectives. From 2017, the sponsorship may be used only to support R&D activities in the field of activities of the SOE and the annual limit has been decreased to 0.5% of the three year average net profit.

In France, article 11 of the law 2013-907 of 11 October 2013 covering the transparency of public life provides that some citizens send a declaration of their patrimonial situation and a declaration of interests to the High Authority for the Transparency of the Public Life. In particular, presidents and directors-general of the following organisations are identified for this reporting:

• Companies and other legal persons, regardless of their legal status, in which more than half of the share capital is held directly by the State;

• State public institutions of an industrial and commercial nature;

• Companies and other legal persons, regardless of their legal status, in which more than half of the share capital is held, directly or indirectly, separately or together, by the persons mentioned in 1 ° and 2 ° and whose turnover annual business, for the last financial year ended before the date of appointment of the parties concerned, exceeds EUR 10 million.

According to Article 4, The “declaration of interests” covers the following elements:

• Professional activities giving rise to remuneration or gratuity exercised on the date of appointment;

• Professional activities giving rise to remuneration or gratuity exercised during the last five years;

• Consultant activities performed on the date of appointment and in the last five years;

• Participation in the governing bodies of a public or private body or company at the date of appointment or in the last five years;

• The direct financial involvement in the capital of a company on the date of the nomination.

The law of 9 December 2016 on transparency, anti- corruption and the modernisation of economic life (known as the Sapin II law) introduced provisions relating to representatives of interests / lobbies but these are not specific to public enterprises.

In Poland, the most important relevant legal act is Law of 16 December 2016 about the rules of state property management. According to art. 17, an entity authorised to exercise rights from shares belonging to the State Treasury or a state legal person is obliged to determine when a donation or other agreement of a similar effect exceeds PLN 20 000 or 0.1% of the total assets and thus obtain consent of the supervisory body and establish a contract . The determination and contract are developed by way of resolution of the general meeting or via the company's statute.

References

OECD (2020a), Corporate Governance in Costa Rica, OECD Publishing, Paris, forthcoming.

OECD (2020b), Transparency and Disclosure Practices of State-Owned Enterprises and their Owners, Paris, forthcoming.

OECD (2018), Ownership and Governance of State-Owned Enterprises: A Compendium of National Practices, http://www.oecd.org/corporate/ca/Ownership-and-Governance-of-State-Owned-Enterprises-A-Compendium-of-National-Practices.pdf

OECD (2015), OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition, OECD Publishing, Paris, https://doi.org/10.1787/9789264244160-en.

OECD (2011), Corporate Governance of State-Owned Enterprises: Change and Reform in OECD Countries since 2005, OECD Publishing, Paris, https://doi.org/10.1787/9789264119529-en.