Governance Challenges of Listed State-Owned Enterprises Around the World: National Experiences and a Framework for Reform

The state is still in business. Despite predictions of their demise in the aftermath of the collapse of socialist economies in Eastern Europe, state-owned enterprises (‘SOEs’) are very much alive in the global economy. The relevance of listed SOEs—firms still subject to government ownership, a portion of whose shares are traded on public stock markets—has persisted or even increased around the world, as policymakers have encouraged the partial floating of SOE shares either as a first step toward, or an alternative to, privatization.

The ‘mixed ownership’ model presented by listed SOEs is spreading. For example, Saudi Arabia, which previously relied on a system of whole ownership by the state, has recently announced its plan to float shares of its oil giant Aramco. In China, the Xi Jinping administration has championed mixed ownership as a means of reforming the massive state sector of the economy. Motivating this approach is the notion that injecting private capital into SOEs will improve their management and expose the enterprises to badly needed market discipline.

Yet, mixed ownership structures add a distinctive layer of governance challenges atop the standard corporate governance problems faced by any listed firm, because ‘the state’ is a distinctive type of owner. State ownership creates its own agency problems caused by the separation of the politicians and bureaucrats who oversee SOEs from ‘the citizens’ on whose behalf the firms are ostensibly owned. From time to time, problems caused by these distinctive governance challenges explode into scandal, as has recently happened in Brazil. Brazil’s oil giant Petrobras, a state-controlled firm whose shares are listed both domestically and on the New York Stock Exchange, was previously held up as an international model of solid corporate governance and performance, but it has recently been embroiled in crises due to corruption and political interference.

In our article, we evaluate the governance challenges associated with mixed ownership of enterprise, and examine a variety of different international approaches to the governance of listed SOEs, with a view to framing a robust policy discussion in the many countries where SOE reform is a topic of major significance. Although the governance challenges associated with listed SOEs are common to all mixed ownership firms, countries have responded to these challenges in myriad ways. We describe the evolution and current status of the institutional framework applicable to listed SOEs in eight different jurisdictions, reflecting a variety of economic, legal, and political environments: France, the United States, Norway, Colombia, Brazil, Japan, Singapore, and China.

The national experiences we discuss are rich and diverse. The principal takeaway from the effort to discern patterns in SOE governance in the countries we have surveyed is the lack of pattern. Diversity appears to be the hallmark of governance of listed SOEs around the world. This finding is probably not surprising, given that SOEs are products of states and often enjoy privileged access to lawmakers and regulators by virtue of their provenance. As such, it is natural for SOE governance to reflect the characteristics of national governance—that is, the characteristics and quality of a national regulatory regime for SOEs are deeply influenced by the prevailing national philosophy about the proper scope of state ownership of enterprises, separation of powers, the level of corruption in society, and related factors.

Moreover, at least a level of informal observation, the quality of SOE governance appears to be quite closely correlated with the quality of political governance in a given country. But clearly there are examples of sound SOE governance around the world and innovative approaches to the challenge of SOE governance that may offer guidance to policymakers elsewhere. The diversity of approaches to SOE governance revealed by our study—even among countries that have managed the challenges relatively well—may be cause for optimism, by suggesting that effective governance strategies can be forged with the tools at hand in a given institutional environment, when coupled with appropriate doses of imagination and political will.  

In contrast to the implicit message of the international best practice guidelines prescribed by the OECD and the World Bank, there is also no set ‘roadmap’ for successful SOE governance. Indeed, ‘success’ in this field may be a contestable term. Based on the foreign experience we have surveyed and our own analysis of the governance challenges of listed SOEs, we suggest that policy makers seeking to improve the existing regime for mixed-ownership enterprises consider a number of areas from ownership structure and board composition to structural incentives and enforcement.

Curtis J. Milhaupt is the Parker Professor of Comparative Corporate Law and Fuyo Professor of Japanese Law at Columbia Law School, and Mariana Pargendler is Professor of Law at Fundação Getulio Vargas School of Law in São Paulo and Global Professor of Law at New York University School of Law.