Exploring Corporate Governance Around the World

By Allison Garrett, Senior Vice President for Academic Affairs at Oklahoma Christian University

Tuesday, August 01, 2006

Governance of State-Owned Enterprises

I just ran across a report dated May 2006 from the World Bank entitled Held by the Invisible Hand: The Challenge of SOE Corporate Governance for Emerging Markets. The report notes that "In state-owned enterprises (SOEs), state ownership and government control present inherent governance challenges that contribute to poor performance. However, efforts to improve corporate governance in SOEs have lagged those of the private sector, where changes have been extensive over the past decade."

It should come as no surprise that SOEs to some extent copy what it happening in the private sector when it comes to governance reform. This is especially true in nations that are privatizing certain industries.

The report contains a good summary of the variety of SOEs and where they are located and also looks at the history of reform of SOEs. The chapter on "Transparency and Disclosure" is particularly interesting to me, as it notes substantial differences between reporting by SOEs and by traditional public companies. SOEs, for example, may have few reporting obligations. In fact, information about the business might be classified. Listed SOEs will comply with the public reporting requirements of the exchange, but even the reporting required by listing agreements may not give a true picture of the SOEs business. In some countries, aggregate reporting of SOEs is done to provide combined financial information to the public.

I've blogged previously about SOEs, particularly the challenges of reporting related party transactions in China.

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