Network Rail is an example of a UK state-owned enterprise.
At a glance
- The OECD has unveiled an 2024 update to its guidelines for state-owned enterprises, the first comprehensive revision since 2015.
- The new framework requires SOEs to set clear environmental targets and maintain transparency in their green initiatives.
- The focus is on fair competition with private companies, professional board oversight, and clear rationales for government ownership.
The 2024 revision of the OECD Guidelines on Corporate Governance of State-Owned Enterprises (SEOs) tackles the trifecta of challenges to maintain transparency, accountability and fair competition within these organisations. In the UK, Network Rail, BBC and the Civil Aviation Authority are examples of large SEOs that are encouraged to adhere to the updated framework. Across the globe, SEOs operate in diverse sectors ranging from utilities and infrastructure to energy and finance.
OECD Secretary-General, Mathias Cormann, says the guidelines are the “leading international standard for policymakers to design effective ownership and corporate governance frameworks for SOEs”. He said they address the “unique challenges and opportunities faced by state ownership in view of fostering transparency, accountability, integrity and efficiency within the state-owned sector”.
“They have become a cornerstone for countries in reforming their institutional, legal, and regulatory frameworks to boost competition, professionalise ownership practices and enhance SOE performance,” Cormann said.
For countries looking to align their SOE management with international best practices, the updated guidelines offer a roadmap that navigates the intricacies of SOE governance and the need for a future-focused approach.
The OECD’s guidelines, first introduced in 2005, are the main operating framework for SOE governance. This 2024 update focuses on SOE contribution to “sustainability, economic security and resilience, by maintaining a global level playing field and high standards of integrity and business conduct”, the report says. The guidelines include recommendations on how SOEs take into account climate-related and other sustainability opportunities and risks.
Transparent, and accountable governance frameworks help SOEs operate on a level playing field with private companies, especially in competitive markets that are aligned with their jurisdictional goals.
“SOEs’ economic activities should be required to earn sustainable rates of return that are comparable to those obtained by competing private enterprises operating under similar conditions, except with respect to the carrying out of public service obligations,” the report said.
“When SOEs engage in public procurement, whether as bidder or procurer, the procedures involved should be open, competitive, based on fair and objective selection criteria, promote supplier diversity and be safeguarded by appropriate standards of integrity and transparency, ensuring that SOEs and their potential suppliers or competitors are not subject to undue advantages or disadvantages.
“When SOEs’ economic activities affect trade, investment or competition they should conduct all business, other than carrying out public service obligations, in accordance with commercial considerations. They should conduct all business according to responsible business conduct and high standards of integrity.”
Seven core components
The guidelines outline seven core areas critical to SOE governance covering ownership structure and roles, equitable competition, shareholder rights, transparency, board quality and sustainability.
Guidelines promote sustainability
As SOEs often operate in resource-intensive sectors such as energy and transport, they are in a strong position to lead on climate action and social responsibility. The OECD encourages SOEs to set clear sustainability targets, integrate risk management systems that account for environmental and social risks, and engage meaningfully with stakeholders, including local communities.
The guidelines also recommend regular evaluations and transparency in SOE sustainability performance, aligning reporting with international standards. This represents a significant shift, reflecting the OECD’s commitment to align SOE governance with the global push toward a more resilient and sustainable future.
“Where the state has sustainability goals, the state as owner should set concrete and ambitious, sustainability-related expectations for SOEs, including on the role of the board, disclosure and transparency and responsible business conduct,” the report said. “Where the state has set sustainability goals, they should be integral to the state’s ownership policy and practices.”
This includes:
- Setting concrete and ambitious sustainability-related expectations for SOEs that are consistent with the ownership policy and practices. In doing so, the state should respect the rights and fair treatment of all shareholders.
- Communicating and clarifying the state’s expectations on sustainability through regular dialogue with the boards.
- Assessing, monitoring and reporting on SOEs’ alignment with sustainability-related expectations and performance on a regular basis.
The report recommends SOE boards should:
- Review and guide the development, implementation and disclosure of material sustainability-related objectives and targets as part of the corporate strategy.
- Integrate sustainability considerations into their risk management and internal control systems, including by conducting risk-based due diligence.
- Adhere to sustainability reporting and disclosure requirements, aligned with internationally recognised standards.
