Governance Research Digest – July 2012
This publication intends to build a more profound understanding of how governance works in the Baltic States, and to develop suggestions for how to implement world class standards in the Baltic region. It looks at four interlinked aspects of State-owned Enterprises (SOEs) governance: public perceptions; individual SOE rankings; an examination of board structures; and an analysis of the legal and institutional framework.
- There is considerable public dissatisfaction with SOE governance and SOE performance in the Baltic region.
- The issue of SOE governance and SOE performance has the potential to become politically inflammatory if a scandal or financial duress should emerge.
- Governance practices pose both an economic and a political risk.
- One can clearly identify SOEs that are leaders and SOEs that are not.
- The leaders are rapidly approaching world-class standards of governance.
- These SOEs show that modern and professional governance practices are possible in the Baltics. They should serve as models for other SOEs in the region.
- Unfortunately, many SOEs are still far removed from good practice, much less best practice.
- The report identifies both areas of strength and areas of weakness where governance practices could improve.
- All SOEs will benefit from a governance improvement plan and a concerted governance improvement effort.
- The state itself will likely reap significant benefits in terms of the efficiency and effectiveness of its SOE oversight.
- In some cases financial reporting is comparable to world class practice.
- However, in most SOEs the control environment is compromised by the absence of a direct reporting relationship between the internal auditor and independent board members or an independent audit committee.
- Audit committees are either missing, or are constituted only to comply with formal requirements.
- Civil servant board members are stretched beyond what can be reasonably expected of them, leaving the state’s capacity for oversight dangerously weak.
- Many boards are fiefdoms of ministries or political parties leaving SOEs vulnerable to political influence.
Baltic Institute of Corporate Governance