State Owned Enterprises And Corruption What Are The Risks -Books Pdf

STATE OWNED ENTERPRISES AND CORRUPTION What are the risks
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What is an SOE,The OECD Guidelines on Corporate,Governance of State Owned Enterprises. lay out that any corporate entity recognised,by national law as an enterprise and. in which the state exercises ownership,should be considered as an SOE This. includes joint stock companies limited,liability companies and partnerships. limited by shares Statutory corporations,with their legal personality established.
through specific legislation should be,considered as SOEs if their purpose and. activities or parts of their activities are of,a largely economic nature. What are corrupt and irregular,Corruption refers to the abuse of public. or private office for personal gain This,includes the active or passive misuse. of powers of public officials appointed,or elected for private financial or other.
benefits OECD 2008 Irregular practices,are referred to as broader instances of. breaking SOE integrity policies including,internal company programmes functions. people processes or controls that seek to,prevent detect or address risks of waste. and abuse Such irregular practices,harmful in their own right may be linked. to or open avenues for corrupt behaviour,Who should do what.
The OECD Guidelines on Corporate,Governance of State Owned Enterprises. imply that the state on a whole of,government basis should implement. an ownership policy a designated,ownership entity within the state should. be responsible for defining the objectives,of individual SOEs and monitoring their. performance the SOE s board of directors,should be responsible for approving.
strategy and monitoring management and,the management should be responsible for. the SOE s corporate operations, State owned enterprises SOEs are a main conduit for states. to exercise their roles as an economic actors The benefits of. SOE ownership are economic political and social So too are. the costs when mismanagement or abuse occurs, Today SOEs account for 22 of the world s largest companies and. their role as global competitors is growing as the boundaries of markets. increasingly extend beyond geographic borders They are often. concentrated in sectors with strategic importance for the state and. society and are increasingly operated like private firms. The more pronounced presence of SOEs in the global marketplace has. been marked by certain high profile scandals and occasional evidence of. a susceptibility of SOEs to corruption This raises questions about what. might make SOEs susceptible to corruption and how policy makers can. act to maximise their productivity by raising their integrity. The OECD report on SOEs and corruption answers these questions in. Through an analysis of the perceptions and recent experiences of. 347 high level SOE officials and board members, Through a review of legal frameworks and approaches at the state. level as reported by representatives of national state ownership. agencies or ministries, The report analyses data collected through two surveys spanning 37.
OECD and non OECD countries The surveys focused on both the most. severe forms of corruption such as bribery and on other rule breaking. and irregular practices that are harmful in their own right and that may be. representative of both corporate and public governance gaps. What is the scale of corruption in SOEs,of respondents reported observing corrupt acts. or other irregular practices in their company,over the last three years The instances of. corruption reported most often involved employees and mid level. Source Based on 347 responses to the 2017 OECD Survey of anti corruption. and integrity in SOEs,The risk of corrupt practices in and around SOEs. In almost half of the participating SOEs comprising 42 of all respondents at least one respondent reported that. corrupt and related irregular practices took place in their company in the last three years In the last year alone 47 of. all respondents reported that an average of 3 of annual corporate profits were lost to corruption and other irregular. practices SOEs that received complaints through their claims and advice channels in the last 12 months estimated that. 40 were linked to corruption or related irregularities. These perception data provide a strong indication that the threat of corruption and irregular practices in and around. SOEs is real Digging deeper the report compares perceived experiences with corruption over the last three years with. the risks and challenges of the present,Key findings. The instances of corruption that were reported most. often involved non management employees and mid Who engages in corrupt behaviour. level managers Executive managers charged with, their oversight reported less corruption and fewer.
irregularities in their company compared to other Employees. categories of respondents This is despite being in. some cases from the same company and reporting, similar corruption risks and obstacles as their fellow Mid level managers. respondents 42, Respondents in oil and gas mining postal energy Business partners. and transportation and logistics sectors report to have 27. witnessed corrupt and other irregular practices more. often than average These sectors are the most highly Senior partners. regulated are likely to have natural market monopolies. and are engaged in high value public procurement,projects 16 Board members. The greatest obstacles to integrity in SOEs relate to. Source Based on 347 responses to the OECD 2017 Survey of. relations with the government including a perceived anti corruption and integrity in SOEs. lack of integrity in the public and political sector and Note Respondents were able to select more than one actor. with employee behaviour including opportunistic, behaviour by individuals To a lesser degree challenges. also arise from ineffective control and accountability. including ineffective internal control or risk management and the company culture including a lack of awareness. amongst employees of the need for integrity, SOEs with public policy objectives whether well defined or more implicit report higher risks of corruption or.
other irregularities They also report taking fewer actions to avoid known corruption risks than those SOEs with. entirely commercial objectives, SOEs with entirely commercial objectives are more likely to see the allocation of operational budget to integrity as. more of an investment or asset than SOEs with public policy objectives Overall SOEs see financing integrity as. more of a cost or expense than private companies, In face of known corruption risks SOEs generally appear less risk averse or less ready to take action than private. companies This could reflect the fact that SOEs are legally obliged to conduct certain activities and consequently. have less freedom than private firms to walk away from dubious propositions. Which SOE sectors are the most vulnerable,Oil and Gas. Energy i e electricity generation supply,Transport and Logistics. Agriculture and Fishing,Information Communication Technology.
Banking and related financial services,0 20 40 60 80 100. Yes No I do not know, Source Based on 289 responses to the 2017 OECD Survey of anti corruption and integrity in SOEs. Understanding the specific challenges for SOEs, Non management employees and managers in private firms face many of the same incentives and opportunities to. engage in corrupt practices as those in SOEs However the report provides perception based evidence that some. of the risks may be increased for SOEs Opportunistic behaviour leading to corruption may be derived from a too. public to fail mentality in which SOEs are protected by their state ownership their market dominant position or their. involvement in the delivery of public services and are insulated from the same threat of bankruptcy and hostile take. over that private companies face Opportunistic behaviour may also arise out of SOEs operations in sectors with high. value and frequent transactions or within complex regulatory frameworks that unless well designed can provide a. smokescreen for non compliant behaviour, SOE respondents consider the greatest corruption related risks to be both internal and external to the company. External pressures such as undue influence by the state in SOE operations may push employees and managers. to break rules and or provide opportunities for exploiting their position On the one hand SOEs with public policy. objectives may be more able to justify illicit activity to compensate for financial losses or reduced profit margins that can. be associated with delivering on policy objectives On the other hand SOEs and other firms with entirely commercial. objectives may try to justify corruption because of the pressure to remain competitive or to perform. Corruption risk avoidance and mitigation what are SOEs doing. The majority of SOEs have rules and mechanisms in place. to mitigate corruption risks In the last year SOEs allocated. an estimated 1 5 of their operational budgets to preventing. and detecting corruption Almost half of respondents. considered this as an asset or worthwhile investment but. 40 also indicated that the financial and human resources The operating budget that 80 of SOEs. available to invest in integrity are at least somewhat allocate to detecting and addressing. inadequate Just over half of respondents reported that corruption and breaches of integrity. their company provides anti corruption or integrity related. training to all employees board members and management. Ninety percent of SOEs treat corruption and integrity risks Internal rules for managing corruption risk. explicitly in risk assessment most often categorised as. compliance risks or less often as strategic risks Those 1 Conflict of interest. that conduct risk assessments on an annual basis as is. 2 Public procurement as procurer, most common report fewer risks and consider their internal.
control and risk management systems to be more effective 3 Charitable contributions and sponsorships. Boards and executive management are not always privy to 4 Asset income disclosure. the same internal materials about risks internal controls or 5 Public procurement as bidder. the efficacy of the internal integrity mechanism 6 Political party financing or engagement. 7 Lobbying, SOEs employ a host of rules and codes to reduce the risk. Note in order of most commonly reported, of corruption Those most common are to do with conflict of. interest charitable contributions and engagement in public. procurement Some SOEs use a variety of approaches to. third party due diligence with one third of SOEs having severed a business relationship because of the risk of or. exposure to corruption Companies often offer multiple channels for complaints that are more often classified as. confidential and reported to the CEO or a board member or both. Although the majority of SOEs have some arrangements for risk management and internal control the evidence in this. report demonstrates either a lack of controls an ineffectiveness of controls or an override of controls Investments in. integrity may continue to be rendered less effective until the more systemic issue of a lack of a culture of integrity is. How do SOEs view the allocation of budget to promoting integrity. Say investment asset,Say cost expense,No opinion, Source Based on 347 responses to the 2017 OECD Survey on anti corruption and integrity of SOEs. How do SOEs treat claims and complaints,Claims treated as confidential 63. Claims attributed 3, Claims treated as Source Based responses to the 2017 OECD Survey on anti.
anonymous 34 corruption and integrity of SOEs,Where are the breakdowns in the system. We see that many of the SOEs that witnessed corruption or other irregular practices in their company in recent years. had a series of integrity mechanisms in place including corruption specific controls and risk management processes. internal and external audit reporting mechanisms and codes of conduct or ethics The evidence shows that there is. more work to be done in better assessing a company s risk profile in order to adopt internal controls that are more. tailored to the risks faced In some cases there is a need to increase their efficiency. However the greatest obstacles facing SOEs have to do with human behaviour and relationships Controls are a. critical part of corporate governance but must be coupled with a culture of integrity to counter pressure and undue. influence where corruption is a systemic issue and opportunistic behaviour by individuals where it is not. The top 10 obstacles to integrity in SOEs, 1 A lack of a culture of integrity in the political and public sector. 2 A lack of awareness among employees of the need for or priority placed on integrity. 3 Opportunistic behaviour of individuals,4 A lack of awareness of legal requirements. 5 Perceived likelihood of getting caught is low,6 A lack of a culture of integrity in the company. 7 Overly complex or burdensome legal requirements, 8 Inadequate financial or human resources to invest in integrity and prevent corruption.
9 Ineffective internal control or risk management, 10 Ineffective channels for whistle blowing reporting misconduct. Figure 5 How do SOEs view the allocation of budget to promoting integrity. The importance of transparency and disclosure by SOEs. A baseline established in the OECD Guidelines on Corporate Governance of State Owned Enterprises is that all SOEs. should disclose material financial and non financial information on the enterprise including areas of significant concern. for the state as an owner and the general public Large and listed SOEs should disclose according to high quality. internationally recognised standards, SOE disclosure should be dictated by a clear policy developed by the ownership entity The policy should identify what. information should be publicly disclosed the appropriate channels for disclosure and the mechanisms for ensuring. quality of information, According to respondents just over one third of SOEs disclose material foreseeable risk factors and measures taken to. manage such risks noting that one in ten companies do not explicitly treat corruption risks as part of risk assessments. Red flags may be falling between the cracks There is also room for improvement in disclosure of financial assistance. from the state as well as material transactions with the state and other entities. Degree of disclosure by SOEs,Respondents whose,Information suggested for disclosure. companies disclose, A clear statement to the public of enterprise objectives and their fulfilment for fully.
owned SOEs this would include any mandate elaborated by the state ownership entity. Enterprise financial and operating results including where relevant the costs and funding. arrangements pertaining to public policy objectives. The governance ownership and voting structure of the enterprise including the content. of any corporate governance code or policy and implementation processes. The remuneration of board members and key executives 72. Board member qualifications selection process including board diversity policies roles. on other company boards and whether they are considered as independent by the SOE 52. Any material foreseeable risk factors and measures taken to manage such risks 34. Any financial assistance including guarantees received from the state and. commitments made on behalf of the SOE including contractual commitments and 40. liabilities arising from public private partnerships. Any material transactions with the state and other related entities 43. Note This list is based on items suggested for disclosure in the OECD Guidelines on Corporate Governance of SOEs. Souce Based on 347 responses to the 2017 OECD Survey on anti corruption and integrity of SOEs. Preventive and remedial action what is the state doing. But what exactly can and should the state do as the owner The report addresses this question through an analysis of. state ownership entities practices in 28 OECD and non OECD countries across four continents insights from Supreme. Audit Institutions and comparisons with findings from other international studies. The answer is guided by existing international standards such as the OECD Guidelines on Corporate Governance. of State Owned Enterprises The Guidelines imply that the state on a whole of government basis should implement. an ownership policy a designated ownership entity within the state should be responsible for defining objectives of. individual SOEs and monitoring their performance the board of directors should be responsible for approving strategy. and monitoring management and the management responsible for the SOE s corporate operations. More than four out of five SOE respondents reported that relevant national laws regulations bylaws or governance. codes clearly establish expectations and that the ownership entity clearly communicates expectations regarding. integrity and anti corruption The majority of ownership entities communicate their expectations through existing laws. provision of supporting documentation e g guidance or memorandums or further yet through in person interactions. such as annual general investor quarterly or ad hoc meetings and increasingly in seminars and workshops. Anti corruption and integrity is a specific topic of discussion between some but not all ownership entities and their. SOEs In a few instances anti corruption and integrity is built into the objectives of the company often couched under. requirements for corporate social responsibility State ownership entities may leave integrity and anti corruption entirely. to the devices of the board under the guise of providing SOEs with functional independence Conversely in some. countries where SOEs are incorporated in a legal form identical to that of private firms the authorities take the position. that the existent corporate legal framework is or should be sufficient in itself to ensure integrity and deter corruption. Selected tools available to state ownership entities based on existing country practices. Making anti corruption,and integrity a regular Encouraging training. topic of discussion in programmes on,state ownership entities ethics anti corruption. meeting with SOE compliance or similar,Using the State. Holding additional Ownership Policy to,meetings that explicitly make clear the state s. address the topic expectations about,Getting written.
confirmation of Including integrity,implementation of objectives in boards. integrity related performance objectives,mechanisms. Including SOEs in Reviewing statements Holding or encouraging. government wide anti of intent of SOEs with seminars and. corruption initiatives board members workshops on the topic. Only a handful of ownership entities specifically hire relevant skills and resources such as audit compliance or risk. management expertise to provide a high degree of assurance in their oversight and monitoring Co ordination across. relevant public institutions on the subject is largely ad hoc with the potential for improving professional relations that. strengthen awareness and monitoring of corruption in SOEs as well as a measured response in the case of potential. or real corruption, The report aims to advance the global discussion on corruption in SOEs not by pointing the finger at SOEs alone but. by identifying the obstacles that undermine integrity efforts of both SOEs and their owners So far advice on corporate. governance has largely focused on performance and implementation of governance arrangements that create the. conditions necessary for success This paves the way for providing further guidance for governments by combining. existing corporate governance and anti corruption instruments and developing new guidance to shine the light into the. grey area between general government and private business that SOEs occupy. What else can be done Towards anti corruption and integrity guidance for SOEs. The OECD is developing new guidance for states as owners to help them promote integrity and anti corruption in the. SOEs they own The guidance will be rooted in the existing OECD Guidelines on Corporate Governance of State. Owned Enterprises and will cover to a certain degree the following areas. Integrity of the state, Applying high standards of integrity to those exercising ownership of. state owned enterprises on behalf of the general public. Establishing ownership arrangements that are conducive to integrity. Ownership and Governance, Ensuring clarity in the legal and regulatory framework and in the state s expectations.
Acting as an informed and active owner with regards to integrity in state owned enterprises. Corruption prevention and detection at the SOE level. Requiring adequate risk management systems within SOEs. Requiring adoption of high quality integrity mechanisms within SOEs. Safeguarding the autonomy of SOEs and their decision making bodies. Accountability of SOEs and of the state, Requiring objective external review of state owned enterprises and the ownership function. Taking action and respecting due process for investigations and prosecutions. Inviting the inputs of civil society the public and the press. References and materials, OECD 2018 State Owned Enterprises and Corruption What Are the Risks and What Can Be Done https. doi org 10 1787 9789264303058 en, OECD 2015 OECD G20 Principles of Corporate Governance www oecd org corporate principles corporate governance htm. G20 High Level Principles on Private Sector Transparency and Integrity http g20 org tr wp content uploads 2015 11 G20 High. Level Principles on Private Sector Transparency and Integrity pdf. G20 Principles for Promoting Integrity in Public Procurement www gihub org resources publications g20 principles for promoting. integrity in public procurement, IMF 2017 The Role of the Fund in Governance Issues Review of the Guidance Note Preliminary Considerations Background. Notes Policy Papers International Monetary Fund www imf org media Files Publications PP 2017 pp080217 background notes. the role of the fund in governance issues review of the guidance note ashx. Kwiatkowski G and P Augustynowciz 2015 State owned enterprises in the global economy analysis based on Fortune Global. 500 list Management Knowledge and Learning Joint Conference Italy 27 29 May. OECD 2017 OECD Recommendation of the Council on Public Integrity www oecd org corruption ethics recommendation public. OECD 2016 State Owned Enterprises in the Global Marketplace A Challenge or an Opportunity www oecd org corporate state. owned enterprises as global competitors 9789264262096 en htm. OECD 2015 OECD Guidelines on Corporate Governance of State Owned Enterprises www oecd org corporate guidelines. corporate governance soes htm, OECD 2014 The Foreign Bribery Report An Analysis of the Crime of Bribery of Foreign Public Officials www oecd org corruption.
oecd foreign bribery report 9789264226616 en htm, OECD 2010 Good Practice Guidance on Internal Controls Ethics and Compliance www oecd org daf anti bribery 44884389 pdf. OECD 2008 Corruption A Glossary of International Standards in Criminal Law OECD Publishing www oecd org daf anti. ribery 41194428 pdf, OECD 2003 OECD Recommendation of the Council on Managing Conflict of Interest in the Public Service http www oecd org. gov ethics managingconflictofinterestinthepublicservice htm. OECD 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions www oecd. org corruption oecdantibriberyconvention htm, OECD 2013 OECD UNODC World Bank Anti Corruption Ethics and Compliance Handbook for Business www oecd org corruption. anti corruption ethics and compliance handbook for business htm. TI 2017 10 Anti Corruption Principles for State Owned Enterprises Transparency International http files transparency org. content download 2162 13663 file 2017 SOE Principles Report EN pdf. TI 2013 Business Principles for Countering Bribery Transparency International http files transparency org content. download 707 3036 file 2013 Business 20Principles EN pdf. UNCAC 2004 United Nation s Convention Against Corruption www unodc org documents brussels UN Convention Against. Corruption pdf, This booklet reproduces highlights from the OECD report on state owned. enterprises and corruption The report analyses survey responses. received from 347 SOE board members executive managers and heads. of legal audit or similar departments as well as 28 state ownership. entities covering 37 countries across four continents.


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