4 State ownership in other countries

4.1 General

Substantial assets have been built up by the State over the past decade in a significant number of countries. This has been possible due to large trading surpluses, either as a result of oil exports, as in the case of Norway, or through more general trading surpluses, as in the case of China.

McKinsey’s Global Institute (MGI) has published a number of analyses of ‘Sovereign Wealth Funds’ as a rapidly emerging power factor in international capital markets1. Many State investment and pension funds have a long-term owner perspective and expansive agendas. Some States also use their ownership and financial assets as an instrument for safeguarding national interests. State-owned companies in the Middle East use their financial resources partly to promote industrial growth in their own country, partly to protect shareholder interests in global leading companies and partly to safeguard access to strategic resources. Singapore is investing in industrial clusters and allocating substantial resources to building up a strong pharmaceutical and biotechnology industry. Through the State-owned company Temasek, the authorities in Singapore are actively working on the operational and strategic development of a number of key Singapore companies. In scenarios for economic development in the global economy, this trend is expected to continue.

In many OECD countries, the value creation in State-owned companies accounts for between 5 and 25 per cent of the country’s gross national product (GNP) and up to 10 per cent of employment. In Norway, there has long been relatively broad political support for retaining a substantial State holding in what are considered to be strategically important companies. Many Eastern European States have a substantial portfolio of State-owned commercial companies, as a result of nationalisation and developments since the Second World War. Many of these countries, such as Poland, have initiated privatisation processes in recent years.

In many countries outside the OECD, State-owned companies dominate industry. In many places, their share of the value creation is greater than in the OECD countries. In Asia, State-owned undertakings account for over 30 per cent of all share capital, which means that the standard of corporate governance will be of interest to a large number of minority shareholders. China has substantial State shareholdings and most listed companies have the State as a shareholder. Both central and regional authorities also own a large number of companies. For example, China secures some of its access to raw materials through international acquisitions by State-owned companies. In countries such as Brazil and India, State ownership is also substantial. In Russia, the State is a major owner, particularly within industrial manufacturing and the banking sector. The total shareholdings of federal and regional authorities amount to approximately 25 per cent of all activity in these sectors. Limited information is available concerning State ownership in countries outside the OECD, making it difficult to obtain a satisfactory overview of what the States own overall and how their shareholdings are administered. The OECD and the States themselves have a focus on how States in these countries exercise their ownership with the aim of improving the administration of State ownership.

The following sections give an account of how State ownership is exercised in certain OECD countries.

4.2 The OECD’s work relating to the development of State ownership

The OECD has long worked to develop and influence corporate governance in its member countries. The Ministry of Trade and Industry is involved in this work through the OECD’s Corporate Governance Committee and its working group linked to State ownership: Working Party on State Ownership and Privatisation Practices. The ministry has financially supported the work of the working group for many years. The ministry has also contributed to the OECD’s outward-oriented work concerning the provision of specialist assistance to various regional networks in order to improve corporate governance.

The privatisation of such State shareholdings was long considered a priority area within the OECD, both to improve the efficiency of these undertakings and because the selling off of significant shareholdings of economic importance became an important part of the work to improve the budget balance in a number of countries. Since the turn of the millennium, many countries, particularly the Nordic countries, have stated that they will not privatise all commercial State operations as a matter of course. This is because the companies represent an important part of the countries’ industry and have good earnings. Economic and national considerations may also indicate that the State should retain substantial shareholdings in key national companies. The working group’s remit was therefore expanded to cover the good corporate governance of State-owned companies and guidelines were prepared for the administration in this field. The guidelines were completed and adopted by the OECD’s Council in the spring of 20052.

4.3 The OECD’s outward-oriented work

In spring 2005, the OECD presented guidelines for the administration of State companies, which were approved by the OECD’s supreme body. These guidelines were received with positive interest in many countries outside the OECD. A number of countries outside the OECD have an important commercial State sector and are consequently interested in the field. Groups have therefore been set up to work on corporate governance issues in Russia, Asia and Latin America, as well as in southern and northern Africa and the Middle East.

The so-called ‘BRICS countries’ (Brazil, Russia, India, China and South Africa) all have major economies in a global context, and several of these countries are potential OECD members. They have been given the opportunity to participate in OECD meetings concerning State corporate governance. State-owned commercial undertakings represent an important industrial element in these countries, whilst the overall extent of State ownership is difficult to assess, partly because such ownership is administered by both central and regional State authorities.

The working group has now begun the work to assess the scope and composition of State companies in both the OECD and other countries (State-Owned Enterprises in the World Economy). This is a demanding task, as the available information is of variable quality. The development of national pension funds/investment funds in some countries (Sovereign Pension/Wealth Funds) is also leading to definition problems.

In recent years, Norwegian authorities have frequently received visits by study groups from the central Chinese administrative body The State-owned Assets Supervision and Administration Commission of the State Council (SASAC). Through visits to the Ministry of Trade and Industry and to Norwegian companies with State shareholdings, they have studied the Norwegian model for administering State shareholdings.

4.4 Some administration models

The organisation of State-owned direct ownership varies quite extensively within the OECD area. However, following regulatory reforms aimed at promoting competition and globalisation of the economy over time, there has been a trend towards the centralisation of corporate governance within the State administration of each country. This section presents a brief description of the administration in a number of selected countries within the OECD3.

Sweden and Finland share many similarities with Norway in terms of the extent of State ownership, the objectives behind the ownership and the organisation of the corporate governance. Denmark also has many similarities with Norway, but the extent of the State’s direct ownership is less. In France, the State also owns extensive assets, but the administration model differs from that used in Norway. Great Britain has gone a long way towards reducing the State’s ownership, but still has substantial commercial undertakings under State administration.

All countries have prepared common guidelines for corporate governance and established a central coordination and competence body for corporate governance in the State. In Norway and Great Britain, this body is affiliated to the Ministry of Trade and Industry, in Denmark and Sweden, it is affiliated to the Ministry of Finance, whilst in Finland, the Office of the Prime Minister administers assets both directly and indirectly through a separate holding company. In France, a special body has been set up to cover State ownership that is linked to the Ministry for Finance, Industry and Employment.

4.4.1 Sweden

The State is a major shareholder in Sweden and as of September 2010 had shareholdings in 57 companies. The company portfolio covers 43 wholly owned and 14 part-owned companies, of which three are listed: Nordea, SAS and TeliaSonera. The value of the assets was estimated at SEK 620 billion in May 2010. For the 2009 financial year, SEK 20.8 billion was paid out in dividends, compared with SEK 21.8 billion during the previous year4.

Most of the expertise and resources in the State ownership administration is consolidated in a separate ownership department under the Ministry of Finance. The unit was transferred from the Ministry of Industry in 2010. The unit for State ownership was established in 1998 and administers a total of 33 companies. The department has around 30 employees.

The Swedish State’s Ownership Policy states that the government shall actively monitor and manage State-owned assets in order to achieve optimum growth in value and, where appropriate, the furtherance of the interests of society. This is achieved by establishing, monitoring and evaluating financial objectives, including national socio-economic objectives and other special objectives. In the same way as in Norway, emphasis is accorded to the distinction between companies which operate under market conditions and which are thus exposed to competition and companies which have a specifically defined social remit with associated socio-economic and special objectives.

The Minister for Finance has a coordinating responsibility to ensure the coherent administration of State-owned assets and the nomination of board members to companies in which the Swedish State is a shareholder. The Swedish State is represented on a number of company boards by civil service departments and politicians. However, this does not apply to the listed companies. Sweden follows the same practice as Norway as regards participation in nomination committees in listed companies.

4.4.2 Denmark

The Ministry of Finance and the Ministry of Transport are the largest ministries exercising State ownership and administer thirteen and seven companies respectively. Six companies are administered by four other ministries.

Eleven of the companies are State limited companies, which means that the State owns more than 50 per cent of the shares. In the other companies, the State owns between 1 and 50 per cent. Three companies are listed (København Lufthavne, SAS and Skælskør Bank). In addition, there are two companies that are known as ‘independent public undertakings’ (DSB, Energinet.dk), which are wholly owned by the State and two stakeholder companies that are jointly owned by local authorities5. As regards economic significance, there are a few companies which dominate. DONG Energy, Danske Spil, Finansiell Stabilitet and DSB (Danske Statsbaner) accounted for 87 per cent of the total turnover of the State limited companies and independent public undertakings in 2009. Most of the capital is also tied up in three of these companies (DONG Energy, Finansiell Stabilitet and DSB) and in Sund og Bælt Holding and Energinet.dk. In the other companies in which the State is a shareholder, København Lufthavne, Posten Norden and SAS dominate the picture both economically and as regards the number of employees.

The governance model is generally the same for all companies6. The companies are managed in a way which means that in principle it is possible for private parties to become shareholders. The companies are managed according to the “arm’s length principle”. The board is responsible for the operation of the undertaking and, as in Norway, politicians and civil servants cannot be elected to the boards of the companies.

4.4.3 Finland

The State’s corporate governance is authorised in a special Corporate Governance Act, which entered into force in early 2008. This Act regulates the State’s exercising of its ownership in all companies, both listed and unlisted. The Act establishes full equality as regards norms and framework conditions between companies with the State as owner and other companies with a different ownership base in Finland.

The corporate governance department affiliated to the Office of the Prime Minister was established on 1 May 2007. The central unit for the State’s corporate governance was previously affiliated to the Ministry of Trade and Industry. At the end of 2009, there were a total of 52 companies with shareholdings under State administration. Most of these companies are administered by the corporate governance department, whilst eight non-strategic shareholdings in listed companies were incorporated into a newly established wholly owned holding company (Solidium Oy). A total of 15 companies with a special remit are administered by other ministerial bodies7. The corporate governance department has 22 employees.

At the beginning of 2010, the market value of the State’s listed share portfolio amounted to EUR 18.2 billion, up from EUR 14.1 billion at the corresponding time during the previous year. The market value of the State’s shares in the three listed companies which the State administers directly was EUR 10.4 billion, whilst the shares owned indirectly through Solidium Oy were worth EUR 7.8 billion.

4.4.4 France

With effect from 2004, a special body was established – Agence des participations de l’État (APE) – under the French Ministry of Finance. The agency was created in order to discharge the role of shareholder within the frameworks of French regulations and in conformance with the government’s guidelines. The principal task is to optimise the value of the State’s assets.

APE administers a varied State portfolio, which encompasses minority shareholdings and large State-controlled companies. APE cooperates with other ministries, coordinates strategies and guidelines for the State as a shareholder and act as the chief adviser to the ministry in all matters pertaining to the State’s role as a shareholder.

The responsibility covers key issues such as strategy, investments and financing, mergers and acquisitions (M&A) and equity transactions.

APE is active on the boards of companies and represents the government at their annual general meetings. In 2008, APR’s administration responsibility covered 55 undertakings. The State ownership is most extensive within the defence, media, transport and energy sectors and comprises assets with a total value of EUR 539 billion (31.12.08)8. APE has around 60 employees.

4.4.5 Great Britain

The State’s central body for corporate governance, The Shareholder Executive, was set up in September 2003. The body was initially organised as a unit under the Office of the Prime Minister and was subsequently transferred to the Ministry of Trade and Industry in 2004.

The central body’s remit is consultative and in 2009 covered a total of 28 undertakings ranging from major organisations such as the Royal Mail to smaller institutions such as the UK Hydrographic Office. The Shareholder Executive has 64 employees.

The total value of the portfolio amounts to approximately GBP 21 billion. The State received a total of almost GBP 5.5 billion in dividends and other capital transfers from the companies during 20099.

The Shareholder Executive has been assigned three roles:

• Executor of the role of owner (Executive role), 13 undertakings

• Advisor for other State owner administrators (Advisory role), nine undertakings

• Executer of the role of owner together with other State owner administrators (Joint role), six undertakings

The body also acts as project manager for Asset Management & Sales, which forms part of the government’s Operational Efficiency Programme, in cooperation with HM Treasury. In 2009, this programme covered nine assets across the ministries, of which five lay within the central body’s domain. A Property Unit has also been established, affiliated to the central body, which gives advice across the ministries relating to the assessment and sale of superfluous property assets.

When the State became a major shareholder in a number of British banks during the financial crisis, a separate State company, UK Financial Investments Ltd., was established which administers these separate share interests on a temporary basis.