managing risk and promoting business integrity in the … · 2017-12-20 · promoting business...

MANAGING RISK AND

PROMOTING BUSINESS

INTEGRITY IN THE STATE-

OWNED ENTERPRISE SECTOR

10th meeting of the OECD-Asia Network on Corporate Governance of State-Owned Enterprises Speaker presentations: Day 2 Kuala Lumpur, Malaysia 19-20 September 2017

Table of contents

• Session 4 – Promoting business integrity within state-owned enterprises

• Session 5 – Disclosure and transparency in the state-owned enterprise sector

10th meeting of the OECD-Asia SOE

Network: Speaker presentations

Session 4

Promoting business integrity within state-owned enterprises

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Promoting business integrity within state-owned enterprises

Chayut Boonsing

State enterprise analyst

The State Enterprise Policy Office

SOEs in Thailand

5

Thai SOEs as Economic Driver

Value in SET

~ 17%

Budget per year* ~ 4.8 Trillion Baht

Or equal to two time of government spending

Dividend 100,000 Million Baht

Employment ~ 425,000

4.7

13.9

2547 25572020

05

1.5

5.0

2547 2557

Total Asset ~ 13.8 Trillion Baht

or equal to Thailand GDP

Total Revenue ~ 5.0 Trillion Baht

255

8

254

8

6


SOEs Investment is approximately 50% of total public investment

7


Comparison SOEs SET Compare to SET

No of

SOEs/Company

55 514 10.7% of SET

Asset (Million Baht) 13,853,407 28,433,676 48.7% of SET

Equity (Million

Baht)

3,179667 6,741,901 47.2% of SET

Total profit

(Million Baht)

175,516 621,280 28.3% of SET

ROA (%) 1.27 3.90 less than SET 2.6%

ROE (%) 5.52 9.53 less than SET 4.0%

8

Ethics guideline

9

Ethics Guideline

State Enterprise Policy Office has

publish an ethic guideline which

cover many aspects such as

- Risk management and Internal

Control

- Internal Audit

- Corporate Governance

- Board of Director Duty

Developed from an OECD Guideline

and SET Guideline

10

Cabinet Resolution on Corporate governance

• Disclosure and corporate governance

• The cabinet had a meeting on 2nd December 2014 and has agreed on

the state enterprise policy committee meeting results which propose

a corporate governance framework on the SOE. This framework is

including strategic plan, performance management system and

disclosure. The cabinet also agreed to have SOEs disclose operating

result equivalent to the private company in the stock exchange of

Thailand

• SOEs director appointment policy

• The cabinet had a meeting on 18th July 2017 and has agreed on the

state enterprise policy committee meeting results which propose a

SOEs director appointment policy. They have agreed to use a skill

matrix to nominate the director. This Skill matrix will match the

SOEs needs with the experience, expertise and skill of the director

before appointing certain director to the SOEs.

11

Cabinet Resolution on Corporate governance

Fiduciary

Duties CG PMS Disclosure

- Duty of Care

- Duty of Loyalty

- Duty of Obedience

- Duty of Disclosure

Source : Stock Exchange of Thailand

- Project Information

- Financial Statement

- Operational Result

- Risk Management

- Internal control

- Internal audit

12

CoST (Construction Sector

Transparency Initiative)

13

CoST Principal

• Transparency

Increase public project transparency by publish a procurement detail to the public

• System

Establish a disclosure system, which is easy to access from the public

• Involvement

Encourage participation from the public and the citizen to help assessing the

project

Better infrastructure at lower cost

Government takes action

on construction projects &

programmes

Stakeholders hold

Government to account

More information in the public

domain

Build Government

capacity to disclose information

14

CoST Core Feature

• Disclosure

CoST increases transparency by disclosing data on public infrastructure

projects. There aretwo types of disclosure Active and Reactive

• Multi-Stakeholder Group: MSG

In each country, CoST is directed by a Multi-Stakeholder Group (MSG) that

comprises representatives of government, private sector and civil society. By

providing a neutral forum, CoST helps these key stakeholders pursue shared

objectives to improve the value, efficiency and effectiveness of investment in

public infrastructure.

• Assurance Team: AT

CoST promotes accountability through an independent review of the disclosed

data. Through this assurance process, CoST validates technical data, interprets

it into plain language and identifies issues of concern. This helps stakeholders

to understand the main issues and acts as a basis for holding decision-makers

accountable.

Source : http://www.constructiontransparency.org 15

Example of Proactive disclosure according

to CoST

16

SOEs Investment Project which follow CoST

Suvarnabhumi Airport phase 2

Airport of Thailand

17

SOEs Investment Project which follow CoST

Rama III – Dao Kanong – West Ring Road Expressway

Expressway Authority of Thailand

18

Integrity and Transparency Assessment

19


Integrity Assessment

Transparency Index ITA

I n t e g r i t y a n d

T r a n s p a r e n c y

A s s e s s m e n t : I T A

External Perception Internal Perception Evidence – Based I T A

S c o r e

20


ITA Evaluation Area

1. Transparency Index

2. Accountability Index

3. Corruption – Free Index

4. Integrity Culture Index

5. Work Integrity Index MOU : Including the ITA

into the SOEs performance

management system

21

State Enterprise Development Act (Under the process)

22

State Enterprise Development Act

State Enterprise

Development Act

State Enterprise

Policy Committee

SOEs

Strategic Plan

Performance

Management

Corporate

Governance

Holding

Company

- SOEs Board Nomination Committee

- Corporate governance framework

23

State Enterprise Development Act

State Enterprise Policy

Committee

SOEs Board

nomination

committee

Work in progress

Nomination Appointment

SOEs

Skill Matrix

Candidate List

Line Ministry

/Cabinet

24

Thank you

PRESENTATION TO THE 10TH MEETING OF THE OECD-ASIA NETWORK ON CORPORATE GOVERNANCE OF STATE-OWNED ENTERPRISES

Intercontinental Hotel Kuala Lumpur, Malaysia 20 September 2017

By Commissioner Marites Cruz-Doral Governance Commission for GOCCs

OVERVIEW

State-Owned Enterprises (known as “GOCCs” in the Philippines) are created by law (special charter) or under the Corporation Code

SOEs are created to address market failures (i.e. natural monopolies, underserved industries/sectors, social security)

1965 : 37 SOEs

1981 : 212 SOEs

1984 : 303 SOEs

1988 : Reform Program

1992 : 166 SOEs

2011 : 157 SOEs

2017 : 122 SOEs

Source: Asian Development Bank. Republic of the Philippines: Policy and

Advisory Technical Assistance (PATA): GOCC. December 2008.

USD = P 50.76

Overview of the SOE Sector 2016

Assets of the SOE Sector In USD Billion

130.49

Revenues of the SOE Sector In USD Billion

16.94

Revenues as % of GDP 5.8%

OWNERSHIP FRAMEWORK

Primarily by the President of the Philippines

By the Governance Commission in the specific instances mandated by R.A. No. 10149:

1. Shortlisting of Nominees for Appointment to the Boards of Directors based on the Fit and Proper Rule;

2. Performance Monitoring;

3. Setting Standards for Compensation and Performance-Based Rewards; and

4. Rationalizing the number and functions of SOEs pursuant to the Ownership and Operations Manual for GOCCs.

By the Boards of Directors, who are primarily and directly accountable for corporate governance and performance

THE STATE AS OWNER IS REPRESENTED -

GOVERNANCE REFORMS CODE OF CORPORATE GOVERNANCE FOR GOCCs (SOEs)

“

”

The Code is intended to

instill within the GOCC

Boards and Management

the highest sense of

responsibility,

transparency, and

accountability. Issued by the Governance Commission on 28 November 2012, the

Code of Corporate Governance for GOCCs embodies and

operationalizes the principles and best practices in public corporate

governance in line with the thrust of the GOCC Governance Act.

CODE OF CORPORATE

GOVERNANCE Establishes the structure of powers and responsibilities

within a SOE

Establishes the twin fiduciary responsibilities of board

members:

(i) as representatives of the State; and

(ii) for the governance and the business of the SOE.

Formalizes the Principle of Board Autonomy

Enforced through the GCG the approval of Manuals of Corporate Governance

ROLES AND RESPONSIBILITIES OF THE BOARD AND DIRECTORS

CODE OF CORPORATE

GOVERNANCE Sets out the creation of Board Committees,

particularly a Risk Management Committee and an Audit Committee to ensure the integrity of internal control activities throughout the SOE

Risk Management Committee shall perform: oversight risk management specifically in managing

credit, market liquidity, operational, legal, reputational, and other risks of the SOE

crisis management which includes receiving from Senior Management periodic information on risk exposures and risk management activities

CREATION OF BOARD COMMITTEES & SIMILAR OVERSIGHT BODIES

CODE OF CORPORATE

GOVERNANCE Requires SOE Boards to exercise "Extraordinary Diligence"

Lays down the Duties and Obligations of SOE Directors and Officers

as Fiduciaries of the State

as Public Officials

to respect and obey the Constitution and the Law

to exercise the Duty of Diligence

to exercise the Duty of Loyalty

to follow the limits to compensation, per diem, allowances, and incentives

to follow the No Gift Policy

to exercise the Duty of Confidentiality

CODE OF ETHICS OF DIRECTORS AND OFFICERS

CODE OF CORPORATE

GOVERNANCE Establishes the corporate social responsibility (CSR) principles inherent

in SOEs

Sets out the Duty to be responsive to stakeholders

Mandates the Board to identify and formally recognize the SOE's major

stakeholders

Sets out a guide of what is expected of SOE Employees, and requires

the Board to provide continuing personal and professional development

for employees

CSR STATEMENT AND ROLE OF STAKEHOLDERS

CODE OF CORPORATE

GOVERNANCE Establishes that integrity and honesty in dealings with

customers is necessary for a successful and sustained business relationship Mandates SOEs to operate with a focus on meeting customer

objectives, and continual improvement

Requires SOEs to have clear and strong lines of communication with customers

Sets out a guide on relations with Suppliers Requires SOEs to ensure a safe and healthy working

environment Mandates SOEs to aim to minimize harmful effects and

impact to the environment, and to develop and implement environmental standards

CSR STATEMENT AND ROLE OF STAKEHOLDERS

CODE OF CORPORATE

GOVERNANCE Mandates transparency in SOEs and disclosure of all material

information to the National Government and the public

Mandates SOEs to maintain a website and post information on:

Institutional Matters (e.g. Charter or General Information Sheet)

Board and Officers (e.g. List of Directors and Officers, Compensation Package)

Financial and Operational Matters (e.g. latest annual Audited Financial and Performance Report)

Governance Matters (e.g. Charter Statement, Balanced Scorecard)

Requires SOEs to actively participate in the Integrated Corporate Reporting System (ICRS), and submit mandatory reports and other reportorial requirements

DISCLOSURE AND TRANSPARENCY

GOVERNANCE REFORMS DISCLOSURE & TRANSPARENCY

DISCLOSURE &

TRANSPARENCY The ICRS serves as central repository of relevant

information, whether financial or non-financial, on SOEs

Consists of: GOCC Monitoring System – financial information such as

financial statements, corporate operating budgets, etc. GOCC Leadership Management System – non-financial

information such as Charter, Performance Scorecards, organizational structures, information on incumbent Appointive Directors

Addresses the various problems on accessing data and information on the SOE Sector

Strengthens GCG’s oversight functions and serves as a tool for citizen empowerment and participatory governance

INTEGRATED COPORATE REPORTING SYSTEM (ICRS)

DISCLOSURE &

TRANSPARENCY INTEGRATED CORPORATE REPORTING SYSTEM

DISCLOSURE &

TRANSPARENCY PERFORMANCE

EVALUATION SYSTEM

CORPORATE GOVERNANCE SCORECARD

Output Balanced Scorecards & Strategy Maps

Corporate Governance Scorecard

Information Provided External and Internal Performance Outcomes

Level of corp. governance for benchmarking with private sector

Areas Covered

Social Impact Finance Customers/Stakeholders Internal Processes Learning & Growth Transparency Seal

Stakeholder Relationship Disclosure and Transparency Responsibilities of the Board

DISCLOSURES ON PERFORMANCE AND OPERATIONS

Reforms are geared towards

expanding disclosures on

performance and operations, as

well as increasing the depth and usefulness of information

provided to the public

GOVERNANCE REFORMS ANTI-CORRUPTION MEASURES

ANTI-CORRUPTION

MEASURES Embodies the principle that public office is a public

trust

Instills the practice of unbiased professionalism in

the performance of responsibilities without

expectation of any undue favor or reward

First implemented within the Governance Commission in line with its governance philosophy of “regulation by example”

NO GIFT POLICY

ANTI-CORRUPTION MEASURES

Provides mechanism for any potential whistleblower to report corruption or irregularities in the SOE Sector and GCG

Whistleblowing reports may be filed anonymously via the Whistleblowing Web Portal, telephone call, postal mail, e-mail, or fax

Enjoins SOEs to implement their own whistleblowing system

Since the launch of the Whistleblowing Web Portal, the Governance Commission has received around 38 complaints (as of 27 August 2017) through the various reporting channels (i.e. face to face meetings, e-mail, postmail, and/or through telephone conversation), and 29 reports through the Whistleblowing Web Portal

11 cases have been closed and terminated after the SOEs have acted upon the complaints referred by the GCG or the response is found to be adequate, while all others are in various stages of investigation.

WHISTLEBLOWING POLICY

WHISTLEBLOWING POLICY FOR THE GOCC

SECTOR

“

”

BUILDING THE NATION

THROUGH GOOD

CORPORATE

GOVERNANCE. GOVERNANCE COMMISSION FOR GOCCs

3/F Citibank Center 8741 Paseo De Roxas, Makati City, Philippines 1226 Tel. No. (632) 328 2030 to 33 Fax. No. (632) 328 2030 to 33 local 301 www.gcg.gov.ph

Fund’s Mission and Vision

Our Vision

Our Mission Increase the national welfare of the Republic of Kazakhstan and support modernization of its economy

To be a highly efficient and agile strategic holding, with business performance on par with leading

Sovereign Wealth Funds and large private equity groups

Our Goals

Increase the long-

term value of

Portfolio companies

Participate in

modernization of the

national economy

Drive sustainable

development

How Fund achieves its Mission through

Efficient management of our

Portfolio companies in order

to increase their long-term

value and sustainable

development

Efficient investments in

the priority sectors of the

national economy

Continuous improvement

of the efficiency of

business units in the field

of value creation

49

Fund’s Portfolio

Fund’s Group includes the oil and gas, transport and logistics, chemical and nuclear,

mining and metallurgical, energy, mechanical engineering and real estate companies

22 subsidiaries of the

Corporate Centre

404 companies

within the Group

300 subsidiaries

104 associates and

joint companies

KEGOC JSC

Samruk-Energy JSC

Energy

Oil and gas

NC KazMunayGas JSC

Mining

NAC Kazatomprom JSC

Telecomm

unications

Air Astana JSC

NC Kazakhstan Temir Zholy JSC

Transportation

Kazpost JSC

Kazakhtelecom JSC

Industrial

Other

Tau-Ken Samruk JSC

United Chemical Company LLP

Major Assets

50

NC Kazakhstan Engineering

Real Estate Fund Samruk-Kazyna JSC Samruk-Kazyna Invest JSC

Long journey within a short space of time

51

2006 2008-2012 2012-2013

2014

Establishing “Samruk-Kazyna”

JSC by merging two SOE’s in one

Sovereign Wealth Fund in order to

restore the economy of

Kazakhstan after the crisis and

stabilize the financial sector

Establishing two

separate SOE’s

“Samruk” and

“Kazyna” for state-

owned assets

management

Reviving the original

mission of the Fund,

approval of the Fund’s new

Strategy 2012-2022

2015

New Corporate

Governance Code,

developed in

accordance with OECD Guidelines

2016 2017…

Sharing Values…

Sustainability Initiatives

52

Sustainability Initiatives

Strong corporate governance and

improved risk culture

Financial sustainability

1

2 Human Development 3

High Ethical standards and anti-

corruption 4 Responsible Procurement 5

Good reputation and high

transparency 6 Strong H&S culture 7

Responsible Investment 8

Is provided by implementation of development priorities defined in

Development plans

Is provided by introduction of the new procurement approach, including

category procurement management and launching the system of

preliminary qualification of potential suppliers, as well as improved

transparency of procurement process

Is provided by promotion of strong H&S culture within the Portfolio companies

of the Fund

Is provided by adoption and implementation of new Corporate

Governance Code and Risk based approach to Sustainability

Is provided by implementing key Responsible Investment Principles in

Investment Policy of the Fund and fitting sustainability metrics of ESG into

the process of design, implementation and monitoring of an investment

Is provided by Implementation of the Communication Plan and increasing the

transparency and information disclosure processes

Is provided by launching the new HR system with 3 main components:

HR business partnership, HR expertise Center, General HR Service

Is provided by Implementation of Code of Conduct and Compliance function

53

Core Values

PARTNERSHIP

• We work in partnership and trust the team

• We put team interests over personal ones

• We build long-term and trusted relations with all stakeholders

RESPECT

• We are careful with everything that surrounds us

• We operate trustfully and respectfully

• We obey laws and respect traditions

INTEGRITY

• We keep our promises

• we do what we say

• We are honest and fair

MERITOCRACY

• We select worthy professionals

• We give everyone opportunity to speak up regardless of his/her

role

• We reward results

EXCELLENCE

• We work smart at the high quality bar using best practices and

technologies

• We take responsibility and act o create value

• We are curious, we learn constantly and develop the Fund

54

Ethics and compliance

Risks in privatization

process

Risks in provision of charity and

sponsorship projects

Risks of donating and receiving a gift

and other hospitality

Risks in processes of

hiring and promotion of employees

Risks in procurement

process

Significant risk areas associated

with compliance risks

55


The Code of Conduct is a comprehensive guide,

which, in addition to ethical standards, incorporates

standards of conduct and the obligations of the

Fund's employees, a FAQ section and further

explanatory statements.

The Code of Conduct directly applies to all

employees, officers and directors of the Fund.

Companies, comprising the Fund’s Group are

required to adopt the Code of Conduct proportionate

to their compliance risks.

Business partners, suppliers and other third parties,

who work with or represent the Fund, are

encouraged to adhere to the Code of Conduct

and/or other similar compliance policies.

Compliance trainings and informing

Category Total

number

% of completed

Compliance training

Senior

Management

10 80%

Employees 237 82%

56


Whistleblowing Policy

New whistleblowing policy in line with the OECD anti-bribery and corruption guidelines was adopted. The new policy

refers to the new Code of Conduct and requires reporting any non-compliance with the Code of Conduct and anti-

bribery and corruption laws and regulations.

This policy provides a clear process of reporting any misconduct on an anonymous basis, and applies not only to

employees but also to all associated parties.

The policy provides non-retaliation clause and guarantees protection of rights and interests of persons raising

concerns.

The Fund has always demonstrated a proactive approach to its whistleblowing policy. However, the time has come

to update it. The new document provides an even more reliable and comprehensive system for whistleblowing,

improving individuals' security and enabling the thorough investigation of any violations or misconduct leading by

newly implemented Сompliance division.

The Board of Directors also approved the appointment of new Ombudsman, and adopted the Regulations on the

Fund’s Ombudsman and organizations within the Fund’s group.

The role of the Ombudsman also involves advising the employees of the Fund and the group of companies of the

Fund and assisting in solving social and labor issues and conflicts. The Ombudsman submits the identified

problematic issues of a system nature and makes constructive proposals for their solution for consideration of the

bodies and officials of the Fund and the group of companies of the Fund.

57

Promoting business integrity within state-owned

enterprises Session 4 – 10th OECD Asia SOE Network

Meeting, Kuala Lumpur

Presenter – Fuad Hashimi

Regulate or change mind-sets?

Business Integrity

General Principles of Business

Corporate Culture

Responsible Business Conduct

Ethical Practices

Relationships with stakeholders

Transparency

Honesty

Respect

About CERB’s sponsor – The Pakistan Business Council

Is an “evidence-based” business policy advocacy platform

Established in 2005 as the voice of businesses with significant stake in and commitment to the growth of the economy.

Not a Chamber of Commerce; no trader members; can hence take a strategic, long-term view.

Has 60 members, all leaders in manufacturing and services, including MNCs

Focuses on nurturing sustainable growth in jobs, exports and the broadening of the tax base

61

CERB’s Vision & Mission Be a multi-sector business coalition assisting

Pakistani enterprises to pursue economic, social and environmental value creation in the short, medium and long term

To engage with businesses and industry leaders

and encourage the transformation towards the conduct of responsible (sustainable and inclusive) business in Pakistan

To leverage private sector growth for inclusive

development, poverty reduction and sustainability by following the UN Sustainable Development Goals (SDG) framework

Six strategic goals identified to achieve Mission

• Gender Equality

• Decoupling Growth from Impact on the Environment

• Sustainable Systems

• Creating livelihoods

• Ethical Practices

• Transform Business Culture & Governance

CERB’s Strategic Mapping

Regulatory approach in Pakistan Code of Corporate Governance 2017 (draft for public comment)

- The board of directors is responsible for the governance of risk and for determining the company’s level of risk tolerance by establishing risk management policies. The board shall undertake at least annually, an overall review of business risks to ensure that the management maintains a sound system of risk identification, risk management and related systemic and internal controls to safeguard assets, resources, reputation and interest of the Company and shareholders.

- The board of directors shall maintain a complete record of particulars of the significant policies along with their date of approval or updating. The significant policies include but are not limited to

………governance of risks and internal control measures;

………transactions or contracts with associated companies and related parties;

………environmental, social and governance (ESG) including health and safety aspects in business strategies that promote sustainability. This includes but is not limited to corporate social responsibility (CSR) initiatives and other philanthropic activities, donations / contributions to charities and other social causes

Regulatory approach in Pakistan (2)

Public Sector Companies (Corporate Governance) Rules 2013 – as updated in 2017

- 2A. Criteria for sound and prudent management.

(1) For the purposes of these rules, the following shall be the criteria for sound and prudent management of a Public Sector Company, which shall be bound to comply with it at all times namely: -

(a) the business of the Public Sector Company is carried on with integrity, objectivity, due care and the professional skills appropriate to the nature and scale of its activities;

……….

(3) The Public Sector Company shall not be regarded as conducting its business in a sound and prudent manner if it fails to conduct its business with due regard to the legitimate policy objectives and development targets of the Government.

Recent survey outcome A report issued by Pakistan Institute of Corporate Governance on a Survey of Board Practices in Public Sector Companies, as issued in May 2016, concluded As a first step, perhaps a clear ownership policy needs to be enunciated on

the basis recommended in OECD’s revised Guidelines on Corporate Governance of State-Owned Enterprises.

Most respondents urged that reforms should be put in place to avert political interference. They stressed that management processes should be made competent, accountable and transparent, while emphasizing the need for merit based selection of directors, and performance based compensation for the management.

Respondents were of the view that technological advancements and managements with strong and relevant experience were key factors that could result in the success of PSCs and that sustainability plans for PSCs should be devised with utmost care and maximum possible deliberations.

PSCs were also of the view that the role of the SECP and other related government agencies were vital in ensuring the absolute implementation of the Rules

http://picg.org.pk/surveys/

Principle based approach OECD Guidelines on Corporate Governance of State-Owned

Enterprises 2015

- II. The state should act as an informed and active owner, ensuring that the governance of SOEs is carried out in a transparent and accountable manner, with a high degree of professionalism and effectiveness.

- III. Consistent with the rationale for state ownership, the legal and regulatory framework for SOEs should ensure a level playing field and fair competition in the marketplace when SOEs undertake economic activities.

- V. The state ownership policy should fully recognise SOEs’ responsibilities towards stakeholders and request that SOEs report on their relations with stakeholders. It should make clear any expectations the state has in respect of responsible business conduct by SOEs.

- VI. State-owned enterprises should observe high standards of transparency and be subject to the same high quality accounting, disclosure, compliance and auditing standards as listed companies.

Principle based approach (2) The OECD Guidelines help Responsible Business Conduct: 1. SOEs subject to the

same laws and regulations applicable to private companies

2. High standards of responsible business conduct to be implemented in line with related international commitments made by the state.

This includes:

- Commitments to: combatting corruption, upholding human rights and labour laws, and meeting environmental and tax standards.

- Transparency and accountability to stakeholders by the ownership entity through establish reporting systems that allow it to monitor, audit and assess SOE performance.

- Good governance in the entity by requiring SOE boards of directors to establish internal controls, ethics and compliance programmes and measures for detecting and preventing violations of the law

Public Sector vs Private Companies Pakistan State Oil Company Limited Shell Pakistan

Public sector listed company, the nation’s largest energy company, currently engaged in the marketing and distribution of petroleum, oil and lubricant products

Due to special legislature at its formation in 1974, has a Board of Management and a Chief Executive appointed by the Government

Integrity is a core value: ‘Open and transparent business practices are based on ethical values and respect for employees, communities and the environment’

Comparable listed company engaged in Oil marketing, largely owned by Royal Dutch Shell, one of the world’s leading energy companies that plays a key role in helping to meet the world’s growing energy demand in economically, environmentally and socially responsible ways.

Core Values are honesty, integrity, and respect – basis of the Business Principles

Application of these Principles is underpinned by assurance procedures

As part of assurance system, management provides employees with safe and confidential channels to raise concerns and report instances of non-compliance.

Public Sector vs Private Companies (2) Sui Northern Gas Pipelines Limited

Hub Power Company Limited

Mission

‘A commitment to deliver natural gas to all door steps in our chosen areas through continuous expansion of our network, by optimally employing technological, human and organizational resources, best practices and high ethical standards.’

Core value is Integrity – ‘We have integrity - as individuals and as teams - our decisions are characterized by honesty and fairness.’

Hubco’s Code of Business Ethics

Hubco’s employees must act at all times in the interests of the Company's shareholders, and must abide by the Company's stated standards of environmental, safety and management practices.

Hubco employees are expected to promote the Company's best interests whilst maintaining the highest standards of personal integrity and business practice

Any employee who acquires information that gives the employee reason to believe that any other employee is engaged in conduct forbidden by the Policy will promptly report such information to the manager to whom the employee reports or, if the manager is engaged in such conduct, then to the assigned Company legal counsel.

Responsible Business Conduct in SOEs Commitment to Integrity: SOEs need

to be looked at beyond financial returns and how they contribute to societal value creation (PwC, 2015)

SOEs should be appreciated for the different business function: the primary task is not just to generate financial return on investment to the government (PwC, 2015)

Effective integrity measures in SOEs can help to maintain both citizens’ and investors’ trust, ensure a level-playing field and contribute to promoting sustainable growth (Deloitte, 2017).

Source: PwC,

2015

Responsible Business Conduct in SOEs (2)

Source: PwC,

2015

1. Ensuring a fair and safe business environment:

Using guidance from OECD Guidelines for SOE, United Nations Sustainable Development Goals, United Nations Global Compact, Reporting using Integrated Reporting Format

2. Incentivizing compliance:

Industry awards for recognition, benchmarking with private sector enterprises

3. Instilling strong internal programmes for whistleblowers:

Perhaps a compensation measure as well

4. Adopting corporate governance rules promoting business integrity:

Strict and transparent code of ethics and assurance of process of upholding business principles

Challenges facing SOEs Distinct governance challenges:

Politically motivated ownership interference, leading to unclear lines of responsibility, a lack of accountability and efficiency losses in the corporate operations.

Passive ownership by the state can weaken the incentives of SOEs and their staff to perform in the best interest of the enterprise

Can lead to

Reputational risks and legal costs from corruption

Risks in due diligence procedures and business partnerships

Financial burden of bribes, facilitation payments, contributions to political parties

Overall damage to reputation of country at large as society and investors lose trust

The Way Forward Defined state-ownership policy that provides to the SOE

Full operational autonomy

Boards that are able to exercise their responsibilities

Level playing field and fair competition in marketplace

Functionality with the same efficiency and reporting structures as private sector enterprises – and adherence to international best practices, standards and guidelines.

Source: PwC(2015)

10th meeting of the OECD-Asia SOE

Network: Speaker presentations

Session 5

Disclosure and transparency in the state-owned enterprise sector

Back to table of contents

ALIO Korean SOE Management Disclosure System

Im Gon Cho

Director General

Research Center for Public Institutions

Korea Institute of Public Finance

2017. 09. 20.

CONTENTS

Research Center

Public Institutions in Korea

Status of ALIO

Method of Public Announcement

Follow-up Management

Future Policy Directions

01

02

03

04

05

06

Status of ALIO

01 Research Center

3 teams and 1 task force for financial analysis (Certified Public Accountants): 46 researchers

now

Policy Area Team

Internal & External Governance

SOE classification

Wage system, employment costs

Human resources management (flexible working, female employment, etc.)

Budget compilation & execution

International Cooperation with OECD, IDB, etc.

79

01 Research Center

3 teams and 1 task force for financial analysis (Certified Public Accountants)

Management Research Team

Customer Satisfaction Survey

SOE restructuring program

Public information disclosure

Non-executive director & auditor training

Evaluation Research Team

Performance evaluation of SOEs, CEO, and auditors

Mid & long-term financial management

History of quantitative evaluation indicators

Management information evaluation system

80

02 Public Institutions in Korea

Designation and Classification of Public institutions (2017.1)

Definition

Institutions established or funded by the government to provide public services

A total of 332 institutions designated as SOEs by the Act on the Management of Public Institutions

(‘17.1)

Divided into 3 types, depending on the institutions nature; financial status, human resources, etc

Division Public Corporations Quasi-governmental Institutions Other Public institutions

Numbers 35 89 208

Requirement

s

Generates more than 50% revenue by

itself

&

50 or more employees

Generates less than 50% revenue by

itself

&

50 or more employees

Other than Public Companies and Quasi-

governmental Institutions

Examples Korea Electric Power Corporation,

Korea Expressway Corporation

National Pension Service,

Korea Transportation Safety Authority

Government-funded research institutions,

National University Hospital

81



A total of 330 institutions designated as SOEs by the Act on the Management of Public Institutions

Division Public Corporations Quasi-governmental

Institutions Other Public institutions

Numbers 35 88 (-1) 207 (-1)

Change - Two food safety related

organizations were merged

Two medical related

organizations were merged

82



There are 332 public institutions in Korea as of 2017

2015 2016 2017.1 2017.7

Public corporations 30 30 35 35

Market-type 14 14 14 14

Quasi-market-type 16 16 21 21

Quasi-governmental organizations 86 89 89 88

Fund-management-type 17 16 16 16

Commissioned-service-type 69 73 73 72

Non-classified public institutions 200 202 208 207

All Public Institutions 316 321 332 330

83


There are almost 300 thousand employees in public institutions in Korea

84


# of Public institutions in Korea

85


As of 2016, there was almost 20 thousand new employees hired in public institutions in Korea.

86


In 2015, Average Salary of Board members in public institutions was 136 million Won (121

thousand US dollars)

87


In 2015, Average Salary of Employees in public institutions was 65 million Won (58 thousand

US dollars)

88


In 2015, Total debt of public institutions was 505 Trillion Won (450 billion US dollars)

89

03 Status of ALIO

A. ALIO(All Public Information In One)

Integrated Management Information System of public institutions that allows citizens to get major

management information on all public institutions via the internet in a comprehensive manner.

In 2017, 332 public entities opened 40 information items on the preceding 5 years to the public

90

03 Status of ALIO

Relevant Statutory Provisions and History of ALIO

Act on the Management of Public Institutions (2008)

Disclosure of Each Public Institution:

Public Institutions shall Disclose Following Items

Integrated Disclosure:

Main Announcement Items shall be Standardized and Disclosed in an Integrated Manner

Enforcement Ordinance

Management Announcement Items shall be those from the previous five years

91

03 Status of ALIO

Relevant Statutory Provisions and History of ALIO

Continuous System Improvement since the 2006 ALIO opening

Dec. 2006 Opening of ALIO

Jun. 2007 Public Announcement of 27 Management Information Items

Apr. 2013 Half-yearly Announcement of Financial Information of State-Owned Enterprises

Feb. 2014 Additional Announcement of 12 Items in Debt Variation and 8 Items in Welfare

Apr. 2015 Comprehensive Restructuring of Announcement System by Adopting Private Electronic Announcement

System (DART: Data Analysis, Retrieval and Transfer System)

2007 2008 2011

2014 20176

27 33 34 37 40

84 sub-items

92

04 Method of Public Announcement of ALIO

Public Announcement Process

Integrated Announcement Process

Ministry of Strategy and Finance(MoSF) is in charge of the entire announcement process and operates

the website(ALIO) for public announcement of information

Each public entity directly inputs announcement data according to a set format

Notify Standard of Announcement

Input Management Information

Public Announcement +Provide Statistics

Follow-up Management

② ①

④ ③

Public Entities

MoSF MoSF

MoSF

93


Selection of Public Announcement Information Items

Disclose Information on 40 Categories (84 sub-categories) as of 2017

Public Institutions Steering Committee decides and officially announces major information that

citizens need, such as number of executives in each institution, debt status, fringe benefits, and

employment information

94




95




96




97


Public Institution Data Input

Input in each cell

Fringe Benefit

98


Public Institution Data Input

99

Input in each cell

Fringe Benefit


Disclose Information of Public Institutions through the Website

Disclosure Information

Periodic & Provisional Announcement

Graph & Statistics

Statistics

Other Information

Recruit, Procurement and Research Information

100


Periodic Announcement Checking Process

Click !!

pdf download

List

Contents

101


Periodic Announcement Checking Process

List of categories

Click !! Contents of an item

102


Provision of Statistics Functions

Search

Set Search Conditions

Results download

103

Method of Public Announcement of ALIO

Increase of Use of ALIO

1,186

1,457

1,955

2,300

,0

,500

1,000

1,500

2,000

2,500

2013 2014 2015 2016

(thousands)

Very good Good Bad Normal

104

05 Follow-up Management

Announcement Reviewing System

By Public Institutions By MoSF

(with Accountants & Labor attorney)

By MoSF

105



291 Institutions

2013 2014 2015

22 Institutions

8 Institutions

291 Institutions

2013 2014 2015

22 Institutions

8 Institutions

106



Mostly Executed After-inspection → Reinforce Pre-inspection

(Current Practice) Difficult to Identify Mistakes in Content before Announcement

( Improvement) Reinforce Pre-inspection via the System

→ Increase Preciseness of Announcement Content from the Disclosure Time

06 Future Policy Directions

107


Improve the System to deliver information more effectively

108


Many people want to improve ALIO

109


Many people want to improve ALIO

110


However, many people

wanted more improvement in

other areas of public

institution management

111


Recent survey shows opinions of

experts and staff at public instituions

were different, and experts thought that

the need for improvement was low

compared to other fields

112


Because there are too many disclosures, deductions due to insolvency disclosure frequently occur.

Management disclosure should be changed according to the characteristics of the organization

Various opinions

Since duplicate announcement duties are generated by listed public companies, listed public companies

are required to exempt or simplify management disclosure.

In the case of large institutions, the scope of disclosure is broad

Disclosure procedure is rigid (timing, etc.)

Disclosure does not hinder autonomy, but does not reflect characteristics of individual institutions.

Since the information on recruitment and bidding is vast, it is burdensome for practitioners to provide

it in real time.

113


Because there are too many disclosures, deductions due to insolvency disclosure frequently occur.

Management disclosure should be changed according to the characteristics of the organization

Various opinions

Whether it is correct to provide all the information (in particular, information that the public does not

want to know is not required to be disclosed)

Management disclosure is closely linked with management evaluation, therefore, purpose of

management disclosure is not being achieved

The concept of innovative portal needs to change because it has an obscure notion

Disclosure focuses on evaluation rather than autonomy.

114


Recommendations

Since system operation is rigid and semi-compulsory, there is a need to improve the operation of

inspection-oriented inspection system so that system operation should be operated autonomously.

There are duplicate items such as inappropriate items and bidding contracts among management

disclosure items.

Set the disclosure items in consideration of the importance of the items or apply the disclosure

methods differently (strict criteria should be applied when disclosing information in the public domain,

but a relaxed standard should be applied in the case of public information)

Need to differentiate demerit points.

The ambiguity of the guidelines (the method of entrustment to the judgment of the institution in case

there is room for interpretation)

115

Thank you

Lya Rahman

General Manager, MSWG

20 September 2017

Session 5 – Disclosure and Transparency in SOEs/GLCs

10th Meeting of the OECD-Asia Network on Corporate Governance of State-

Owned Enterprises InterContinental Hotel, Kuala Lumpur

Brief Background MSWG

About Incorporated in year 2000 as a Government initiative to be part of the broader capital market framework

Vision

To be a recognised and respected organisation in promoting corporate governance through shareholder activism

Mission

To increase sustainable shareholder value in companies through engagement with relevant stakeholders, with focus on minority shareholder interests

Legal Form

Non-profit body. Company limited by guarantee.

Funding Predominantly by the Capital Market Development Fund (80%) and remaining 20% from other revenue generating activities

Governance Structure

• Self-governing • 7 board members

Licensed Body

MSWG is a licensed body under the Capital Market & Services Act 2007.

CORE ACTIVITIES –

CORPORATE

MONITORING

119

GLCs SOEs

No. of Listed GLCs/SCEs

34 13

Monitored by MSWG 33 8

CG STATISTICS FOR GLCs &

SOEs

120

2016 Assessment

GLCs SOEs

Average CG Score

88.22 67.38

No. of cos in Top 100

28 2

No. of cos in Top 10

9 Nil

Company Type

1. Bursa Malaysia Bhd GLC

2. Telekom Malaysia Bhd

GLC

3. Axiata Group Bhd GLC

4. Malayan Banking Bhd

GLC

5. Sime Darby Bhd GLC

6. RHB Capital Bhd GLC

7. CIMB Group Holdings Bhd

GLC

8. Allianz Malaysia Bhd Non-GLC

9. Petronas Dagangan Bhd

GLC

10. Tenaga Nasional Bhd GLC

Top 10 Companies with Good Disclosures (By Rank) in the MSWG Malaysia-ASEAN CG

Assessment 2016

• BOARD STRUCTURE

• Board chairmanship

Chairman should be an INED

For companies monitored by MSWG, only eight (8) GLCs and one (1)SOE had independent Chairman

• Board composition

Currently, two GLCs monitored by MSWG has politicians on Board

Two (2) SOEs have politicians on Board with one SOE with 60% of Board comprised of politicians – can the INEDs be effective in this type of structure?

Too many government appointees on the Board (e.g. ex-Government servants & regulators), a good board needs to be well-diversified in terms of work experience & skill-set

• Board nomination process

Acknowledge that Government has the ability to appoint Board members and senior management

However, due board appointment process must take place and be transparent

Many still do not have policy on term limit for INEDs

MSWG Observations on CG issues in GLCs/SOEs

121

• BOARD REMUNERATION

• Remuneration Policy

• Share options/ESOS/Bonus/Gratuity to Non-Executive Directors

MSWG Observations on CG issues in GLCs/SOEs

122

Conclusion

• Level playing field for all GLCs and SOEs – Non-listed GLCs and SOEs must be more transparent and have better disclosures

• Some GLCs are role models in terms of CG, but there are still others which can still improve their CG levels to that of the top GLCs

• Listed SOEs should strive to adopt higher standards of CG practices.

• No political interference/agenda especially in listed GLCs/SOEs

• Shareholders, particularly institutional investors (such as GLICs) must play a greater role to influence positive CG changes in GLCs/SOEs.

123

Thank You

124

125

The 10th OECD – ASIA Network Meeting on Corporate Governance of SOEs

Kuala Lumpur, 19 - 20 September 2017

The Socialist Republic of Vietnam

126

Outline of presentation

SOE main features

Disclosure and transparency process

Next steps…

128

Policy system

State capital

Declination

Transparency Securities

Market

Management

Innovation

12

8

129

Weakness:

12

9

Limitative Efficiency

Bad debt

Weak competition

Low growth

130

PRIME

MINISTER

Line

Ministries

(Ownership)

MOF

MPI

MOHA

MOLISA

Provincial Committee

(Ownership)

131

Structure of financial supervisory

The State Ownership Agencies

Ministry

of Finance

SOEs

132

Financial Supervisory – Major elements

Capital Preservation

Raising

Business Effect

Salary

Fringe-benefit Financial Legalism

State capital and asset using and management

133

Financial Supervisory - Sequence:

The Prime Minister

Ministry of Finance

State Ownership Agencies

134

SOEs

State

Audit

State

Inspectorate

General

Statistic

Office

State

Bank

NSCERD

Line

Ministries

135

Penalty for unpublished violation

SOEs sustain administrative

penalty

Warning, blame and dismissal for management board

Being in charge of PM

Listing of violation SOEs in website

136

Annual Report

Number with

Website

Basic Information

on SOE

News/ Strategy Overview

Financial Statement or Auditor Report

Summarized Financial

Information

SOE sample

89

100%

87%

16%

8%

Of which

economic group

11

100%

100%

45%

9%

Of which

general

corporation

12

100%

50%

8%

8%

2. Disclosure and transparency process

137

ð To strengthen transparency and supervisory mechanism

SOEs

State

Audit of

Vietnam

DATC

VAMC

Associations

State

Bank

of Vietnam

Tax/Custom

Agency

Line

Ministries

138

To strengthen transparency and supervisory mechanism

Central place

Legislative

Framework

Incentivize SOE

compliance

Focus on public

disclose

139

Strengthen transparency and disclosure

Penalty implementation

Clarify important

information

Special governmental

agencies

Construct internal auditing

140

Thank you!

managing risk and promoting business integrity in the … · 2017-12-20 · promoting business...

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