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Crucial step made in reforming SOEs

Date

2012 06 11

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On 6 June 2012, the Government adopted the resolution, drafted by the Ministry of Economy, to approve the Guidelines for Implementation of Right of Ownership (Ownership Guidelines).

The Ownership Guidelines is the principal document in reforming the SOE sector, which shapes the two years of progress in reforming SOE’s and ensures the reform’s continuity. The approval and implementation of the Ownership Guidelines will be the main step towards greater efficiency of SOEs. 

‘In the recently issued Council Recommendation on Lithuania’s 2012 national reform programme the European Commission assessed the reform of SOEs as ambitious and instrumental in increasing transparency and accountability of the SOE sector. The Commission has urged however not to slow down the pace of implementing the reform and continue to improve the efficiency of the SOEs. The Ownership Guidelines is the key document to achieve these goals,’ Minister of Economy Rimantas Žylius said.

The Ownership Guidelines will consolidate three main aspects of the SOE management: strong shareholder, strong boards and clear objectives.

Strengthening of the shareholder’s function is aimed to ensure that the Government possesses all the information required to adopt decisions. Until now, this coordination and information function fell within the scope of competence of the Ministry of Economy. Seeking to consolidate the Principle of Strong Shareholder a Management Coordination Centre (the MCC) will be established under the State Enterprise State Property Fund. The MCC will follow and analyse the financial and non-financial performance of the SOEs, make proposals to the Government on improving the performance and on policy shaping in the SOE sector. The shareholder rights will continue to be the responsibility of the branch ministers. The MCC will not manage enterprises and will be aimed to ensure equally high management standards in all the SOEs instead.

The Principle of Strong Boards is aimed to establish qualification requirements for the board members and the composition of the board. Besides, it is planned that 1/3 of the board members of the largest corporations  will have to meet the independence criteria, which means that at least 1/3 of the board members will have to be independent from both the Government and the company and will have to come from the private sector and prove the highest professional competence. Another significant amendment relates to appointment of the board members: they will no longer be appointed by the branch minister only but rather by the approval of the branch minister along with the Minister of Finance or the Minister of Economy.

The principle of clear objectives is aimed to set ambitious objectives for the companies and ensure that all SOE’s create comprehensive strategic plans. The state, as their main shareholder, will set the required rate of return for the enterprises.

The main goal of the SOE reform – greater efficiency – may be achieved by changing the corporate governance principles, setting clear objectives, and increasing transparency.