(本文翻譯自 陳冲 公退民進的公司治理 2022-08-25)
Over the past decade, there seems a growing phenomenon. In terms of corporate management, the proportion of government role has increased, which is called the state-owned advance while the private retreat. And as for corporate governance, state-owned enterprises (SOEs) deviate from the script and the private enterprises show improvement, which is called the state-owned regress and the private progress. Why is that?
Seven years ago in 2015 when OECD revised the Corporate Governance of State-Owned Enterprises, I have written at least three articles calling on governments to take advantage of this opportunity to let the heads of all levels responsible for supervising SOEs study OECD’s painstaking work. One is to avoid the embarrassment of admitting having no understanding of the original 2005 version, and the other is to seize the opportunity to learn the international attitude and trend toward SOEs governance. Pity is that over the past few years, things only got worsen. The governance of SOEs was so miserable now.
In a society with free market economy, in order to improve efficiency and to avoid the suspicion of competing for benefit with private sector, there are very few SOEs except for public utilities such as water or electricity company. However, in Taiwan, due to historical factors or vested interest, there are still many SOEs rarely seen in advanced countries, and these enterprises are still the main channel for pork barrel appointment. As long as you compare the ROE and ROA of these enterprises to that of the private-owned similar ones, you can find that the former is obviously inferior to the later one. Therefore, Principle 1 of OECD Guidelines points out that SOEs should evaluate and justify state ownership and subject these to a recurrent review, showing that advanced countries could accept SOEs but indeed not welcome them. Taiwan has also promoted privatization, but only formally. Apparently, government shares account for less than 50% but actually these shares still control all or more than half of the board seats. Even the directors of subsidiary company are appointed by the government, which is exactly opposite to the ideality of gradually moving towards a truly-private governance. Efficiency is getting worse, and even worse is that governments at all levels still lack related governance concept.
Here is a news providing us an opportunity to examine whether the distance between domestic SOEs now and the ideal one stated in OECD Guidelines is getting increased? On Jul. 22nd 2022, the Bank of Taiwan was in charge of the 412 billion syndicated loan of National Housing and Urban Regeneration Center (a public body, not an authority branch). Due to the low interest rate (only 1.2%), only eight state-owned banks participated. Since the competent authorities and the banking industry has long agreed with the floor price of 1.7% on syndicated loan, some media began to question the suitability of the case (the interest rate was too low, and the loanable funds of small and medium-sized enterprises were squeezed out). In August, news and editorials pointed out that in this case, the FSC mush exempt the restrictions of four restrictions on risk in order to avoid breaking laws. But even if the above-mentioned doubts can be dispelled, does this case really comply with OECD guidelines? Does the process meet international minimum standards for governance?
Principle 2 of OECD guidelines stated that governments should allow SOEs full operational autonomy and should let the boards exercise their responsibilities and respect their independence. Also, the government should avoid redefining the enterprises’ objectives in a non-transparent manner. Does the process of this case comply with the above-mentioned principles? Well, everyone knows full well. Not to mention whether the minister has summoned the chairmen of banks and give some tasks in normal times.
Principe 3 of OECD guidelines stipulates that the costs related to public policy objectives should be funded by the state and disclosed. Therefore, if the eight state-owned banks want to implement policies ordered from the superior, the reduced income due to low rate should be calculated in detail and be conducted by government budget. It’s inappropriate to detract from shareholders’ dividends.
Principle 4 of OECD guidelines pointed out that if SOEs are listed companies, they should also strive toward full implementation of the OECD Principles of Corporate Governance. Also, the SOEs should ensure that all shareholders are treated equitably otherwise the boards will be liable for non-state shareholders. As for the above case, media estimates that the term (including the extension) may be as long as 60 years. I wonder whether there’s conditions evaluation on the borrower's sixty-year income statement and cash flow statement in accordance with criterion for credit before signing contract.
There are total 7 principles in OECD guidelines and it seems that in this case, four of them are violated. It doesn’t mean that the other three ones are not violated however. The conclusions can only be drawn after overall review of the interaction with stakeholders (Article 5), the transparency of disclosure (Article 6) and the daily operation of the boards in the case.
Big government or small government is not a problem. No governance concept is the biggest one!
(Released on Appacus Foundation website, Aug. 25th 2022)