_The capacity to recognize government corporations and their governance as a subject of research in its own right liberates us from the comparative static analysis of the past, and opens up a dynamic new field for the future. (Whincop 2005)_

# **1. INTRODUCTION**

The governance of state-owned enterprises (SOEs) in Latin America has recaptured the interest of the development community. After the wave of privatizations that characterized the end of the 1980s and the 1990s, the still significant levels of public provision in sectors such as water and nationalizations in others have caused both academics and development organizations to seek a deeper understanding of the performance of public utilities in infrastructure. From a “one model fits all approach”, government and international donors adopted a more pragmatic view of the provision of infrastructure services. The challenges of infrastructure investment, together with the need for innovative management, also provided space for the discussion of new themes such as public-private partnerships (PPPs).

Current research on the subject has focused on the concept of Corporate Governance in Stateowned Enterprises. Led by the work of the Organization for Economic Cooperation and Development (OECD) and supported by the concepts and tools of New Public Management, this approach conceives state enterprises as corporations driven by incentives that reward efficiency and transparency. Although adapted to the public sector, the notion of corporate governance is intended to reflect as close as possible the incentives that exist in a private enterprise. In the particular case of SOEs, corporate governance is used to refer to the organization of decisionmaking in a public corporation.

The paper focuses on the Corporate Governance (CG) of SOEs in the water and electricity distribution sectors of Latin American and the Caribbean (LAC). It takes into account public companies with full state ownership or partial state ownership of at least 51 percent of total shares.

While the ultimate goal of this paper is to help SOEs improve their sector performance through effective CG reform, our corporate governance measures are intended to develop benchmarks that allow for comparisons among companies in LAC. Corporate governance benchmarking is conducted through different governance measures. Six salient aspects of the institutional design of state-owned enterprises are assessed: Board composition, performance, and evaluation; CEO performance and evaluation; companies’ performance orientation; the quality of companies’ management; the legal and organizational framework; and mechanisms aimed at guaranteeing financial and non-financial transparency.

Particular importance is given to the impact of corporate governance on companies’ performance. This relationship is tested using a unique dataset containing information of 45 leading state corporations. Results indicate the need for improvement in areas such as the selection and appointment of directors to the Board and the performance-orientation of the enterprises.

The paper is divided in six main sections. Section 2 presents a literature review of the debates surrounding the characteristics, structure and governance of SOEs. Section 3 contains the methodology of the paper; it describes the theoretical framework, the levels of analysis, and the indexes used to measure SOE governance. Section 4 provides a description of the main characteristics and performance patterns of SOEs in the water and electricity sectors of LAC. Section 5 benchmarks SOEs according to the governance measures specified above. Section 6 2