# **1. Introduction**

The aim of this paper is to shed some new light on the conditions needed to ensure the effectiveness of Boards of Directors of State Owned Enterprise (SOE) in infrastructure sectors. Despite the extensive empirical literature in this area (at least for developed countries), there are very few Board specific theoretical models. Most empirical work on the links between Board structures or other aspects of corporate governance and firm performance faces a set of empirical challenges, which make identification difficult. Because of these challenges, one could argue that we still know very little about the effects of Board structures and procedures on SOE performance, particularly for developing countries.

This paper reviews the economic literature and evidence from econometric analysis and case studies. From this review, it appears that independence is one of the most analyzed characteristic of the Board. Little attention has been paid to Board procedures, particularly related to the Board member selection and evaluation process. This may be due to the fact that most studies focused on a subset of listed private enterprises, for which compliance with procedural rules can be taken for granted. SOEs in developing countries are, in many cases, characterized by the lack of respect of formal rules and frequent political interference from the government. Introducing independent directors may not produce tangible results, if, for instance, formal procedures are not in place to produce the necessary insulation of Boards from governmental interference. Ensuring continuity of services to directors and limiting the number of Boards on which directors can sit may also be important to make Boards work effectively.

The structure of the paper is as follows. Section 2 reports the most common Board requirements imposed by company bylaws and capital market listing rules, highlighting the implementation challenges for SOEs in developing countries. Section 3 focuses on the composition of the Board, paying particular attention to the mechanisms that could be used to reinforce independence. Section 4 considers Board procedural rules, such as the selection, training and evaluation of directors. Section 5 reviews the theoretical research on Boards of Directors, considering the specific challenges posed by SOEs. Sections 6 and 7 review the empirical evidence of the links between corporate governance and performance at the enterprise and country levels, respectively. Section 8 concludes.

# **2. Board Requirements**

Most company bylaws and capital market listing rules (for the issuance of bonds or shares) require utilities to have a Board of Directors. The primary task of the Board is to ensure that management is acting in the interests of the shareholders, through an advisory and monitoring role. Frequently, regulations stipulate several conditions related to the number of directors, such as their type (e.g. executive, non-executive and independent directors) and skills of the appointees. Regulations may also contain additional formal requirements, such as frequency of meetings of the Board as a whole and/or the number and nature of Board committees. More recently, requirements on the selection and evaluation of the Board as a whole and individual directors, and restrictions on 2