Only when the government is confident that a SOE is viable from a financial perspective the company could be asked to pursue non-commercial objectives, such as employment stability, cultural preservation, and so forth. Any other approach risks the company’s long-term viability. In cases where the government sets multiple objectives, they could be ranked by priority, with clear guidelines about how to make trade-offs among secondary objectives. Few governments have done this so far. In addition, governments could calculate the cost to the company of pursuing noncommercial objectives and disclose it publicly. Better yet, separate funding could be provided to pay for non-commercial objectives.

Information could be provided not only on performance but on the objectives of each enterprise (especially non-commercial ones), the costs of pursuing non-commercial objectives and subsidies granted by the government. Equipped with this information, increased scrutiny by the public, press and non-governmental organizations raises accountability, both for SOE management and government overseers. In Sweden, SOEs are required to issue detailed quarterly reports, including financial statements and a management discussion on operations and risks. Many of these best practices have been adopted by South Africa (Box 8).

# **<mark>Box 8</mark>**

# **<mark>The Case of South Africa</mark>**

<mark>According to the SOE policy of South Africa, as a matter of principle, an SOE will not receive National Budget support for its operations or capital expenditure unless the state exercises its right to increase the capital of the SOE or to support specific capital programs. All National Treasury guarantees are provided at cost to the entity and should as a practice be discouraged, unless government takes a specific decision based on the commercial or financial circumstances of the SOE. The SOEs are established under the Companies Act and are expected to comply with all legislation that would affect a private entity. In the case of Sector Charters, SOEs are expected to comply with all the provisions, with the exception of the shareholding provision to the extent of the equity owned by the state.</mark> <mark>Among the corporate governance milestones, the Department of Public Enterprises aims at:</mark>

- <mark>strengthening the composition, performance and evaluation of the Boards of Directors of SOE through: i) Skills demand profiling, improved vetting of directors and a shadow Board database; ii) Board induction programs; iii) Annual Board evaluation; and iv) Remuneration guidelines;</mark>

- <mark>strengthening of the shareholder - Board relationship through: i) continuation of the Chairs and CEO fora; ii) more regular strategy focused (general) meetings between the shareholder and Board to facilitate deliberation on the strategic intent; iii) improving information related to and consideration of transactions subject to shareholder approval through the revision of transaction management guidelines including a materiality and significance framework; and iv) formulation of a SOE-wide dividend policy (in consultation with National Treasury).</mark>

_<mark>Source: South Africa’s Department of Public Enterprise Annual Reports</mark>_ In developing countries, SOE managers are seldom given the resources and incentives and above all the autonomy to lead; they are rarely punished for poor practice and even less often rewarded for good. In many instances, SOE managers possess autonomy in areas where they should have been closely monitored (such as financial reporting) and they generally lacked decision-making 15