therefore, are clarity and transparency regarding objectives, expectations, actions taken, results achieved, and costs incurred.

This Section highlights corporate governance arrangements and practices drawn from OECD guidelines that are advocated here as being critical to effective SFI performance, and as being matters on which SFIs often fall short. It addresses i) state exercise of ownership, ii) the role and functioning of the board of directors, and iii) the supporting information, reporting, disclosure and transparency regime. A more comprehensive compilation of good corporate governance practices is presented in Section IV in the form of an evaluation framework and case study using that framework.

# **State Exercise of Ownership**

With ownership of a company comes the right to influence the company, to obtain information from the company, and to participate in the profits of the company. The principal tasks associated with ownership include: i) to participate in shareholders’ meetings and to vote upon matters that, by law and/or internal company statute,<sup>10</sup> must be decided upon by the shareholders;<sup>11</sup> ii) to elect/appoint and, if necessary, to remove members of the board of directors; and iii) to obtain and assess information from the company and from others that is necessary to monitor and evaluate the performance of the board, executive management and the company itself.

## **_Organizing the State Ownership Function_**

## • **State Ownership Policy**

The manner in which the state organizes the tasks inherent in SFI ownership serves as the foundation for overall corporate governance. As noted in Section I, the ownership arrangements will be shaped by laws and regulations and by state policy. Taken together, the applicable legal and policy regime should provide a consistent and comprehensive framework for the organization and exercise of state ownership.

One means to help promote a consistent, comprehensive framework for state ownership is to articulate a formal **ownership policy** . The ownership policy would define the state’s overall ownership objectives, prescribe legal forms for SFIs,<sup>12</sup> define the state’s role in governance, and set out how that role and its overall ownership policy will be implemented. The ownership policy would be published, and would not be subject to frequent change.

Formulating, adopting and publicly disseminating an ownership policy along these lines can help clarify and reinforce the authorities and responsibilities of the owner, and can provide more clear guidance to the board. Minimizing changes to the policy will help provide a predictable basis for governance and management. An increasing number of

> 10 Such as the company’s constitution, articles of incorporation or association, charter, by-laws, or similar governing documents.

> 11 For SFIs and other SOEs, these will generally include dividend policies, authorization of major acquisitions or divestitures, significant change in scope of business, and the like.

> 12 For example, whether the institution should be incorporated under the company law and made fully subject to that law.  Also relevant in this context is the consideration of whether an incorporated financial institution is the most effective means of state intervention, as compared to, for example, a perhaps more economical institutional arrangement such as a specialized government department or unit.

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