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Advances in Social Sciences Research Journal – Vol. 9, No. 9

Publication Date: September 25, 2022

DOI:10.14738/assrj.99.13151. Kwadade-Cudjoe, F. (2022). Privatization of State-Owned Enterprises Has Been Endorsed Globally Since 1990, but There are Still

Many Companies in Government Hands. A Review of the Appropriate Corporate Governance Strategies for Managing These

Companies and Those in Private Hands. Advances in Social Sciences Research Journal, 9(9). 500-512.

Services for Science and Education – United Kingdom

Privatization of State-Owned Enterprises Has Been Endorsed

Globally Since 1990, but There are Still Many Companies in

Government Hands. A Review of the Appropriate Corporate

Governance Strategies for Managing These Companies and Those

in Private Hands

Francis Kwadade-Cudjoe

Senior Lecturer, Knutsford University College

Accra and Adjunct Lecturer, Regional Maritime University

Tema, Ghana

ABSTRACT

The introduction of ‘information technology’ in the late 1950s brought in its wake

increase in workflow efficiency which led to better performance of businesses to

achieve organizational goals. Privatization of State-Own-Enterprises (SOEs) was

championed by the formation of Organization for Economic Co-operation and

Development (OECD) in the early 1960s to enable governments concentrate on

their core mandate of managing their economies well. This has helped the OECD

nations to perform better. However, there are still many companies in government

hands, as these regimes still run, control and have oversight management of SOEs.

The OECD, therefore, developed the Guidelines on Corporate Governance for SOEs

to favour both the SOEs and privatized companies of nations in such a way that

organizations would give better account of their stewardship to their citizenry. The

guidelines introduced by the OECD are also to enhance the achievement of

competitive advantage by organizations in the global economy of intense

competition, especially during this technological age of business. For efficient

management of all businesses, the OECD has also produced guidelines/principles

for non-listed companies.

Key words: Information technology, privatization, governance, OECD, SOEs, guidelines,

principles and competitive advantage.

INTRODUCTION

Oversight management of State-Owned Enterprises (SOEs) have saddled many governments

with lot of problems; difficulties including taking a chunk of governments’ time, finances and

resources which would have hitherto been devoted and properly used to manage other sectors

of the economy. Privatization of enterprises/organizations in the developed nations became

vogue in the 1990s, as a way of getting around the problems posed by the SOEs (OECD, 2005).

However, the developing and under-developed nations are still burdened with many SOEs in

the hands of governments; it has not been easy-going for most of these nations’ governments

to transfer the SOEs to private entrepreneurs, as these regimes still run, control and have

oversight management of SOEs.

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Kwadade-Cudjoe, F. (2022). Privatization of State-Owned Enterprises Has Been Endorsed Globally Since 1990, but There are Still Many Companies

in Government Hands. A Review of the Appropriate Corporate Governance Strategies for Managing These Companies and Those in Private Hands.

Advances in Social Sciences Research Journal, 9(9). 500-512.

URL: http://dx.doi.org/10.14738/assrj.99.13151

According to Mensah, Aboagye, Addo and Buatsi (2003), corporate governance is a set of

arrangements through which enterprises account to their stockholders and stakeholders.

Furthermore, corporate governance supports economic development of nations by promoting

efficient and effective use of resources, and thereby fashioning out circumstances to attract

both domestic and foreign investment. SOEs as organizations, are equally required to account

to their stockholders and shareholders; so, a good corporate governance along the lines of

decent political and social governance should form the standards for democratic and market- based economy (Mensah et al., 2003).

Hornby (2001) defines privatization as the transfer/disposing of a business/industry/service

from public to private ownership and control so that it is no longer owned/managed by the

government. According to OECD (2005), many of the non-Organization for Economic Co- operation and Development (OECD) countries still have more SOEs on their hands; this has

tremendously affected the resources of these nations, due to the inability of other sectors of

their economies to get enough injection of capital and time for good planning to boost needed

national programmes.

OECD ON PRIVATIZATION AND GOOD GOVERNANCE OF SOES

OECD (2005) mentioned that the non-OECD countries have been reforming the way in which

they organise and manage their SOEs and are prepared to share their experiences, including

problems they encounter, with OECD countries in order to get support from them. Furthermore,

due to the exigency of problems faced by the non-OECD countries, the OECD Steering Group on

Corporate Governance in June 2002 tasked a Working Group to address these problems; the

Working Group on Privatisation and Corporate Governance of State-Owned Assets was to

develop a set of non-binding, working and best practice-guidelines on corporate governance

for SOEs (OECD, 2005).

OECD (2005) intimated that the Working Group, which comprised representatives from OECD

member countries with observers from, example, the World Bank, undertook comprehensive

consultations during the development of the guidelines on corporate governance of SOEs.

Additionally, the Working Group also consulted with a wide range of interested parties,

example, board members and CEOs of SOEs and Unions, and conducted extensive consultations

with non-member countries (OECD, 2005).

Just like the process the OECD adopted for the drafting of the Principles of Corporate Governance

(OECD, 2004), the same approach was taken when the draft guidelines were posted on the

OECD website for public comments. This resulted in a significant number of useful and

constructive comments, which were also posted on the OECD website (OECD, 2005).

The OECD (2005), however, declared that corporate governance of State-Owned Enterprises

has been a major challenge during implementation of the Guidelines on Corporate Governance

of SOEs in many economies of nations. Moreover, it is important to note that until the OECD

appeared on the global scene with its Guidelines on Corporate Governance of SOEs, there had not

been any internationally accepted benchmark to help governments assess and improve the way

they exercise oversight and ownership of these SOEs; however, the SOEs often constitute a

significant share of the economy, as asserted by OECD (2005).

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Advances in Social Sciences Research Journal (ASSRJ) Vol. 9, Issue 9, September-2022

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Department of Information Resources (1998), Hitt, Black and Porter (2004), Dessler (2004)

and OECD (2005) confirmed that the decade of 1990s saw a wave of many changes blowing

through the global business markets; organizations metamorphosed from the traditional way

of doing business to the modern, global and technological approach. According to them, this

change brought in its wake, example, privatization, public-private partnership, strategic

alliances, deregulation, joint ventures, mergers and acquisitions, which became the order of the

day (Department of Information Resources, 1998; Hitt, et al., 2004; Dessler, 2004; OECD, 2005).

Thompson and Strickland (2001), and Porter and Kramer (2002) informed that this trend

might have apparently been triggered by the introduction and increasingly use of Information

Technology (IT) globally to enhance business performance; in addition, the trend might be due

to the intense competition for global economies/nations to achieve market integration and

competitive advantage. Moreover, and likely, the trend might have been phenomenal as a

technique to reduce risk, increase flexibility and capital mobilization, income, shareholder

value and dividends (Thompson & Strickland, 2001).

According to OECD (2005), the OECD Guidelines, developed for Corporate Governance of State- Owned Enterprises could take over the important gap which has been created and existed for

long time; this will enable governments still holding on to SOEs, to effectively and efficiently

manage the SOEs, and yet concentrate on solving more pressing needs of the various sectors of

the economy.

The OECD Guidelines on Corporate Governance for SOEs have attracted global interest from

many different stakeholders. The strong support that OECD has enjoyed for this work, and the

broad endorsement of the Guidelines, have given the assurance that they will be widely

propagated and seriously used in both OECD and non-OECD countries.

However, as opined by OECD (2015), a major challenge that confront governments would be to

find a balance between nations’ responsibility for actively exercising their ownership functions;

example, the nomination and election of the board, while at the same time refraining from

imposing undue political interference on the management of the company. Additionally, OECD

(2015) mentioned another important challenge, how nations would ensure that there is a level- playing ground in markets where private sector organizations could compete with SOEs;

example, that governments do not change competition in the way they use their regulatory or

supervisory powers.

Nevertheless, there are enough experiences garnered from the use of the Guidelines on

Corporate Governance for SOEs to indicate concrete suggestions on how these problems could

be solved for the non-OECD countries (OECD, 2015).

OECD (2005) and OECD (2015) proposed that, for example, nations should exercise their

ownership functions through a centralised ownership entity, which would act independently

and in accordance with a publicly disclosed ownership policy. Besides, the guidelines suggest

the strict separation of nations’ ownership and regulatory functions; when this is properly

implemented, in relation to the other recommended reforms, it would go a long way to ensure

that state ownership is exercised, but in a professional and accountable manner (OECD, 2005;

OECD, 2015). This would then lead these nations to play a more positive and meaningful role

in improving corporate governance across all sectors of their economies.