29/10/2010

TUAC welcomes the opportunity to comment on the documents that are for discussion at the 15th session of the OECD Working Party on State Ownership and Privatisation Practices. The TUAC would like to share the comments below with members of the Working Party. These were prepared in cooperation with the European Trade Union Institute (ETUI).

Item 5. Competitive Neutrality in the Presence of State Owned Enterprises [DAF/CA/PRIV(2010)1]

We disagree with the assertions made in section 1.2.2 (“the corporate governance weaknesses as a source of anticompetitive behaviour”). Paragraph 13 states that trade unions are “in many OECD countries guaranteed seats on SOE boards” which they use for “non-trivial political influence” and that board-level employee representatives “sometimes” are factors that lead to management entrenchment and “coalitions between management and employee interest groups”. No literature is referenced in the text in support of these statements.

Where employee board representation exists, representatives are elected by the workforce or they are appointed according to the prevailing collective agreement. Board-level employee representation as such does not lead to management entrenchment as noted in the OECD SOE Guidelines themselves: “employee representation on SOE boards should not in itself be considered as a threat to board independence”. In fact our experience points to the opposite conclusion that it leads to increased management accountability. Substantial literature exists that points to the positive contribution of board-level employee representation because employee representation offers the best guarantee for independent non-executive directors.

Item 6. State Owned Enterprises in the World Economy a) Toward a database documenting the economic importance of SOEs [DAF/CA/PRIV(2010)2]

TUAC welcomes the work on developing a comprehensive data base on the significance of state-owned enterprises worldwide, their role in market economies and their impact on economic activity. Data collection and comparison is a challenging exercise because of differences in country definitions and reporting practices. It should be grounded on common set of definitions and robust, rather than on an “informed guess” (§10).

In assessing SOEs role in markets the paper omits to refer to public service obligations. In our view it does not make sense to break down SOE data per equity (listed or unlisted) or per sector, if a similar distinction is not made between purely commercial companies and companies with public service obligations.

Item 6. State Owned Enterprises in the World Economy b) The corporate governance of SOEs operating abroad [DAF/CA/PRIV(2010)3]

The paper’s discussion on responsible business conduct (RBC) – §39 et al. – suffers from misconceptions. The text suggests that RBC comprises “non-commercial” objectives which accordingly could potentially run into conflict with commercial (or financial) objectives. In reality RBC essentially refers to international law and standards, including UN conventions on human rights and ILO core labour standards (freedom of association, child labour, forced labour, discrimination). These should not be regarded as “non-commercial” objectives. The conclusion drawn by the paper according to which RBC actually weakens the governance and accountability of SOEs is even more disturbing (§54) and is not supported by current or past research and literature. Also, the paper’s presentation of the OECD Guidelines for Multinational Enterprises omits to refer to a key aspect of the Guidelines which is the dispute resolution mechanism through the National Contact Point procedure.

Item 7. SOE Governance Reform b) Recent Developments in Germany - Principles of Good Corporate Governance for Indirect and Direct Holdings of the Federation, 30 June 2009 [DAF/CA/SOPP/RD(2010)3)]

There remains uncertainty as to how the code’s comply or explain approach is to be implemented in stock companies (Aktiengestz) that are not listed. Article 161 of the German Stock Corporation Act (AktG) requires disclosure of implementation of the corporate governance recommendations issued by the German Ministry of Justice. However the requirement only applies to companies listed on stock exchanges.

Item 7. SOE Governance Reform c) An inventory of recent change [DAF/CA/SOPP/WD(2010)1]

TUAC welcomes the report including the particular attention paid to accession countries, three out of four of which (i.e. Chile, Israel and Slovenia) provide for employee representation in SOEs by law or by collective agreement. Well over half of OECD countries provide employees with the right to be represented on the board of SOEs. The SOE Guidelines and the Accountability and Transparency Guide for SOEs recommend systematic reporting on SOEs relations with stakeholders, including employees. However the paper prepared by the OECD Secretariat does not includes any information on such reporting for current member states (§29). For example the paper omits to mention the proposal by the Polish Treasury (draft Law, 5th August 2010) to eliminate board-level employee representation. On that the TUAC relays the concerns expressed by Solidarność in the declaration in annex.