How can the effectiveness and management of state-owned companies be improved?

State-Owned Companies (EPE) are essential actors in the provision of diverse public services. At the same time, they have an active participation in capital markets through the issue of debt. Jointly, they accumulate more than USD 557 billion in capital, and are responsible for gross sales amounting to USD 703 billion in Latin America. 

Given the scarce knowledge regarding the current trends of corporate government in EPEs, and considering the importance of the activities of these companies in the region, CAF developed the transparency index of corporate government for Latin American EPEs. The objective of this index is to identify some of the shortfalls in the governance of these companies and, consequently, the opportunities for improvement. The index is built around five pillars that evaluate critical aspects of corporate governance in a company: 

• Legal and regulatory framework 
• Who exercises state property 
• Equitable treatment of minority shareholders 
• Transparency in the disclosure of information 
• Makeup of the Board 

These pillars feed on public information, reported in the web pages of 106 state-owned companies from 13 countries of the region. Among the evaluated EPEs, the relevance of some sectors stands out, where participation is significant in Latin America, such as financial services, electric energy, oil and gas, and basic services.  

So far, the index has revealed that with respect to corporate governance in Latin American EPEs have very wide ranges, and just a little bit over half of the cases complied with 50 percent of the aspects required. 

With respect to the pillars, the EPEs in the sample require attention in all the aspects of their corporate government. For example, in the regulatory framework pillar, on average they score 6.69 out of 10 points, showing the best results with respect to the other pillars. Results obtained for the second, third, and fourth pillar also reveal significant gaps regarding the identification of the owner (with a score of 5.62 points), equitable treatment for minority shareholders (with an average score of (6.17), and transparency in the diclosure of information (an average of 4.75 points over 10).   

The boards of the EPEs may also be subjects of reforms, to strengthen their effectiveness in management, as well as their planning and strategic management functions. The analysis shows that all the cases in the sample have not reached the total conditions required, reaching an average of 4.59 points. 

The index concludes that, as EPEs make their adjustments related to the form and type of information they reveal, they would be in good condition to improve their positions. The publication "La transparencia del gobierno corporativo en las Empresas Propiedad del Estado en América Latina" (Transparency of corporate government in State-Owned Companies in Latin America) makes an in-depth examination of this situation in the region.