State-Owned Enterprises

State-owned enterprises (SOEs) account for 20 percent of investment, 5 percent of employment, and up to 40 percent of domestic output in countries around the world. They deliver critical services in key economic sectors, including utilities, finance, and natural resources.

The Business Case 

Despite extensive privatization, governments continue to own and operate national commercial enterprises in key industries. State-owned industries in high-income countries, in major emerging market economies, and in many low- and middle-income countries have endured and expanded. Many SOEs now rank among the world’s largest companies, investors, and capital market players, making it ever more important for SOEs to optimize their performance, efficiency, and reputation. The stakes are extremely high, since operational deficiencies could disrupt service provision, creating negative impacts for citizens, businesses, and—potentially—entire economies.

That is why governments around the world are taking steps to improve the corporate governance of their SOEs. In fact, the business case for good corporate governance is as strong for SOEs as it is for other companies. Good corporate governance helps private and state-owned companies operate more efficiently, improve access to capital, mitigate risk, and safeguard against mismanagement. Research from the World Bank, codified in Corporate Governance of State-Owned Enterprises, reveals several direct positive benefits for SOEs that have undertaken governance reforms:

  • Improved operational performance
  • Increased access to alternative sources of financing through domestic and international capital markets, while helping develop markets
  • Financing for infrastructure development
  • Reduced fiscal burden of SOEs and increased net contribution to the budget through higher dividend payments
  • Reduced corruption and improved transparency

IFC’s Response 

IFC’s efforts are integrated into the World Bank Group’s broader SOE reform work and include corporate governance and financial management. This involves assessing the status of SOE corporate governance in various countries, providing policy recommendations and actions plans, and supporting reform implementation through advisory and lending operations.

IFC’s corporate governance professionals intervene in collaboration or coordination with World Bank-led teams to:

  • Develop corporate governance frameworks aimed at strengthening the state’s monitoring of SOE governance and performance
  • Train SOE board directors, including state nominee and independent directors to empower SOE boards and develop board practices in line with international standards
  • Train government officials of state ownership entities and line ministries as well as SOE managers responsible for preparing and implementing governance reforms on issues such as exercising the rights of the state as shareholder
  • Design and implement SOE director training and certification, in partnership with key market intermediaries, including institutes of directors, business schools, and SOE-specific academies

Regional and Country Examples 

IFC works at the firm, market and regulatory levels deploying a multi-pronged approach to target the range of stakeholders involved in improving the governance of SOEs.

Europe and Central Asia: In Serbia, IFC helped the Ministry of Economy conduct an analysis of corporate governance practices in the country’s SOEs, with a view to introducing a certification program for supervisory board members. The goal is to reform the governance of SOEs. The effort aligns with the government’s economic reform program, which has prioritized the professionalization of its SOEs.

Latin America and the Caribbean: In Colombia, IFC and World Bank are supporting the government’s efforts to implement corporate governance practices as required by the OECD Corporate Governance Committee. This support includes advising the Ministry of Finance on the establishment of a new ownership agency, developing policies for appointing SOE board members, and training SOE board members. The IFC and World Bank team also assessed the governance practices of Colombia Bancoldex, Colombia’s foreign trade development bank.

Middle East and North Africa: In Egypt IFC and the World Bank have a joint mandate to improve the corporate governance practices in the oil and gas industry with the goal of preparing companies to go public with initial public offerings. Efforts include crafting a corporate governance code and equipping SOE boards with knowledge and tools to drive company-wide governance improvements.

South Asia: In Sri Lanka, IFC and the World Bank are developing a director training certification program for SOE board directors. Offered by the Sri Lanka Institute of Directors, the program will build the corporate governance and leadership skills of the country’s SOE board directors.


July 2018