Imagine arriving somewhere and having a device thrust in your face that could gauge your predisposition towards unethical behaviour as reliably as a thermometer measures the likelihood that you have Covid-19. Governments could then declare you officially guilty of harbouring not only that virus, but something potentially more serious: venality.
In the real world, corporate governance takes a rather different approach. It starts from the assumption that people can behave badly and therefore does not attempt to measure their ethical disposition in advance. In theory, then, it need not matter that my imaginary “graftometer” does not yet exist. A sound corporate governance framework instead erects barriers against vested interests and creates mechanisms designed to prevent, expose or constrain the worst acts of deception.
Today, the principal international benchmarks include the G20/OECD Principles of Corporate Governance and, particularly relevant to the public sector, the OECD Guidelines on Corporate Governance of State-Owned Enterprises. At their heart are familiar ideas: accountability, transparency, objective and effective boards, clearly defined ownership responsibilities and appropriate checks and balances between those who own an organisation, those who govern it and those who manage it.
Why Agents Need Watching
At the heart of corporate governance lies an uncomfortable proposition: you cannot simply trust your agents—such as the directors of a company you own—to do what you want them to do. You can hire them, incentivise them and flatter them, but you still need to keep them under a watchful eye. Human nature being what it is, even if you pay your agents handsomely, you should not automatically expect them to reciprocate your generosity with unswerving loyalty or always to act in your best interests.
Something approaching benevolent control for the greater good can nevertheless be established if you put in place a robust code of good practice and ensure that the relevant people follow it conscientiously.
The Problem with State Ownership
There is evidence that this philosophy of cautious optimism can work. International experience demonstrates that better-designed corporate governance structures can improve the way enterprises are directed and held accountable. Search for equivalent breakthroughs among state-controlled enterprises, however, and the picture has traditionally been rather less encouraging. State ownership introduces an additional difficulty: the state must somehow exercise its legitimate rights as owner without allowing political direction to undermine the authority and objectivity of the board.
In my experience as a management consultant working mainly in developing countries, corporate governance in publicly owned enterprises struggles to gain traction for two principal reasons. First, the political establishment often has little enthusiasm for genuine transparency. Second, the legal and institutional framework needed to support better governance is either poorly designed or poorly implemented.
Three “Unsuccess Stories”
I have been involved in some unsuccessful attempts myself. Far from diminishing my enthusiasm, however, they have strengthened my determination to see a future public-sector corporate governance project become a resounding success. For the moment, though, I can offer only a few “unsuccess stories” to illustrate the obstacles.
Let us begin in the Caribbean in 2015.
A public utility is poorly run, consuming subsidy after subsidy, and the government of the day wants to stop the rot. A policy is proposed under which privatisation might be considered in the medium term, but first the company’s corporate governance is to be strengthened.
A carefully designed model of improved governance, drawing directly on OECD principles and guidance, is put to stakeholders for consideration. Unfortunately, it sounds complicated to the layperson. Failure to explain it clearly leaves it vulnerable to attack.
But that is not the only problem. A general election takes place midway through the project and the political direction of travel is abruptly reversed. Party politics overrides good governance.
Fast-forward a few years to a Western European country in 2019.
Here, an attempt is made to introduce better governance into an essential public service. An elegant modus operandi, again drawing on OECD principles, is developed. Yet its implementation is frustrated by highly effective, unionised opposition from the very groups that would be subject to the new arrangements.
Narrow self-interest wins the day.
Finally, we move to a Middle Eastern state under Covid lockdown.
The usual worthy donor agencies have been promoting improved corporate governance for years, and the government has developed and promulgated a new best-practice code for state-owned companies. Once again, the framework draws heavily on OECD principles and guidance.
Unfortunately, it has been drafted in a way that frustrates genuine independent oversight. The line minister retains too much influence over the direction of individual companies, while properly functioning mechanisms to counterbalance political influence—such as an independent ownership or supervisory body overseeing implementation of the governance framework—are absent.
Aided and abetted by weak rules, government avoids relinquishing meaningful control over state assets.
The Common Lesson
Three countries, three rather different obstacles. In the first, political change overwhelms the reform. In the second, organised self-interest defeats it. In the third, the governance framework itself is too weak to constrain political control. The common lesson is that adopting the language and architecture of good corporate governance is considerably easier than surrendering the power that good governance is intended to restrain.
That conclusion remains strikingly consistent with current international thinking on the governance of state-owned enterprises. The modern emphasis is not simply on adopting a governance code, but on professionalising the state’s ownership function, clarifying the respective roles of the state, boards and management, strengthening board objectivity and accountability, and maintaining high standards of transparency, disclosure and integrity. Good governance therefore depends not merely on having rules, but on ensuring that political and institutional arrangements allow those rules to work.
Cultivating Our Own Garden
If all this sounds unremittingly pessimistic for corporate humankind, it need not be.
A great deal can be achieved by making appropriate changes to legal and regulatory frameworks; conscientiously recruiting and vetting talented board members; making clear to them the importance of remaining independent and objective; and providing them with the authority and support they need to perform their essential leadership and oversight functions.
What is less easily controlled, of course, is the agenda of our political masters.
In the absence of a graftometer capable of preventing the worst of them from coming to power, perhaps the most practical course is to cultivate our own corporate governance garden at entity level: build institutions that make good behaviour easier, bad behaviour more difficult and improper interference more visible—and hope that, over time, those institutions begin to influence the behaviour of the bodies above them.
Sources
Originally written in 2021 and updated in 2026 to reflect the G20/OECD Principles of Corporate Governance 2023 [G20/OECD Principles of Corporate Governance 2023 ]and OECD Guidelines on Corporate Governance of State-Owned Enterprises 2024 [ OECD Guidelines on Corporate Governance of State-Owned Enterprises 2024]
Disclaimer: Statements expressed in this blog reflect the personal opinion of the author and do not represent the position or policy of GBPG or entities we are affiliated with. While we strive to ensure the accuracy of the information presented, we make no guarantees regarding its completeness, reliability, or accuracy.