Director Selection Processes Critical to SOE performance—PSDI
SYDNEY, AUSTRALIA (9 March 2020)—Pacific governments can ensure the best outcomes for their state-owned enterprises (SOEs) by reducing political influence in the director selection process and hiring candidates with the knowledge, skills, and experience needed to address the SOE’s challenges, according to a new policy brief by the Pacific Private Sector Development Initiative (PSDI), an Asian Development Bank (ADB) technical assistance program undertaken in partnership with the governments of Australia and New Zealand.
The policy brief, State-owned Enterprises: Board Nomination Practices in the Pacific, states that many of ADB’s 14 Pacific developing member countries (DMCs) have taken important strides in the past 15 years to improve SOE performance and transparency. However, balancing SOEs’ commercial mandate with their shareholders’ political imperatives remains a challenge.
In the Pacific and globally, board composition is fundamental to an SOE’s performance. SOEs function best when their board represents a diverse range of the skills, experience, and independent perspectives needed to support the entity’s full commercial orientation. To achieve this, Pacific DMC governments should establish codified processes that maximize the probability of selecting the best-qualified SOE director candidates.
“The government, as SOE shareholder, can play a role in confirming and appointing the candidate via a responsible minister or cabinet,” says one of the brief’s authors, PSDI’s SOE Reform Expert, Laure Darcy. “But the assessment of candidates should be left to non-political agencies such as the SOE ownership monitor, an independent selection committee, or a professional search firm reporting to the ownership monitor.”
This process can ensure those chosen for leadership roles in SOEs—which in the Pacific play a dominant role in essential services such as airports, ports, broadcasting, sanitation, and water supply—are the most qualified candidates.
“Since SOEs are dominant in the economies of most of the ADB’s Pacific DMCs, their performance has a significant impact on economic outcomes, poverty alleviation, and the quality of life experienced by residents,” said Ms. Darcy. “Given the extent to which board composition can influence performance, securing a diverse mix of the most qualified candidates on boards is the most important outcome of SOE director selection processes across the region.”
The brief assessed the director nomination processes in 11 Pacific DMCs and found that more than half undertake some form of SOE board skills gap assessment and delegate the director selection process to an advisory body. However, only four—Papua New Guinea, Samoa, Solomon Islands, and Tonga—have codified the director selection and appointment process.
Six SOE oversight ministries in the Pacific were interviewed for the brief—in Fiji, PNG, Samoa, Solomon Islands, Tonga, and Vanuatu—and all expressed their support for skills-based director selection processes. All Pacific DMCs recognize the value of gender diversity on boards, with those surveyed pointing to greater competitive advantage, broader perspectives, and improved decision-making. Yet, only four —PNG, Samoa, Tonga, and Vanuatu—have proactive policies and practices in place to encourage more women applicants to SOE boards.
PSDI supports ADB's 14 Pacific DMCs to improve the enabling environment for business and to achieve inclusive, private sector-led economic growth.