AIM Holds Conference to Highlight Importance of Well-Managed SOEs

In a bid to call attention to the important role that State-Owned Enterprises (SOEs) or Government-Owned or Controlled Corporations (GOCCs) play in societies, the Asian Institute of Management, in cooperation with the Konrad Adenauer Stiftung, organized a one-day forum entitled “From State-Owned Enterprises to World-Class Competitors.” The event was held at the AIM Conference Center on November 11, 2009 and attracted top level executives representing SOEs from diverse industries not only from the Philippines, but from other Asian countries, as well.

Philippine Finance Undersecretary Jeremias Paul told the audience that the government keeps a close watch on the more than 100 GOCCs, in terms of their development impact versus their mandate, as well as their financial conditions. The objective is to make sure that these GOCCs are not a burden on government resources, but on the contrary, contribute to government’s business of efficiently managing the economy. As K. Brian Keegan pointed out, SOEs are not exempt from the need to be properly governed. In comparing SOEs with publicly-listed firms, Keegan, Managing Director and Global Head, Capital Structure Advisory, JP Morgan Securities, New York, said that optimal capital structures for SOEs are vital and promote good governance. In fact, the public policy mandate on SOEs is even more crucial than listed firms because many are the sole providers of power transmission, gas distribution, power generation, and other basic industries. Their contribution to sovereign revenues can be dramatic and they represent a contingent claim on sovereign resources. With capital being a scarce resource, SOEs should optimize the use of capital resources.

Tanri Abeng (President Commissioner, PT Telkom Indonesia) and Corazon dela Paz-Bernardo (President, International Social Security Association) shared stories in transforming their respective firms to become global competitors and the roles they, as leaders, played in effecting this change. Bernardo pointed out that the financial condition of social security institutions is a barometer of the overall fiscal health of the country. In the Philippines, the consolidated public sector balance continues to be in surplus due to the strong financial positions of the social security institutions such as the Social Security System, the Government Service Insurance System, and the Philippine Health Insurance Corporation. Abeng, on the other hand, said that in Indonesia, there is a separate ministry in charge of SOEs in order to monitor them more closely. They make use of a holding company structure to develop SOEs into global scale operations.

Dr. Pallapa Ruangrong (Commissioner, Energy Regulatory Commission, Thailand), and Dr. Gu Shu (Board Secretary, Industrial and Commercial Bank of China) discussed their own experiences in the face of economic transformation towards rapid globalization, as well as key success factors necessary to compete in a global business environment. Dr. Shu revealed that since ICBC went public in 2006 (the world’s largest IPO), the bank’s growth accelerated and the transition enabled it to provide even better performance. In Thailand, Dr. Ruangrong explained that because SOEs are the government’s arm to create both economic and social value for generating country prosperity, the government has assigned a complicated governance system to regulate SOE operations.

Speaking about the benefits of privatization, Ranjana Kumar, former chairwoman, NABARD, and Vigilance Commissioner, Central Vigilance Commission, India, emphasized that competition that stems out from privatizing SOEs is the benefit number one. Competition’s beneficiaries, are obviously, the ultimate consumers who are provided more choices.

AIM Policy Center Executive Director Ma. Lourdes Sereno informed the audience of the international laws’ views on SOEs. She said that governments have the freedom to determine its level of involvement in private enterprises. Moreover, unless a treaty law were to provide otherwise, the legal status of an SOE is dependent on the legal regime of the host government in cases where the SOE has made a direct investment in.

As a leader in the field of graduate management education in Asia, the Asian Institute of Management continues to convene authorities to discuss issues relevant to Asia, like SOE role in societies. Discussions like these provide a rich source of content for AIM’s program offerings. AIM Associate Dean of EXCELL Prof. Grace Ugut hopes that the conference stirred stronger interest in SOEs. EXCELL will offer special courses specially designed for SOEs in Asia.