Improve Governance of State Owned Enterprises (MN0043)

Main objective:
Improving governance of state owned and public companies

Brief description of commitment:
Improve legal framework for enhancing governance of state owned and public companies, build qualification for advanced governance, ensure information transparency, conduct independent evaluation on governance and provide recommendations, reporting outcomes, ensure Directors are elected through fair principles, improve corporate responsibility and strengthen internal oversight.

Ambition:
-Law regulating affairs pertaining to state and local government property adopted and enacted
-Knowledge and capacity of state owned and public companies for joint/shared corporate management increased and engagement will improve;
-Transparency and openness of corporate governance, financial and operational performance will be ensured and public oversight will improve.
-Company's operation and accountability improved resulting from self and independent evaluations.
-Nomination and election of company directors and executive officers made transparent and open through online tools and public participation increased;
-Financial performance and efficiency increased resulting from improved company social responsibility and internal oversight;
-Financial incentives and leverages such as issuing shares on stock market and access to soft loan, created as a result of improved corporate governance and contribution to national economy increased.

Milestones:
1. Improve legal framework for strnegthening state-owned and public companies governance
2. Establish training for advanced level corporate governance and issues certificates
3. Ensure governance and operational transparency of state-owned and public companies
4. Create system for conducting independent evaluation on corporate governance, providing recommendations and reporting outcomes
5. Establish a system that selection of directors and executives are made with public participation in open and transparent ways
6. Create corporate social responsibility, internal audit and risk based control system for state-owned and public corporations

9. Improve governance of state-owned enterprises

Improve legal framework for enhancing governance of state-owned and public companies, build qualifications for advanced governance, ensure information transparency, conduct independent evaluation on governance and provide recommendations, reporting outcomes, ensure directors are elected through fair principles, improve corporate responsibility, and strengthen internal oversight.

Main Objective

Improving governance of state-owned and public companies.

Milestones

1. Improve legal framework for strengthening state-owned and public company’s governance.
2. Establish training for advanced level corporate governance and issue certificates.
3. Ensure governance and operational transparency of state-owned and public companies.
4. Create system for conducting independent evaluation on corporate governance, providing recommendations, and reporting outcomes.
5. Establish a system for the selection of directors and executives that are made with public participation in open and transparent ways.
6. Create corporate social responsibility, internal audit, and risk-based control system for state-owned and public companies.

Editorial Note: For the complete text of this commitment, please see Mongolia’s action plan at https://www.opengovpartnership.org/wp-content/uploads/2019/12/Mongolia_Action-Plan_2019-2021.pdf.

Commitment analysis

This commitment aims to improve the governance of state-owned enterprises (SOEs) by improving the legal framework, building capacity, and implementing transparent and open processes. Mongolia’s Cabinet Secretariat will collaborate with central state administrative agencies in charge of justice, budget and finance, and property, as well as the National Center for Corporate Governance, the Mongolian Stock Exchange, the National Chamber of Commerce and Industry, and several unions to implement this commitment.

This commitment is in line with several domestic policies that promote improved governance of SOEs, such as the Policy for Overcoming Economic Downturn; the National Production Program; the National Anti-Corruption Program, and also the Government of Mongolia’s 2016–2020 Action Plan, which explicitly includes an objective on improving governance and social responsibility of state-owned and public companies. The commitment also represents a continuation of a commitment on the transparency of SOEs (Commitment 13) from the previous action plan. ^[76] The IRM found that this moderately ambitious commitment only achieved limited completion and led to a marginal opening of government through the participation of SOE officials in training and workshops on transparent financial reporting standards. The current commitment, however, is distinct from the previous commitment in that it focuses less on transparency and more on strengthening the legal framework and selecting and building the capacity of SOE officials.

Given the focus on improving governance through training and capacity building, this commitment is of limited relevance to OGP values. However, as milestone 5 proposes to facilitate public participation in the selection of SOE directors and executives, this commitment can be considered relevant to the value of civic participation.

As of 2017, there were more than 70 operating SOEs in Mongolia; ^[77] even though the government has been privatizing such enterprises, either in full or partially, for many years. The Government Agency for Policy Coordination on State Property and Regulation oversees these enterprises but does not publish a complete list of active state-owned enterprises. In 2019, the Natural Resource Governance Institute (NRGI) reported that Erdenes Mongol, a holding company that primarily manages the government’s strategic interest in the mining sector, was Mongolia’s most influential SOE—with around 9.36 billion MNT (3.9 billion USD) in assets at the end of 2017. ^[78] Despite this, Erdenes Mongol does not pay dividends to the state treasury or publish financial data of its subsidiaries. ^[79] This situation is symptomatic of the general lack of transparency and accountability in the governance of SOEs. At the time this commitment was proposed, there were no laws that explicitly regulated the governance and operation of SOEs in Mongolia.

If fully implemented as written, this commitment stands to have minor potential impact on improving the governance of SOEs and public companies. The proposed improvement of the legal framework, the provision of training on corporate governance, increases in operational transparency, independent evaluations, and the promotion of corporate social responsibility would all collectively represent a positive step forward in the governance of SOEs. However, the milestones and activities outlined under this commitment—while generally verifiable—lack specificity in what they set out to do.

In order to meaningfully improve SOE governance, the proposed improvements to legislation would have to focus on crucial and relevant issues; the measures to ensure operational transparency would have to consider current failures and shortcomings, such as the non-disclosure of financial data; and public participation in the selection of directors and executives would have to ensure that citizens are able to influence related decision making. The commitment does not specify how any of this will be operationalized which, in turn, limits an assessment of its scope.

In future action plans, stakeholders can improve commitment design by increasing the specificity of milestones and activities by clearly outlining what they intend to do. This will not only enable a better assessment of the commitment’s scope, but it will also facilitate the effective implementation and achievement of specific objectives.

9. Improve governance of state-owned enterprises

Limited:

During the implementation period, government and civil society fell into deadlock on appropriate pathways toward reform. No new processes were introduced for independent evaluations on corporate governance or public participation in selecting these companies’ directors and executives. Capacity building was conducted on corporate governance for 270 companies. However, there is no evidence of improved public access to information on these companies’ governance and operations. [35] Overall, there remains little accountability in the management of state-owned enterprises. [36] According to the Cabinet Secretariat, work on this commitment is to be continued into 2022. [37]